Home Career How investors and financial advisors are coping with the recession

How investors and financial advisors are coping with the recession


It seems that it is official – in the popular sense.

The U.S. economy shrank 0.9% in the second quarter after falling 1.6% in the first three months of 2022, according to long-awaited Commerce Department data released on Thursday. The dismal numbers mean we’re in a recession, according to the popular definition that takes two consecutive quarters of annual declines in national output as a reliable indicator.

This informal definition, which dates back to the 1970s, encapsulates many investors’ understanding of an economic downturn. But the designated arbiter of the “R” word is the National Bureau of Economic Research, a nonprofit, nonpartisan organization in Cambridge, Massachusetts. And so far the NBER says that we are not in a recession. Nobel Prize-winning economist Paul Krugman opined Thursday in the New York Times op-ed: “The US economy is not in recession right now.

NBER’s own nuances definition — “significant declines in economic activity that are widespread throughout the economy and last more than a few months account for the subtle variations and interactions between the depth, breadth, and duration of the recession. These are also factors in the level of employment, consumer spending and wages. The definition of two quarters in a row appeared in 1974 in a In the New York Times, an article by economist Yuliy Shyskinat that time the head of the Commercial Bureau of Labor Statistics.

All that is clear is that economic malaise has settled in the temporal lobes of financial planners and their anxious clients. As the Federal Reserve aggressively raises interest rates to combat persistent inflation without precipitating a recession, here are five advisors’ observations, and what they’re doing for clients.

James Cox is a financial advisor and managing partner at Harris Financial Group in Richmond, Virginia
“Both advisers and other market participants are happy to see that we actually know the economy is in recession. This is one way to know that interest rates are unlikely to rise further. That’s good. Markets are rising today. The main factor behind the fall in the market was the rapid increase in rates. The Fed can’t raise rates much more or it really risks affecting employment.”

Jim Pratt-Heaney, co-founder and chief investment officer at Coastal Bridge Advisors in Westport, Connecticut
“Oh no! What do we do with the ‘R’ word? Wasn’t it the ‘I’ word (inflation) last week? Was it the ‘W’ word (war) last month? Or was it the ‘F’ word (Federal)? Right in that customers and firms cannot respond to every “Catastrophe du Jour”.

“A proper financial plan for a client should include recession, inflation, political changes, etc. We achieve this by using Monte Carlo simulations as a stress test. They certainly include all of the above.

“What should you do today, after the GDP numbers, that you didn’t do yesterday?” nothing. I’m not discounting the problems of the recession or its effect on customers, but I think making customers think they need to react to all these news flashes is even more damaging.

“If the RIA firm has done a good job with each client’s plan, then neither should they suffer or be surprised by changes in the economy. Sure, it would be great if all asset classes went up and the Goldilocks economy continued, but we should know better and plan for it. Finally, clients don’t focus on this data like professionals do. They focus on am I good? It’s our job to be able to answer yes.”

Iraklis Kourtidis, co-founder and CEO of Rowboat Advisors, an investment portfolio software company in Menlo Park, California
“I lived through the dotcom boom and bust (1995-2000), so there are a lot of markers in the last three quarters that are very similar to what happened then. Since 2008, the government has been defibrillating the economy by pumping out cheap money. The only thing that’s different now is inflation, so this time will be different. It will be worse than most think. Stopping inflation will worsen the recession.’

Todd Mackay, president of Dallas-based Avantax Wealth Management
“I believe that regardless of the final signs of a recessionary period or not, the markets have been pointing to a slowdown in growth for many months now. Therefore, good advisors have emphasized and will continue to emphasize the importance of comprehensive financial planning with their clients and the idea that their plans have been implemented in accordance with their goals and aspirations.

“All of these plans and all of the planning software takes into account thousands and thousands of economic and financial scenarios based on the client’s risk tolerance. So the conversation that financial professionals have been having for months now is, “Is your plan on track?” And you continue to stay on track.”

Angie Spielman, Founding Partner of Manhattan West in Los Angeles
“I think we’ve already seen the bulk of the impact of this inflationary environment. It has already been evaluated on the market. We may have a bit of a bumpy road ahead in the coming months, but I think the bulk of it has already been assessed.

“The change in value has definitely helped our portfolios. I don’t think anyone has been completely covered in terms of that market. All aspects of the markets are hurting, but the cost is certainly less than the growth. So that definitely helped us in our benchmark. In addition to this, we have always believed that a third of your portfolio should be in some alternative investment, depending on your risk profile and your investment horizon.

“There was an expectation that the bull market would not last forever. And I think the clients understood that, so the panicked phone calls I got are more of an emotional conversation than a financial one. It’s just that we’ll get through it. You are a long-term investor. There’s an airstrip there.”

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