Hi, How Can We Help You?

Has the Next Recession Already Started?

Has the Next Recession Already Started?

Has the Next Recession Already Started?

March of 2022 was a rough month for the stock market, and with global banks predicting an economic downturn in the near future, many investors have wondered when the next recession will start. At Crash Proof Retirement®, we believe that while current economic conditions do not meet the strict definition of a recession, we are on pace to be in one as soon as July. If you are using securities-based investments to save for retirement, a recession will devastate your nest egg. With the next recession potentially already in progress, now is the right time to investigate alternative investments that exist outside the securities industry. Here is our analysis of current economic conditions and what they can mean for your retirement savings plan.

What is a Recession?

A recession is defined as two or more consecutive quarters of negative GDP growth. In the first quarter of 2022, the United States experienced a GDP decline of 1.4%, and if those loses continue through the second quarter, we will officially enter a recession. A combination of factors is making that possibility look very likely.

The rate of inflation was 8.3% at the end of April, a 40-year high. While the Federal Reserve’s efforts to combat inflation may bring the percentage down to 6 to 7% by June, it will take some time before prices return to normal. One good indicator of that trend is the Producer Price Index (PPI), which currently sits at around 11%. This means that it is costing companies more to produce goods, and this additional cost is then passed along to consumers.

In addition, all three major stock market indices have seen significant losses over the past month. A stock market correction is defined as a loss of between 10% and 20% and it can often be a precursor to a recession. From January to May 24th, the stock market collectively crashed by over 19%, and were very nearly in a bear market — a period of time when the stock market declines by 20% or more. Federal Reserve Chairman Jerome Powell previously stated that more interest rate hikes are on the table for June and July and given how markets have responded to rate hikes in the past, raising interest rates further will likely push stocks into a bear market. 

Saving for Retirement during a Recession

With the next recession looking like a foregone conclusion, it makes sense to look at how Wall Street investors have performed during past recessions. In 2008, when the stock market collapsed due to the subprime mortgage crisis, U.S. households lost about $11 trillion in wealth. Retirement investors who put their money in high-risk stocks, bonds, mutual funds, target-date funds, and other securities-based investments saw losses of up to 30% or more. Many Americans were forced to alter their retirement plans by staying in the workforce longer, hoping to recoup their losses while the market recovered. Some were never able to recover and instead had to accept their losses and assume a lower standard of living in retirement.

We saw similar losses during the 2020 COVID-19 crash and recession. That year, the average 401(k) balance declined by 19% and American households lost over $6.5 trillion. A significant portion of these losses can be attributed directly to the declining value of high-risk securities-based investment vehicles. Now, as the threat of a recession reaches new heights, smart retirement investors should look for a way to protect themselves before the financial damage alters their retirement plans.

The proprietary investment vehicles used in the Crash Proof Retirement® System are guaranteed to protect your principal from being lost during a stock market crash. While high-risk securities investors were biting their nails in 2008 and 2020, Crash Proof Consumers were able to rest easy, with peace of mind, because they knew that their savings were not in danger. In addition to their primary characteristic of principal preservation, Crash Proof Vehicles also credit interest at rates comparable to many securities-based investments. When you are concerned about your risk exposure, schedule your free financial checkup to speak with the licensed retirement phase experts at Crash Proof Retirement®  and develop your retirement plan in Ambler, PA. Our team can educate you about important retirement topics like risk tolerance so you can make the best decisions about your future. Call us today at 1-800-722-9728 or visit https://crashproofretirement.com and be sure to read our next blog about risk tolerance and how it changes as you get closer to retirement.

Share Post