In my 49 years in the financial industry, we have been through many recessions; the end of the second quarter will likely bring the 14th since 1933. While the word recession incites fear, it is important to understand that recessions are a part of the economic cycle. For there to be years of economic prosperity, there must be years of economic contraction. Inflation is one of the leading factors impacting this year’s recession. The Federal Reserve is aggressively attacking inflation by implementing interest rate hikes. These interest rate hikes help to stabilize the bond market through the increase in coupon payments in bond mutual funds.
Understanding recessions requires the analysis of important historical context from the US economy. The average recession lasts 11 months, meaning that we are already halfway through a typical recession. No one knows what the future holds, but it is imperative that we continue to use our top-of-the-line rebalancing system to mitigate risk and buy while stocks are at a discount. It is essential to formulate and maintain a plan not only during periods of market prosperity but also during recessions. Our rebalancing software helps us capitalize on the discounts that we can find in today’s market and lock in these gains during periods of economic recovery.
Please review the chart below from Capital Group – American Funds:
