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Lessons from the Recession

Finance

Issue: May 2009

By: Jerry Mosher, CFP

No one knows for sure if the rise in the stock market in March was the beginning of a recovery or a rally in a bear market, but what we do know is that we have recovered from every other recession we’ve ever experienced. With this probability on our side, the only lingering question seems to be the timing of its occurrence.

What did this recent recession teach or remind us of that would allow us to be better prepared for the next recession we encounter? I’ve listed two observations and a series of practices that would enhance our future capacity.

Don’t put yourself in situations where you don’t have any contingencies for negative outcomes.

· Keep cash reserves.

· Remember that debt can be a friend in good times but a relentless adversary in bad times, so use credit cards judiciously and pay off balances monthly.

· Establish lines of credit for unanticipated short-term contingencies and understand that the line could be taken away just when you need it most.

· Have some financial assets that are readily liquid and therefore easily tapped.

· Fund 401(k)s or 403(b)s to capture taxes as well as build a resource for future borrowing if the specific plan permits it.

· Keep investing through downturns because it allows you to average your price without having to make a single major purchase decision (psychologically less stressful) and one of the acquisitions will represent an outrageous bargain.

· Don’t finance homes with adjustable rate mortgages that could adjust to a payment that you can’t afford.

· Accumulate money for purchases. It will tell you how important the acquisition is to you.

· Prudence is a virtue!

Make education and the accumulation of knowledge a lifetime pursuit.

· When it becomes necessary to choose, a company keeps the most valuable and useful employee.

· Everyone wants to be that employee but not everyone prepares in advance.

· If you are laid off, spend part of the time looking for work and part of the time expanding your knowledge. It makes you more competitive and may impress a potential employer.

· Education coupled with knowledge is the currency of the future!

I contend that people who understand these observations and adopt the associated practices will have a much better time coping with the challenges of recession. It might also be useful and prudent to retain this page as a checklist during the recovery.

Jerry Mosher, CFP® is a 30 year veteran of the financial planning industry and is president of Mosher & Ellis Financial Planning in Lafayette, California. He has been selected three times as one of the 150 best financial advisers for doctors by Medical Economics. Jerry may be reached at (925) 284-9470. Securities offered through AMERICAN INVESTORS COMPANY Member NASD/SIPC.

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