It's safe to say that 2020 has been an unkind year to the U.S. economy. While stocks have largely held steady, job loss has been rampant, and consumer confidence may be rapidly waning, especially as recent reports point to an uptick in COVID-19 cases and election-related volatility rears its ugly head. It's not surprising, then, to learn that 36% of Americans think the economy is going to get worse over the course of the next six months, according to the SimplyWise September 2020 Retirement Confidence Index. If you share that concern, here are a few important steps you can take to prepare.
1. Boost your emergency fund
A worsening economy could spur additional job loss, and to survive that, you'll need a solid level of savings. During normal times, an emergency fund with three to six months' worth of living expenses will usually suffice, but given current conditions, you may want to aim for six to nine months' worth of bills in the bank. That way, if your income takes a hit, you'll have options for paying your expenses without having to tap your stock portfolio and risk losses there.
2. Make sure your portfolio is well-balanced
So far, the stock market seems to be defying the ongoing recession. Though September has been a bit rocky, it's been a good year for stocks on a whole, but that could change if negative news on the coronavirus front emerges. It's for this reason that you'll need a balanced and diversified portfolio, so pay attention to the way your assets are allocated based on your age, and make sure you own stock from a wide range of market sectors. And if that's not the case, make changes now, before stock values decline.
If you're unhappy with your lack of diversity within your portfolio, it pays to consider buying some index funds, which track existing market indexes like the S&P 500. That way, you're effectively buying a bucket of stocks instead of having to research different companies and hand-pick investments one by one.
3. Secure additional income streams
If you're anticipating a few bumpy months on the recession front, it'll help to line up some income streams outside of your regular paycheck. To this end, you have a couple of options. You can load up on dividend stocks and enjoy that quarterly income, or buy municipal bonds and enjoy semiannual interest payments that are always tax-exempt at the federal level, and that may be tax-exempt at the state and local level, too. Generally speaking, bonds are less risky than stocks, but you might consider a mix of dividend stocks and municipal bonds for the near term.
Without a crystal ball, it's impossible to predict what the next six months will look like for our economy. But one thing's for sure: The more you do to prepare for worsening conditions, the less stress you'll be under if things do indeed decline further, and the greater your chances will be of coming out of that period financially unscathed.
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