Yep, it’s been a while since we last had a recession. And while I don’t know if we are in one now (that’s something you don’t know until it’s over), the 2022 market losses probably feel recession-y to you. You may have forgotten what they are like, so here is a fast FAQ on recessions.
Q: How long will this misery last?
A: According to Kiplinger’s the average recessions dating back to World War II have lasted around 11 months. You may remember the longest (the 2008 recession at 18 months) and the shortest (the 2020 recession lasting 2 months).
Q: How much does the stock market typically lose during a recession?
A: From Investopedia, since 1937 the S&P 500 index has lost an average of 32% during recessions. This is why you are diversified and own other sectors, right?
Q: What should I do when I keep seeing my assets drop?
A: The best thing to do is usually nothing and wait for the rise of the markets that have always happened post-recession. Reminder, if you had invested $100 in the S&P 500 in 1922 (and reinvested dividends), you’d have $2,520,000 now.
If you are in or near retirement, it’s always a good idea to have at least 1 years’ worth of investment withdrawals in cash/money markets/savings accounts. Leave your stocks alone and spend the cash. Or, look into using home equity in the form of reverse mortgage to protect your stock assets from hasty selling.
If you are younger, think of recessions as a time to buy stocks on sale. If you have extra cash (NOT taking out extra debt to do this), consider buying stocks during this time when everyone is selling.