Learning From Past Recession Mistakes

The last time a recession loomed over the US economy, I was still in middle school. 

Although technically the 2020 pandemic meltdown qualified as a recession according to the wonky group that decides these things, it’s been a while since investors have had to grapple with predictions of coming pain and prepare their portfolios accordingly. 

I, for one, was too busy worrying about the color of my braces and where I was going to sit in the cafeteria to pay attention to the mid-aughts economy. 

Today, the Federal Reserve is hiking interest rates at the fastest pace since the 1980s in a bid to curb raging inflation, with a 75 basis point increase on Wednesday for the second month in a row. Its goal is to cool the economy just enough to reduce prices, without causing a slowdown. Although Fed Chair Jerome Powell said he doesn’t think “the US is currently in a recession,” it’s looking increasingly likely that a downturn could be an unavoidable side effect.

There are already signs: The housing market is cooling down, and companies are announcing layoffs. Plus, consumers are reducing purchases, as Walmart earnings this week showed. 

For anyone who entered the workforce after the Great Recession, this will be the first real downturn they’ve experienced.

To prepare, my colleague Charlie Wells and I asked some veteran investors about their best and worst recession moves.  

— Claire Ballentine

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Photographer: Chris Ratcliffe/Bloomberg

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• Housing prices in the US are starting to cool off. 

• A top banker to Russian oligarchs now wants to distance himself from them. 

• Ken Griffin’s new office tower will loom large on Miami’s waterfront. 

• A billionaire college dropout is warning that big tech’s dominance is over. 

Financial FAQ

What should I do to prepare for the possibility that I lose my job during a recession? 

My advice is to increase your allocation to your emergency fund to at least 12 months of expenses given the uncertain economy. Make sure you know the location of all your paperwork related to employee benefits and 401(k) plan. If you have life or disability insurance as an employee benefit, you may want to think about sourcing a replacement policy. Start reaching out to reconnect with your network well before the ax drops, since it may be easier to do that while you are still employed. If you are married and your spouse is working, it may also be worth exploring what would happen if family health coverage had to move to your spouse's plan midyear.

— Alina Fisch, founder of Contessa Capital Advisors in New York 

Send us questions about your own financial dilemmas to bbgwealth@bloomberg.net.