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Worried about a recession? Don't panic, but be prepared

CNBC logo CNBC 8/15/2019 Michelle Fox

If you are worried about a possible recession on the horizon, there are some financial moves you can make to help protect yourself.

Those concerns flared up on Wednesday after a warning signal came from the bond market.

At one point during the trading session, the benchmark 10-year Treasury bond briefly broke below the 2-year rate. That's called an inverted yield curve, and it is a phenomenon that often has been a reliable, yet early, indicator of economic recessions.

Stocks plunged on the news, with the Dow Jones Industrial Average logging its worst performance of 2019 on Wednesday. On Thursday, equities seesawed, thanks, in part, to some positive economic data that indicate a relatively strong U.S. economy.

"We will eventually go into recession," said Diahann Lassus, a co-founder, president and chief investment officer of wealth-management firm Lassus Wherley, a subsidiary of Peapack-Gladstone Bank. "The business cycle is the business cycle.

"The real question is when and for how long," she added.

While the yield curve may be one early sign, another thing investors should watch is the overall economy, including retail sales and home buying, which provides insight into how the consumer is faring, said Lassus, a member of the CNBC Digital Financial Advisor Council.

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On Thursday, the Commerce Department said retail sales rose for July, beating expectations.

Mitch Goldberg, the president of ClientFirst Strategy in Melville, New York, also looks at things like the price of copper, sovereign bond interest rates and things that are "breaking" — such as Argentina's economy and auto sales.

"Strong global stock markets and low interest rates cover up a lot of cracks," he said. "You are starting to see cracks develop."

Therefore, you should be prepared for any market downturn.

"Many times, hindsight is 20/20," said Doug Boneparth, president of Bone Fide Wealth, a New York firm that focuses on millennials and young professionals.

"Most people don't know we're in a recession until it's too late."

With that in mind, here are some things you can do to be prepared in the event a recession is on the horizon.

Focus, don't panic

"Now is a good time for investors to not only look at their to-do list but to make sure that they have a to-don't list," said Goldberg.

"The things on the to-don't list would be don't panic, don't make hasty financial and investment decisions."

What you should do is make sure that you have the risk tolerance and time horizon to tough out the volatility, he said.

Take stock of your personal life

It's also a smart idea to take the temperature of your personal life, said Doug Boneparth, a member of the CNBC Digital Financial Advisor Council

"How do you feel about your job? Do you feel safe?" he said. "What is the risk in your life right now? Did you just have a child? … Are you in good health?"

If you don't feel your job is secure, then make sure your resume is up to date, added Lassus.

"If you're great and your job is in good shape that is fabulous but it still pays to think about those things and plan ahead," she said.

Make a plan

"This is your call to action to put a financial plan together," Boneparth said.

"Look at your entire financial situation in the context of your goals and be able to see how you are tracking those goals, how you are doing in achieving those goals and learn what it takes to get there," he added.

However, try not to worry so much — especially if you are not near retirement age.

"For younger investors with time on their side, keep in mind that you have a long-term investment horizon — which means recessions, bear markets and corrections should be factored into your investment strategy," Boneparth said.

Bulk up on cash

Check your cash reserves — do you have enough to weather a downturn?

"You want to make sure you have the cash you need so you don't have to sell things at the worst possible time," like after your stocks, mutual funds or 401(k) have already lost a lot of value, said Lassus.

Therefore, try to increase the amount of money you are saving each month, if you can.

While the rule of thumb is to have three to six months of cash savings set aside perhaps bump that up to six to 12 months if you can, Boneparth suggested.

"Nobody wants to reduce their savings to retirement or their kids' college savings, but sometimes redirecting those savings towards greater amounts of cash or liquidity can do wonders for helping you navigate volatile markets, as well as recessions," he said.

Don't run up your credit cards

Think about your spending versus your earnings, Lassus said.

"Are there ways you can cut back just in case you need to?" she said. "Are there things that have gotten out of control because you have been doing well financially?

"Now is a really good time to check all of that and make sure you are in the right place."

It's not the end of the world

A recession doesn't necessarily mean we are "looking at gloom and doom," Lassus said.

"A recession, depending on how you define it, it is typically just slowed down economy," she added. "It may last for three months or six months or some period of time.

"But it's not the end of the world."

In fact, the banking system is still strong and companies and still making money, Lassus said.

"When we talk about recession we are not talking about 2008," she said. "None of those signs are there."

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