Are We ACTUALLY In a Recession? Navigating Periods of Economic Downturn
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In your adult lifetime, you're likely only gonna see five to seven major economic downturns, and they are gonna be your biggest opportunities to build wealth.

Well, let's be very clear. Rich people actually love these moments because they're going to rapid fire, deploy their money into investments when everybody else is freaking out. Let's talk a little bit about how you can recession proof your finances. These are a couple strategies you can use to set yourself up for financial success, no matter what the economy throws at us. So

What's up, rich friends? Welcome to another episode of Net Worth and Chill. I'm your host, Vivian Tu, aka Your Rich BFF and your favorite Wall Street girly. With the implementation of Trump's tariffs and downward market movement, people are more stressed than ever about a potential...

Yes, it's scary and it shows. The S&P 500 index, which is essentially the benchmark for the American stock market, has been pretty volatile lately. And the S&P 500 measures the performance of the 500 largest publicly traded companies in the United States.

So it's pretty indicative of the overall health of the economy. The S&P 500 is widely considered one of the best gauges of the US equities market. And like I mentioned, it is a benchmark. So when we're looking at it and we're seeing it go down, that can be kind of scary. If the S&P is going down, down, typically it's an indicator that the US economy is feeling pretty down too. Now it's important to know that at this moment that I'm filming,

And maybe while you're seeing this, we are not in a recession, technically. Support for this show comes from Brooklinen. Spring is upon us and rejuvenation is in the air. And if you're feeling the call to refresh your sleep essentials, Brooklinen has everything you need. You can upgrade your bedding with their Luxe Satine Core Sheets or add layers of comfort with their Dreamweave Waffle Blankets. And Brooklinen has incredible patterns and textures to match your spring aesthetic.

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15% off your first order today. If a recession does come, it will be declared by the National Bureau of Economic Research, NBER. It's a nonprofit organization. But with all this economic volatility, people want to know how to prep for a recession or just how to get through times of economic downturn. And that's exactly what we are going to cover today.

So first and foremost, what is a recession? Like, actually. A recession is defined as a significant decline in economic activity that's spread across the economy and lasts more than a few months, typically two straight quarters of negative GDP, gross domestic product, growth.

So when we see the GDP go down two quarters in a row, that's typically when it is a technical recession. First and foremost, it's important to remember that recessions are a normal part of the economic cycle, though their severity and duration, aka how serious or how long they go, can vary a lot. They represent the contraction phase following periods of economic expansion. So really, really simplified, a normal economic cycle consists of four stages.

First up, expansion. Things are on the up. Then there's the boom. Things are up. Then there's the bust. Things are coming down. And then there's the recession. Things are down.

This then leads back into expansion and the cycle repeats and repeats and repeats. While not ideal by any means, just know recessions are considered part of the normal economic cycle, so there's no use in spiraling. And now that we've got the textbook definition cleared up, let's talk a little bit about how you can recession-proof your finances. These are a couple strategies you can use to set yourself up for financial success, no matter what the economy throws at us.

First and foremost, do not pull your investments. The second people see market downturn, they immediately want to sell, sell, sell, pull all of their money out of the market and pull their investments. Do not do this. If you pull your investments, you're just going to lock in the existing losses rather than giving your portfolio a chance to go up again. And I know it's super scary looking at red numbers, but avoid pulling that money if you can. A really great example of this was COVID. Back

Back in March of 2020, we saw the stock market plummet.

And the folks who got scared and pulled their money locked in those losses. However, if you were smart and just stayed the course, you held onto your investments, you didn't look too much at your portfolio, by August of 2020, all of those losses would have been made up. And then over the past five years, we actually saw the market reach its newest highs, the peakiest of peaks, and you would have just made money. In fact, when the stock market is down, you can think of it like a sale.

Nobody runs from a sale at a department store. Why would you run from a sale in the stock market? In fact, if you actually have extra dollars to be investing when there is a downturn, it might be one of the best opportunities for you to scoop up assets on the cheap. Everybody loves a deal. So yes, it's okay to look at your portfolio, but if you think it's going to actually just hurt your feelings and scare you more than it'll help you stay in touch with your holistic financial picture,

it's okay to more sparingly check your investments right now. Up next, speaking of up, let's up your savings. Normally, I always recommend you guys have three to six months of living expenses in an FDIC-insured high-yield savings account, but with economic uncertainty, try to get closer to six to nine months in that high-yield savings account. This way, your money is earning you more money and you're better protected from any issues that are beyond your control, like layoffs.

but you are actually going to be earning money on that nest egg. Also just remember a high yield savings account is just like a regular savings account. So your money is FDIC insured up to $250,000. But a quick strategy I do want to share is that if you have more than $250,000 in cash in one bank account,

I would very much encourage you to spread it out across different savings accounts so you aren't putting that money at risk. It's a lot less likely that all of the banks you bank with would fail at once. Furthermore, when you're choosing where to park your money, consider national banking providers over regional ones. Why, you ask? Because oftentimes, bank failures stem from too many of the bank's customers' livelihoods being concentrated in one industry.

So a really great example of this was Silicon Valley Bank. They were a huge provider in the VC and San Francisco tech world. But because of this, when one of their clients started having issues, it meant a lot of their clients started having liquidity issues. This ended up leading to people running to the bank, trying to get their cash out. And they, when they weren't able to service their clients, that ultimately led to the bank's collapse. Cause when one client heard that they couldn't get their money, everybody panicked and then tried to get their money out to up next.

My other hot tip is make sure to pay down your debt. Do your absolute best to pay down high interest rate debt. Anything over 7%, you want to do that ASAP Rocky. On top of that,

Do not take on any additional high interest rate debt and make sure to spend within your means on your credit card. So that very much means spending on things that you need and are confident you can pay in full on time every single month. This is certainly not the time, not that it ever is, to risk taking on more debt because when things are bad, you are actually going to feel that debt burden even more. If you are really struggling, this could also be a good time to explore nonprofit credit counseling.

So this is where you would go and speak to a credit counselor. They would help you manage your debt. They would negotiate with your credit card companies, your loan servicers, and they would get you on a good payment plan. This is because going into a shaky financial environment while struggling with debt can be really overwhelming. Up next, I would say that since we aren't pulling our investments, we should answer the question of now what? What should we do?

adult lifetime, you're likely only going to see five to seven major economic downturns and they are going to be your biggest opportunities to build wealth. Let's be very clear. Rich people actually love these moments because they're going to rapid fire, deploy their money into investments when everybody else is freaking out. They're going to use this opportunity to buy stocks, real estate, and honestly, whole ass companies on

the low, they're going to get them for cheap. And then when things inevitably do recover, they're going to be able to ride that wave right back up. So that'll be their opportunity to generate a lot of growth and a lot of wealth.

However, folks who don't have the means or people who don't think to invest their money that they have on hand right now are actually gonna be worse off due to inflation making our lives more expensive over time. And I do not have to be the one to tell you that the cost of living right now is crazy. Eggs are like $20. So you wanna make sure you have that managed. This all said, if you are paycheck to paycheck and you're more worried about buying food than investments,

I get that. I do not want to be tone deaf, and I really do recognize that this period is going to be incredibly challenging. This is going to hit those folks the hardest, and it sucks, and it's unfair, and I wish we had a better answer for this, but if you do have any extra money to spare,

or even if you're willing to just put yourself in an uncomfortable position for a temporary period of time by picking up a side hustle or a second job, this really could be the difference between whether or not you are where you want to be or financially secure in the next five to 10 years.

So think of this as an opportunity. I don't want this to sound like rah-rah hustle porn, but truly try your best. Try to invest right now. As for the investments, actually what to buy, instead of telling you my top five stock picks, I'm going to tell you how to buy hundreds of companies at the same time. You are going to consider something called an index fund.

The reason they're called index funds are because they often track indices, indexes. And as an example, if you invest through Vanguard, VOO tracks the S&P 500. And the reason I want to call it Vanguard specifically is because if you invest with Fidelity or Schwab, they have their own version of

You wanna make sure you are buying the appropriate one based on what brokerage you are using 'cause you'll pay less in fees. So just make sure that wherever you're at, they have something that tracks the S&P 500, I'm sure they do, and you're gonna be able to use that to invest. Another alternative, if you wanna get a little tech heavier, QQQ tracks the NASDAQ 100. This is a great way to get some of that tech exposure if you think that sector is going to be a little stronger.

If you want to get some international exposure because you think everything here stateside is going to hell in a handbasket, well, VXUS, again, this is the Vanguard version. There are going to be Fidelity, Schwab, other brokerage versions. That's the Vanguard Total International Stock Index Fund. So it's essentially investing in...

all of these international markets. So you can also have exposure outside of the U S alternatively, if you don't want to pick an index fund, you can also choose to invest in a target date retirement fund. This will give you something a little bit more tailored to your age and how close you are to retirement.

what you're gonna do is you're gonna calculate what year you turn 65 and round to the closest year ending in five or zero. Then you're gonna pick the target date fund with that year in it 'cause you're gonna see target date fund 2025, 2030, 2035, 2040, 2045, all the way up to like 2075, 2080.

So just pick the year that most correlates to when you would turn 65. In addition to that, you can always tap a robo-advisor. So you just take a quick quiz about your money goals and then it will pick a diversified portfolio that makes sense for you. This is a great way to be invested quickly and efficiently if you don't wanna do it yourself.

But the net net takeaway is just keep investing. Don't be distracted by these headlines. Here's another really big topic that people are asking me about, job loss. Some people are panicking about losing their jobs due to the impending recession. But what we're gonna go over is what jobs and industries might actually thrive during a period of economic downturn. And then we'll also cover what might be a little bit more at risk. This is important because like I mentioned,

Economic cycles are going to favor different sectors. Our consumer economy has high and low points. And when the economy is booming, industries that are discretionary, aka nice to have, and cyclical typically outperform. This is essentially luxury industries, things that people can go without, nice to have, but not necessities. These sectors tend to fluctuate with the natural business cycle. Like I mentioned, cyclical.

So you're going to see things like travel companies like Hilton, Marriott, Delta, United, American Airlines, tech, nationality.

Netflix, Amazon, entertainment, so Disney, Comcast, luxury retail, LVMH, Nike, you get the idea. This is stuff people don't need need. Those really do succeed during periods of economic boom. However, during times of economic downturn, such as a recession, we're actually gonna see consumer staples that are non-cyclical outperform. These sectors do not fluctuate with business cycles because people need them. You can't just spend less.

Things like healthcare, Pfizer, Merck, financial services, Bank of America, JP Morgan, insurance companies, energy, Shell, Chevron, ConocoPhillips, industrials like waste management or UPS and FedEx. This is stuff people very literally will have to keep paying for no matter how bad the economy gets. Maybe they'll spend less, maybe they'll do less, but ultimately these are necessities. And when I say outperform,

I don't necessarily mean won't ever take a loss. I mean, versus the broader market, they'll do better. So versus a benchmark like the S&P 500, they will do better. So.

Say if the overall stock market only returns 3% this year because things are down, things aren't great. Based on where we are in the economic cycle, sectors that are predicted to outperform staple companies could see 5% or 6%, maybe if we're lucky, 8%. So they'll outperform that 3%, but it doesn't necessarily mean that they're going to be returning 25% like we saw the market return last year.

The real takeaway here, the major key is you don't need to hit a home run every year to be a good investor. You need to invest for a longer period of time and be consistent. And even though I did name a bunch of companies, I wanted to be really clear. You are more likely to succeed investing in baskets of stuff versus trying to cherry pick the perfect company.

Also, if you have a job that's less industry focused and more role based, such as HR or marketing or sales, and you could work at any company doing those things, you might find more stability at staples, staple companies versus discretionary ones over the next few months or years.

Just something to keep in mind if you're considering changing jobs or looking for work. Support for this show comes from Brooklinen. Here's a question. What makes the perfect spring bedding for you? Is it cool, breathable sheets? Quilted blankets for those cool spring nights? Or is it the perfect color and texture to match your room's aesthetic?

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Okay, we asked for your guys' burning questions about the potential recession. So we're gonna answer a few of the top submissions. And just in case your question doesn't get answered, because honestly, we had over hundreds of submissions for this, I wanna highlight a new tool that I'm building where you can ask me and licensed CFPs questions without needing to have a half a million dollar net worth and hire a financial advisor.

You don't need to be rich to use it. It's called AskDolly.com, A-S-K-D-O-L-L-Y.

Right now, we are getting people on our wait list. And for the first 5,000 folks who sign up, you're gonna be invited to beta test this tool. This is the thing I would have killed to have when I was figuring out my finances. So I hope you love it and I hope it lets you access financial knowledge without an insane price tag. Essentially where I came up with the idea was now that I'm 30, now that I'm a multimillionaire, I have people banging down the door

dying to help me with my money. They want to be my money manager. They want to be my financial advisor, my CFP. They want to be a part of my business management team. Great, but I don't need your help now.

I needed your help when I was 22, when I barely had two nickels to rub together, when I was waiting for my direct deposit from my job to hit at 1201 so I could leave the bar and actually pay my bar tab. It's really frustrating to me because getting the status and getting the licenses you need to become a financial advisor or become a certified financial planner

is really expensive. And I want to be really clear. People who get those jobs and get those licenses often spend tens of thousands of dollars to do so.

So they have every right to want to make money, but that becomes a self-selecting problem, right? So the people who can afford to become financial advisors or CFPs will become them. And then they only want to work with clients who can afford to pay them a significant chunk of change because they've already invested so much upfront. I at 22 did not have that kind of money. I did not have hundreds of thousands of dollars. I barely had tens of thousands of dollars. Heck, my first year in manufacturing,

Manhattan when I had a Wall Street job, I was living paycheck to paycheck because my rent was so expensive. I really wish there was something and someone I could have gone to and asked these financial questions. And now that's what I am trying to build with Ask Dolly. I want you to be able to go somewhere where you can ask questions, where you don't need to spend an arm and a leg. There's going to be a free tier. There's going to be paid tiers if you want to really have one-on-one connection. But

This is a way for you to be able to ask your burning finance money questions and make sure you get an answer in a timely fashion. So please check it out. Sign up for the wait list. AskDolly.com. A-S-K-D-O-L-L-Y.com. I can't wait for you guys to check it out. Please let me know what you think. But back to our submitted question specifically about the recession. First question, based on probable volatility, do you have different approaches for different stages of life? Yes.

Here's my big advice. You should not be investing the same throughout your entire lifetime. And it's so funny that I'm trying to share this pearl of wisdom because my own 74-year-old father will not take my advice.

He is in retirement and 80% of his portfolio is still in equities. And that is a terrible idea because you want to make sure that as you get older and closer to retirement, more of your portfolio is focused on wealth preservation versus wealth growth.

When you're 20 and you're far away from retirement, you can afford to be a little bit more risky, but as you get closer to retirement, you wanna make sure that you're actually protecting that money. So how do you decide what of your portfolio should be growth and what of your portfolio should be preservation?

here's the quick equation. Take your age and round to the nearest five. So something that ends in a five or something that ends in a zero. Now that you have that number, you're going to subtract 10 from it. That is the percentage of your portfolio that should be in bonds. Everything else should be in equities. So say I'm

42. That rounds to 40. 40 minus 10 is 30. 30% of my portfolio should be in bonds. 70% should be in equities. However, if I'm 57, that rounds up to 60. 60 minus 10, half of my portfolio should be in bonds. The other half should be in stocks.

Because essentially, as you get older and older, you want to focus on that preservation. Additionally, on this note, I really encourage you to understand where your risks lie, because sometimes people's portfolios get very heavy on one thing without them realizing a big risk here is you.

Company stock options. If you hold a ton of your company stock, I need you to think deeply about is this too big of a percentage of my portfolio, one, and two, do I actually believe in this company? Because sometimes you may want to de-risk, aka sell a little bit of that, and then transfer those dollars into other investments that make more sense for you. But again, this is all about understanding your own risk. Personal finance is personal. There's no one size fits all answer, but you do wanna understand what your risks are,

how old you are and how close you are to retirement, and ultimately what your portfolio, what those percentages need to be. Next question is, what's the main purpose behind the Trump tariffs? What's his actual goal? So let's be clear. Technically, the stated goal is to boost U.S. manufacturing and protect jobs, raising tax revenue and growing the domestic economy. Trump said that he also wants to restore America's trade balance with its foreign partners, essentially restoring

reducing the gap that exists between how much the US is importing versus how much we're exporting to those partner countries.

In theory, this is great. But in practice, what we really understand is that these tariffs are going to make things more expensive here at home because we pay the tariffs, not those foreign countries. We already know what prices look like in the grocery store. We're going to start seeing that across the board. And I do worry about the cost of living rising very quickly and hitting lower or medium incomes hardest. The bigger issue, I think, though, is the on and off switch.

One day they're on, one day they're off. This is absolutely going to short circuit the supply chain. Manufacturers are typically able to roughly estimate how much of something they have to make.

And they employ that many people, buy that many machines, buy that much raw material to be able to create that much stuff. But the problem with the on and off again switch, I'm trying to do a light switch here if you're watching on video, there isn't enough time given to these countries and these industries to recalibrate. So at some point, manufacturers might make too much stuff, and that's a bummer because...

things are probably going to go to waste. But then at other times, they might not make enough. And that's going to lead to a very terrifying picture.

Do you remember the empty shelves you saw when COVID was officially announced and everybody was raiding their grocery stores? Like we were just buying whatever you could get your hands on. We are going to see empty shelves and higher prices because if you're used to buying Greek yogurt and so are other grocery shoppers and so is the breakfast cafe down the street and so is the smoothie joint on the block,

But suddenly, there are now half as many containers of Greek yogurt. You're all now fighting over less supply. You're going to pay more, and there's just going to be less to go around. Ultimately, it's hard to officially say where this is going to go because it does feel like those headlines change day to day. But whatever this is, the flip-flopping is going to hurt consumers. Next question, what are the chances all of my money just poof, disappears?

Let's be clear, very low, but admittedly not zero. That said, if we get to that point, you're not going to need to worry about money. Money is not going to have any value or meaning. You are going to need to be worrying about survival. Frankly, the odds of all of that going to zero are so low. I, as someone who has a healthy amount of disdain and mistrust for our government, I

I'm still continuing to pile money into the stock market. If there's anyone who should be worried, it's people who have a lot invested, and I certainly do. So I wouldn't let that keep you up at night. Another great question, I've never invested. Is a bad time to start right now?

No. Market downturns are actually a great time to consider investing, but the simplest advice I can give you is the best day to start investing was yesterday and the second best day is today. Time in the market will beat timing the market every time. So essentially time in the market, aka how long you invest for, will be timing, aka trying to find the perfect entry point,

every time because you are just never going to find the perfect entry point. Hindsight's always going to be 20/20, but if you wait too long to get involved, you might miss out on all of that compound interest over time. And last but not least, do you think the FDIC will be dismantled? Okay, so here's another really great scary headline meant to be scary to get clicks

But there is a real story here, and this has more to do with saving and your banking versus investing. But first off, let's cover what is the FDIC? It's essentially insurance for your money in the bank.

Think about it like a cosigner. When you were 22 and you had $4 to your name, your parents had to cosign on your rental agreement to basically promise, okay, if our kid is irresponsible and can't make rent, we are still going to make sure that the landlord gets paid. The landlord wanted an insurance policy against you. The FDIC does that, but...

but for banks. So back during the Great Depression, when 9 million Americans had their entire life savings wiped out, there was a lot of fear and the FDIC was created to maintain public confidence in the US financial system. The US did not want people to stop using banks and their main strategy to ensure that your money and your bank account was safe, even if the bank itself went belly up, was to enact the FDIC.

So you deposit up to $250,000, your bank goes belly up, the FDIC makes sure that you get your cash back. But lately, there's been a lot of headlines about Trump wanting to get rid of the FDIC entirely.

But I'm going to be real. The actual news is a lot more mild. It's unlikely that the government agency is going to go away entirely, but the FDIC's regulatory role could get combined with the Office of the Comptroller of the Currency, the OCC. It's a division of the Treasury.

And while it is likely that the FDIC may see a rollback on what they can regulate, the actual insurance piece is unlikely to go away. And I say all of this to preface, I'm not going to start stuffing cash under my mattress. It's not smart. You could lose it if something happens to your house. And it's honestly just going to be eaten away by inflation.

You're gonna be way better off, again, putting that money in an FDIC-insured high-yield savings account so you can earn money on your nest egg, on your savings, on your emergency fund. And please, let this be the takeaway for this episode. Don't let the headlines distract you. Stay the course. Ultimately, I wanna be clear.

It is not wrong to feel how you're feeling. Recession is a very scary word. It sounds negative. And honestly, when we in particular, millennials or folks around my age, we've seen so many major downturns in our lifetime already. This can feel bone chilling. It can feel like a chance for us to be laid off again or set back just as soon as we're trying to get our financial footing underneath us. But ultimately, recessions are a normal part of the economic cycle.

There are things you can do to really set yourself up for success. And last but not least, it's important to remember that they end.

Ultimately, recessions lead to expansion periods where there will be the good boom times. Again, I don't want everybody to freak out. Making rash decisions, pulling your money out of investing is going to set you back a lot more than, frankly, just riding the recession will. So please, if you take anything away, take a breath. Don't freak out. Don't spiral.

A recession is scary, but we're all gonna get through it. Continue to stay the course, continue to responsibly spend, save your money, budget, and also invest. You will be fine for the future. I hope you enjoyed this week's episode. I'm so grateful to be able to talk to you and answer some of your questions. And don't forget to check out askdolly.com if you wanna ask me more questions. As always, I'm so grateful for your friendship. I'm so grateful for your attention and I'll catch you guys next week.

Thanks for tuning into this week's episode of Net Worth and Chill, part of the Vox Media Podcast Network. If you liked the episode, make sure to leave a rating and review and subscribe so you never miss an episode. Got a burning financial question that you want covered in a future episode? Write to us via podcast at yourrichbff.com. Follow Net Worth and Chill Pod on Instagram to stay up to date on all podcast related news. And you can follow me at yourrichbff for even more financial know-how. See you next week.

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