A Recession in 2024: How to Adjust Your Retirement Portfolio

The U.S. economy is already feeling the effects of a New Year’s hangover, with dire predictions for the next year, 2024. The Conference Board predicts that the United States economy will enter a recession in 2024 with a probability of 96%. Furthermore, a recent poll conducted by the National Association for Business Economics predicts that there will be a 50% likelihood of a recession in the year 2024.

More dampened prospects correlate with higher interest rate expectations next year, says Dana Peterson, chief economist at the Conference Board and head of the NABE poll. Although the panelists are optimistic overall, they anticipate a slowing of employment growth during the first three quarters of 2024.

In 2024, investors saving for retirement may want to consult with financial counselors because of the possibility of a recession. Sungarden Investment Management’s chief investment strategist, Rob Isbitts, expressed his belief that 2024 offered investors some valuable lessons. The principal among them is that bonds can incur significant losses and that just because something hasn’t occurred in your lifetime (or ever) doesn’t imply it can’t happen.

Here are several investing options retirees could consider as we head into what might be a recession in 2024.

  • Review your investor policy statement.
  • Try not to predict when the market will rise or fall.
  • Try Spreading Your Expenses Out, Or Dollar-Cost-Averaging
  • Find out if something needs to be altered.
  • Plan Your Retirement Years Accurately
  • Focus on the Big Picture When Planning for Retirement
  • Take Advantage of Rising Rates

Review Your Investor Policy Statement

Every client of an investment advisor should review their investment policy statement (I.P.S.) before making any moves in the market. Creighton University’s Heider College of Business professor Robert Johnson says, Investing during a recession requires sticking to your investment policy statement.

An I.P.S. is a written document in which the customer lays out their investment goals, time horizon, risk tolerance, and any relevant limitations, such as liquidity needs and tax considerations. In a nutshell, an I.P.S. defines the parameters for making investments, according to Johnson. The investment plan is based on this document, which details the holder’s desired modifications to the portfolio’s asset allocation as they age.

Prepare for potentially volatile market situations by drawing up an I.P.S. According to Johnson, the greatest time to create an I.P.S. is when the market is relatively quiet. An I.P.S. is there to help you navigate the ever-evolving market, and it shouldn’t be adjusted because of a shift in the economy or the stock market.

You may need to update your I.P.S. if you have changed circumstances. Johnson warns that a divorce or other major life upheaval may necessitate updating your I.P.S.

Try not to predict when the market will rise or fall.

Attempting to predict when the market will recover are typical errors investors make during market upheaval times. However, timing market entries and exits reliably is incredibly challenging. According to Johnson, “attempting to time the market is fool’s gold.” You can lose out on a market rebound by taking your money out too soon.

Try Spreading Your Expenses Out, Or Dollar-Cost-Averaging

After years of anticipating a downturn, many investors finally pulled their money out of the stock market. However, “the opportunity cost of such a method is enormous,” Johnson notes. According to Johnson, people should put their money into a low-cost, diversified equities index fund and stick with it through bull and down markets.

This can be accomplished through dollar-cost averaging into an index mutual fund or exchange-traded fund. Johnson explains that “dollar-cost averaging” is a straightforward strategy comprising investing a certain amount of money at regular intervals in the same fund or company over a prolonged period. According to the author, “Keep It Simple, Stupid” (the “KISS” motto) should be the guiding investment philosophy for the great majority of investors.

Find out if something needs to be altered.

Investors would be wise to reevaluate their asset allocation in retirement accounts as another down market cycle begins. According to Ben Waterman, co-founder of Strabo, a London-based global investment portfolio tracking tool, your portfolio breakdown will undoubtedly have altered due to the declines in various sectors and asset classes.

Due to 2024’s unprecedented market volatility, your portfolio may not accurately represent your intended asset distribution. Thus, as Waterman puts it, it may be necessary to rebalance the portfolio back to its initial asset allocation.

Plan Your Retirement Years Accurately

You should try to refrain from selling out of desperation. According to Waterman, a common piece of financial advice is, if you want to retire within the next five years, for example, it’s typically not a smart idea to be buying equities. “Currently, we are seeing implicit volatility,” Waterman stated, which indicates that in the event of a prolonged downturn similar to the current one, investors may be forced to withdraw cash at a loss. When deciding how to invest your money, it’s important to consider how long you have until retirement.

Focus on the Big Picture When Planning for Retirement

Consider trying to ride out the storm if you have already invested in equities and are planning to retire shortly. Depending on the state of the economy, Waterman suggests delaying retirement or, if forced to, liquidating just the most defensive assets in your portfolio, which will have dropped the least.

Assets may have more room to grow during an economic recovery, so waiting may be a wise choice. In an emergency, Waterman advises prioritizing selling your most recession-proof assets (non-cyclical) before selling off the rest. Some of those stocks and funds, as well as some cash, may be withdrawn first and then re-invested in the market at these lower levels. These are essential components of any well-balanced investment portfolio.

You shouldn’t panic and sell everything in your portfolio because the market is down. It may be better for the time being to withdraw assets at reduced rates and suffer the damage, Waterman says, adding that “the lion’s part of your portfolio” can be rebuilt once the market recovers.

Take Advantage of Rising Rates

Retirement savers concerned about a recession’s impact on their assets might seek refuge in several types of savings vehicles, whether they are just about to retire or are already retired. Following a year in which investors were discouraged by poor returns from bonds, Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group in Los Angeles, believes this is a terrific chance for saving. With interest rates at historic lows during the 2008 financial crisis, “savers embraced higher risk as they sought income through the stock market’s dividends.”

When rates of interest reach 4 percent or more, savers can evaluate how much passive income they can earn without being exposed to the hazards and volatility of the stock market. Yoshioka says, “We believe there will be chances to expand exposure for people who have longer time horizons and are conscious of the dangers involved with stock markets.”