Broker Check

5 Questions to Ask Your Financial Advisor Before a Recession

July 28, 2022

5 Questions to Ask Your Financial Advisor Before a Recession

While the U.S. is not currently in a recession, it is a very likely future. This is rightfully making many families feel nervous. The U.S. has not faced a serious recession since 2008. During that time, many people lost their jobs and homes.

Working with a trusted financial advisor is one of the best ways to get through a recession unharmed. They should be able to guide you through this tough time with minimal losses. In order for them to do so, you both need to know what your expectations and goals are. Here are 5 important questions to ask your financial advisor that will help spark conversation.

What is the strategy?

First and foremost, what is the plan? This is not the time for making risky moves. Work with your financial advisor to figure out what to do with your money and why. Your advisor should also be looking for opportunities. With every problem, there is still opportunity. For example, one of the problems right now is the federal government raising interest rates. The opportunity is you can move money into a high yield savings account and take advantage of the high interest rates.

Ask you financial advisor about what opportunities are out there and incorporate them into your plan.

What does the future look like?

No one has a crystal ball that can predict the future, including financial advisors. But, they should be able to tell you what could happen. Ask your advisor to model out for you what will happen to your assets in a bear market, in a bull market, in times of volatility, etc. Many advisors will show you what’s called a ‘Monte Carlo’ analysis. Essentially, it is a probability graph with outlying possibilities on the side and more likely possibilities in the middle.

Don’t settle for this. What concrete tools does your advisor have to handle a recession? You deserve an easy-to-understand explanation.

What changes should I make to my portfolio?

Your portfolio should be a dynamic and changing thing. It should not be stagnant. As the market changes, so should your portfolio. During a recession, it may be time to scale back on some of your more risky stocks and look into getting more bonds or cash equivalents.

Specifically, ask your advisor if you should increase any liquid savings in case of a job layoff or business downturn. You can also ask for a timetable on when your investment portfolio should recover.

How does your firm manage a bear market?

A bear market refers to a 20% or more drop in the stock market. In other words, a flat or low-growth economy. This can be a scary time for many investors. Many people will lose money during this time and it can be difficult to recover. Your financial advisor should have a strategy for how to manage your portfolio during a bear market. They should also be transparent with you about what they are doing and how they are doing it.

Does this change my retirement or income plan?

For many, the reason for having a financial advisor is to have a successful retirement. This is a valid goal and one that you should continue to pursue even during a recession. An advisor might examine whether clients are on track to retire and what delaying retirement by six months to a year would do to boost savings. An advisor can evaluate a variety of options, including pushing back retirement, taking up part-time work, or considering other possibilities for extra income.

You may need to make some changes to your retirement plan but they should not be drastic. If they are, this is a red flag. A good advisor will help you stay the course and weather the storm.

Asking your financial advisor these five questions before or during a recession will help you get a better understanding of their strategy and how they plan to help you through this tough time. It is important to be an active participant in your financial future and to make sure you are comfortable with the decisions being made.

For more information on how to weather a recession and how to best utilize your advisor during this time listen to Episode 33 of our podcast Your Financial Advocate.