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A recession can have a significant effect on your life and financial situation, but there are ways to prepare for it. In June 2020, the COVID-19 pandemic created a potential for a recession, with 33 million Americans applying for unemployment. Feeling concerned about your job, lifestyle, and budget is understandable during a challenging economic period. Even if the economy stabilizes and a recession does not occur, practicing smart money habits will benefit you in the long run.

We provide wealth management in Birmingham to help you stay on top of your finances and your future.

Risk Management Ahead of a Recession – Protecting Your Finances

Begin developing budgeting practices that promote financial wellness so that you can be better prepared for any potential financial opportunities or emergencies. It is important to understand the typical events that occur during an economic recession before discussing how to best prepare for one.

What Is A Recession?

A recession is a period of economic decline, typically defined as two consecutive quarters of negative economic growth in Gross Domestic Product (GDP). 

During a recession, businesses typically experience decreased profits, increased unemployment, and decreased consumer spending. Governments may respond to a recession by implementing fiscal and monetary policies to stimulate the economy. Businesses may close, wages may be lowered, and people may struggle to make ends meet. Governments may act to stimulate the economy with fiscal and monetary policies, such as increasing government spending or cutting taxes, to try and get the economy back on track.

What Is The Difference Between A Recession And A Depression?

The main difference between a recession and a depression is the severity and length of the economic downturn. 

An economic recession is a period of economic decline defined by a fall in the gross domestic product (GDP) for two consecutive quarters, but it is usually shorter and less severe than a depression. 

An economic depression is a more severe and protracted economic downturn, with a much greater decline in GDP and a more widespread impact on the economy.

An economic downturn can be devastating to your lifestyle, regardless of whether it is a recession or depression. The uncertainty of its duration and long-term impacts can create a great deal of concern and worry. To be as safe as possible, it is wise to be ready for a financial crisis and take proactive steps to protect yourself.

Wealth Management and Your Financial Security 

Putting together a financial plan on your own is possible, but it can be time-consuming and may not incorporate the same level of knowledge as a professional wealth manager. Our wealth management firm in Birmingham, however, is dedicated to working closely with you to develop a risk management plan that is tailored to your unique situation, needs, and goals. With our personalized approach, you can rest assured that you will receive the financial guidance and support you need.

Here are some basic steps you could consider to protect your finances while proactively managing risks that may come with a recession. 

1. Diversify

Your investments are your ‘armor’ in an economic recession. Yet, we know investments can suffer debilitating blows during this time. Some investments seem to be more immune to these blows than others. Investing your money in varied assets may help to reduce the probability of suffering losses and minimize the effect on your finances.   

2. Identify What Constitutes a Risk to Your Finances

During a recession, loss of job, termination of contracts, and skyrocketed interest rates are a few critical financial risks that threaten finances. What constitutes a risk to individuals’ finances differs from person to person and from market to market. It is a mistake to assume only businesses have recession risks. Take some time to identify what change might put you at financial risk.

3. Tap into Your Opportunities

You will want to map out and examine your finances like your projected monthly expenses, monthly income, savings, investment potential, and more. This exercise can help you know where you are at present. At the same time, it allows you to see where you can invest your money for a rainy day. 

4. Asset Allocation and Rebalancing

McClellan Wealth can help you develop an investment portfolio. Once that is done, all assets are weighted based on the risk and reward associated with them. For instance, assets may be categorized into stocks and bonds. However, as the situations of the economy change, the states of these assets change too. Thus, realigning these assets from time to time is necessary to maintain the initial risk-reward ratio. This is where balance comes in.   

Wealth Management Takeaways  

Whether or not there is a looming recession, wealth management remains vital to your financial growth and security. A recession makes it crucial to economic survival, except where its strategies are not logically applied.  

Though companies explore wealth management potential most, it is equally relevant to individual finances. After all, a recession negatively affects an individual’s finances just as it affects company finances. 


Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.

An investment portfolio is a basket of assets that can hold stocks, bonds, cash and more. Investors aim for a return by mixing these securities in a way that reflects their risk tolerance and financial goals. There are many different types of investment portfolios, as some are built into 401(k)s, IRAs, and annuities, while others exist on their own through a brokerage or financial advisor firm.


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