You Can’t Predict the Next Recession: But You Can Prepare!
If you’ve been watching the news lately, you’ve probably noticed a steady drumbeat of uneasy economic headlines.
A government shutdown stalemate.
Inflation that refuses to fade quietly.
A labor market that suddenly looks weaker than it has in years.
Add in another round of political gridlock and the potential for more market volatility, and it’s easy to feel like a storm might be building.
And maybe it is.
I’m not here to make any guesses; I’m not in the prediction business.
We do know that a recession will eventually arrive. They always do; they are a part of the lifecycle of the economy.
The only question is when? Of course, that has always been very difficult to discern.
But the truth is, you don’t have to predict it. You just have to prepare for it. Let’s talk about how!
1. Accept That Recessions Are Normal
Every economic cycle ends. Markets rise, enthusiasm builds, and eventually something slows the system down.
No one can pinpoint the timing perfectly, but economic data does provide hints about where the economy might be headed.
Recessions aren’t rare or extraordinary; they’re a feature of the economy’s natural rhythm.
Since World War II, the U.S. has experienced about a dozen of them, each lasting around 11 months on average.
The expansions between them? Usually four to seven years.
Source: First Trust and Bloomberg
That means most of your financial life is spent in growth, not decline. This is evidenced by the above chart.
2. Build a Plan That Doesn’t Rely on Predictions
Most people obsess over when the next downturn will hit.
Smart planners focus on what will happen when it does.
A strong plan already assumes that the economy and markets will stumble from time to time.
That means:
For those still working, keep 6-12 months of living expenses in cash as an emergency fund.
If you’re already retired, consider keeping one to two years of expenses in cash or short-term investments. That cushion allows you to ride out market downturns without having to sell stocks at a loss to meet living costs.
Holding a diversified mix of assets that don’t all move together.
Having a flexible withdrawal plan that can adjust during down markets.
If you’re in or near retirement, recessions can understandably feel more stressful. This is the stage when you’re beginning to draw from your investments, and no one wants to sell assets while account values are temporarily down.
If you’re still years away from retirement, stay disciplined. Trust the process, keep investing regularly, and remember that time is your greatest advantage.
3. Test Your Plan Before the Economy Does
Don’t wait for the next recession to find the weak spots in your financial situation.
Test them now, while things are still (mostly) stable, especially if you’re coming up on retirement.
Run a few simple “what if” scenarios:
What if stocks fell 20% next year? Would your income still cover your needs?
What if inflation stays higher than expected? How would that affect your spending power?
Modern financial planning software can model these scenarios for you, stress-testing your plan against recessions, volatility, and inflation.
Seeing those outcomes in real numbers is often reassuring. It shows whether your plan bends or breaks when things get rough.
If your projections still meet your goals under those conditions, you’re in strong shape.
If not, now’s the time to adjust!
4. Protect Against the Real Risk: Your Own Behavior
The hardest part of a downturn for most people is watching their account balances move lower and managing the emotions that go along with this.
When markets fall, the fear is real. You’ve spent decades building what you have, and the idea of losing ground right when you need your money most can be unsettling. That reaction is completely human.
But it’s also why so many investors get hurt, not by the markets themselves, but by their reactions to them.
For example: Selling and moving to cash. Holding too much cash for too long. Freezing up when volatility hits.
This is explained well in “The Cycle of Investor Emotions” graphic below.
The Cycle of Investor Emotions
When the economy and markets are at all-time highs (like now in October 2025), people get greedy and begin taking maximum financial risk.
Then, when the cycle inevitably turns and markets decline, that confidence flips to fear. The typical investor panics and does exactly the wrong thing at exactly the wrong time.
History shows that by the time a recession is officially declared, markets have often already begun recovering. Those who stay invested usually come out ahead of those who try to time the turn.
That’s why real preparation isn’t just financial, it’s psychological. Confidence comes from having a plan that already expects downturns and permits you to stay calm when others can’t.
And if staying calm in those moments feels difficult, that’s normal too.
You may benefit greatly from working with an objective third party, such as a financial planner, who can help you navigate uncertainty and keep your decisions grounded in logic, not emotion.
5. Turn Downturns Into Planning Opportunities
Market pullbacks are uncomfortable, but they also hand disciplined investors a chance to strengthen their long-term plan.
When markets wobble, opportunity often hides beneath the headlines.
Here are a few ways to take advantage when others are only reacting:
Invest new dollars while the market is “on sale.”
If you’re still adding to your portfolio, downturns are when every contribution buys more shares for the same dollar amount — effectively a built-in discount on your future growth.Consider Roth conversions while values are temporarily lower.
Converting during a decline means you can move more shares into a Roth account for the same tax cost, setting up tax-free growth when markets recover.Harvest tax losses to offset future gains.
Selling investments that have declined in value can generate tax savings that you can use later when markets rebound.Rebalance your portfolio.
Periodic rebalancing ensures your portfolio doesn’t drift too far from your intended mix of risk and return — and market dips often make that process more efficient.Revisit cash flow and spending.
Slowdowns shine a light on habits and priorities. Reviewing where your money goes during uncertain times helps you stay aligned with what truly matters.
Remember: You’re The One in Control!
Again, I’m not predicting a recession and an economic downturn tomorrow or next month. I don’t know. No one does.
You and I can’t control Congress, inflation, or the economy at large.
However, when it does come, you can control:
How disciplined you remain.
How flexible your plan can be when conditions change with proper planning.
How diversified you are.
Resilience isn’t about predicting outcomes; it’s about building a plan strong enough to handle any of them.
Yes, the headlines are noisy.
Yes, the next recession will eventually arrive.
But when your financial plan already accounts for uncertainty, the timing doesn’t matter.
You’ve weathered storms before, and you’ll weather the next one, too.
The goal isn’t to guess what happens next. It’s to know that you’ll be fine when it does!
Have any questions about what you’ve read? Let’s talk about them!
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