What effect would a recession have on your finances?

[By the River]

My wife will retire a couple of years before me.  If a recession hit between those two dates, I would probably add a year before retiring but its probably more psychological need than actual. 

[Villanelle]

Interesting that nearly everyone was neutral to positive. 

That makes me suspect that many of us are wrong.  lol

I know that in 2008, I was only even vaguely aware of what was happening.  I saw foreclosure signs and heard about job losses, but it really couldn't have had much less of a direct effect on my life.  That's not to say that I wasn't sympathetic, or worried for friends and family, but nothing at all changed for me (on a micro level).  I never even looked to see how much value my stocks had lost.  (This was when I was in an actively managed fund, before I knew better, so I just let it ride and the monthly investment amount just kept going from paycheck to investment automatically.)

[Metalcat]

Interesting that nearly everyone was neutral to positive. 

That makes me suspect that many of us are wrong.  lol

That or selection bias in two ways
1: Mustachians are far more likely to be prepared to profit from recessions
2: Only those who really would benefit from a recession are more likely to respond

[mathlete]

The whole point is that we expect the recession (the stock market crash) to last maximum a year or 2. For example the 1929 recession didn't last long. Within a year or two, the stock market was back to where it was before.

This isn't accurate. It used to be commonly said that it took 25 years for the market to recover from the Great Depression. This only looks at index prices though, and firms failed and were added all the time, so you have to do some massaging. More contemporary estimates put it at around 5 years.

Equities took ~5 years to fully recover from the 2008 crisis. When the DotCom bubble burst, the stock market had three losing years in a row, and then took another 5 years to return to it's peak, before crashing again during the financial crisis. Taking into account the high inflation of the time, the 1970s were virtually a lost decade for equity returns. The "recovery is only two years away" school of thought also doesn't really account for the other bad things that happen during a recession. The job market took nearly a decade to recover from 2008. Unemployment went as high as 25% during the depression.

I think there is this tendency to look at the economy as if it's just equity values going down. But recessions are fundamentally a reduction in transacting. If you're a laborer, you want people transacting for your labor. If you're a business owner or a stockholder, you want people transacting with your business.

Unless you're one of the very few people who knows precisely when Top Is In^TM, recessions are bad.

[Bloop Bloop]

I think there is this tendency to look at the economy as if it's just equity values going down. But recessions are fundamentally a reduction in transacting. If you're a laborer, you want people transacting for your labor. If you're a business owner or a stockholder, you want people transacting with your business.

Unless you're one of the very few people who knows precisely when Top Is In^TM, recessions are bad.

Depends. IF you're a business owner whose revenues correlate wholly with general demand, then that would be bad. But if you work in an industry like healthcare or education or insolvency or some other industry that is either non-cyclical or counter-cyclical, your demand will not go down. And even if it goes down it will probably not go down as much as average.

[Metalcat]

I think there is this tendency to look at the economy as if it's just equity values going down. But recessions are fundamentally a reduction in transacting. If you're a laborer, you want people transacting for your labor. If you're a business owner or a stockholder, you want people transacting with your business.

Unless you're one of the very few people who knows precisely when Top Is In^TM, recessions are bad.

Depends. IF you're a business owner whose revenues correlate wholly with general demand, then that would be bad. But if you work in an industry like healthcare or education or insolvency or some other industry that is either non-cyclical or counter-cyclical, your demand will not go down. And even if it goes down it will probably not go down as much as average.

Agreed, I was deciding on my career path in 2007/2008, so recession-proofing myself was my top priority.

After 11 years of university, I then dedicated the next 6 years to additional training to further target markets within my industry that thrive in recessions.

So when I say that my career would do well in a recession, I'm not being cavalier or casual about it. It's the product of many many years of intentional and proactive career engineering.

[norajean]

It is impossible to know this without knowing the nature of the recession. Most people imagine it will be like the only recessions they have known - 2000 and 2008.  It most likely will not be like those. It might be longer or shorter or shallower or deeper or hit different areas more/less.  It might be a 15 year depression with stock collapse, housing collapse, soaring unemployment and rampant inflation. Or we may not have another recession for another decade.  Be prepared for any and all.

[Metalcat]

It is impossible to know this without knowing the nature of the recession. Most people imagine it will be like the only recessions they have known - 2000 and 2008.  It most likely will not be like those. It might be longer or shorter or shallower or deeper or hit different areas more/less.  It might be a 15 year depression with stock collapse, housing collapse, soaring unemployment and rampant inflation. Or we may not have another recession for another decade.  Be prepared for any and all.

True.

My profession is currently in a form of industry-specific recession caused by a sweeping government policy that no one saw coming and that most naively assumed would be reversed when it started crushing the market.

That's why I've taken the shot-gun approach to hedging my career. I have a lot of "escape pods".

[BudgetSlasher]

Limiting the impacts to myself and the DW and at our current ages/positions in life. And presuming that there is recovery from the depression and it happens within 5-10 years.

If a recession happens in the near-term. The impacts (again to us) would likely be somewhere near neutral and. We both work in areas that are not likely to see layoffs (maybe hiring freezes or pause of cost of living/market adjustments), we are still in the accumulation phase and have no foreseeable need to sell equities, and we don't foresee ourselves moving for sometime.

So in a recession I would not worry too much about job loss, lowered stock prices, or reduced home value; I do expect that there would be reduced opportunity for advancement or job change and reduced values for assets.

And if it were a more extreme depression that lasted longer, had soaring unemployment, triggered massive political change, or resulted in significant inflation, it could very well negatively impacts us, but we would still likely fair better than most.

[Bloop Bloop]

I thought it would be worth bumping this thread given the current circumstances. Not that a recession is guaranteed or even likely, but it looks vaguely possible.

[Metalcat]

I thought it would be worth bumping this thread given the current circumstances. Not that a recession is guaranteed or even likely, but it looks vaguely possible.

Funny, I was just thinking about this.

I'm getting inundated with demand right now as people need help navigating this mess. I'm going back to school though, so I'm turning down almost all work that's coming my way.

All of the management consultants, financial professionals, and lawyers in my industry are in high demand right now as business owners try to navigate where to make cuts, who to layoff and how, and how to financially get through it.

There's always opportunity hidden in crises.

[BlueHouse]

Unsure until after it ends, whether I stay on-contract.

After 2008, I came out way ahead simply because I was employed all through the downturn (but not due to anyone else's misfortune).  I would have been in the same situation if the recession had not happened, but relative to all the people who lost jobs, dug into retirement funds, and were devastated by the effects, I am way ahead of them.  I became a millionaire and others went bankrupt. 

[Kazyan]

I hear that the stock price for my employer has remained steady, and the top-level execs are trying to get a research contract related to COVID-19. If housing prices are falling, I'm probably underwater on my condo now, but since employment looks steady, that's only on paper.

So far, so good. We'll see if it keeps up.

[Zikoris]

I've been getting buried alive lately in new bankruptcy filings, so I'd say so far so good for my job security and finances.

[chemistk]

Probably a net positive for me.

Assuming I remain employed (I figure a 98% chance this is true), my Company has touted internally that our products are popular in good times, and even more popular in bad. if job security holds and our manufacturing plants stay open, next year will be a nice incentive payout for us.

In the very near term, so long as nobody in my family becomes ill enough to need hospitalization, we'll save plenty of money by not going anywhere that costs $. Plans are already falling through left and right, and the couple $'s here and there associated with those could easily be dumped into the market.

And in general, if a recession does occur, it means we'll likely be able to purchase a few larger ticket items (or even a house) as prices fall.

[MrThatsDifferent]

I’m kinda lucky I guess. I live in a place that has permanent employment, so it would really take a major layoff to end that. The business I’m in actually is well built for this particular pandemic (and, in fact, should thrive in it), and I’m paid well. My plan was FIRE in 5 years and that should happen because that’s enough time for things to recover, but if worst case, then I just work 1-3 years after, which would still have me FIRE well before 60. So, very lucky but don’t want to be arrogant or cocky about it because everything could change on a dime. My heart goes out to all the vulnerable people who can be fired at will, and who may take awhile to recover.

[Staunch Aim]

Like many here, I believe I'd benefit as long as I remain employed.

Even if I lose my job, I'd have near zero risk of losing my house and am confident I'd be able to avoid drawing my stash down by any appreciable level - I reliably bring in ~$1000/month renting out two rooms in my house and my monthly expenses (bare bones) are ~$1300.  I charge ~$100 under the market rate for a room, so I shouldn't need to adjust rent downwards unless thing get really bad. 

Losing the job would certainly slow down my path to FI.  Though, on the bright side I would definitely enjoy a month or so off before looking for new work.

I have NO idea how my industry would respond to a recession.  I write/maintain automation as part of a development team for one of the big 3 rating agencies.  I have considered ways in which I might make myself more valuable and gain some recognition in the short term - but won't kill myself doing so, either.

[Villanelle]

Neutral?

I mean, our retirement accounts have surely been hit hard, but we will keep investing so presumably in the very long run (likely years away, but who knows?) we will come out at least neutral.

It's been a long time since I really thought about this (probably since about 2008-9-10), but DH's job is about as stable as they come, for which I am grateful (though it's been a conscious decision, and he's definitely sacrificed some pay for purchase that stability).

I've just applied for a federal job.  I doubt they will stop hiring fast enough to effect that job, but on the off chance I get it, I'd be first cut if that happens.  If I don't get it, I suspect it could be more difficult to find anything else, though I am only very casually looking, so it's not terribly important.

So overall, I imagine we will be more or less the same, and without feeling much stress or anxiety.  As it was in 08 for us.

I'm much more concerned about watching those around me struggle with job loss.  I'm very grateful that my retired parents have several income streams (two extremely solid pensions, plus a couple other irons in the fire), and essentially more money than any paleo-mustachians could ever spend. Likewise, my sister and her husband are both government (different governments) employees with very safe jobs.  But certainly people around me will suffer to varying degrees, as they did in in the late 00's.   

(All this disregards the viral elephant in the room, and any health concerns, since the thread only asks about finances)

[Freedomin5]

Assuming we stay employed, we should be fine. DH is a teacher and I’m guessing kids will still have to learn even during a recession. My field actually tends to do well in a doom and gloom economy, but I may need to switch jobs. Right now, we are both on multi-year contracts, so as long as our employers stay solvent, we will just keep investing as per our IPS. We don’t plan on selling or withdrawing from our investment accounts anytime soon.

[PDXTabs]

If I live and keep my job I would do well. If I die it won't matter. If I lost my job it would make it very hard to pay the mortgage and continue to save.

[lexde]

Unclear at this point. I've hedged my bets though.

I currently save about 50% of my pretax income. Of that, 50% is going to fund my HYSA eFund (it's been a bit low lately) and 50% is being invested. Once I hit the 6-12 months of expenses in HYSA mark, all of it will go straight into the market.

The cause of the recession is what my job will depend on. Extended pandemic concerns could be problematic if the courthouses close for non-emergent matters for an extended period of time. I currently do construction litigation, and have found an uptick in litigation when things get tough (people trying to recoup or gain $ by suing when work is slow), but long-term slowdowns would impact my field significantly.

I get paid based on what I bill out, so even if I am not laid off I could see a significant reduction in income.

I'm also prepared to go into consumer bankruptcy as a solo if needed. Individual consumer bankruptcy filings were through the roof 2009-2012 and settled back down around 2013. They're low again, but most people don't have adequate emergency funds and when those run out and creditors keep coming, people look for debt relief options. Even undercutting my competition, I could still do well with minimal overhead were it to come to that. (Typical filing in my area is $1800.00 plus court fees paid by client; if I charged $1600.00, attorney cost is about $100 for the required overhead per filing; 5 hours of attorney time total for $300.00 per hour).

I can do a hybrid of both, and work as a shadow for another attorney and just prepare all of the bankruptcy petitions without having my name on any of the pleadings while still working for my current employer.

In the interim, I'll keep investing and won't touch my portfolio otherwise. If things go quite south and I am not able to do any of the above, I'll have to re-evaluate.