Stock portfolios can go down sharply in a short period of time during recessions. Even the fear of a possible recession can prompt market participants to rush for the exits. People who take the time to create a game plan for navigating recessions can set themselves up for strong recoveries when the stock market inevitably rebounds. 

The investors who get hurt the most in recessions are the ones without plans. These are some of the things you can do so you’re prepared and don’t get caught by surprise.

Review Your Portfolio

Do you feel confident about all of your stock picks? It’s easy to lose confidence about a stock after it has lost 20% of its value. However, the best stocks can recover and generate sizable gains once recessions are over. 

Some investors panic and sell their stocks without considering the fundamentals. People fear losses more than they appreciate gains and rush for the exits, even if their stocks are significantly undervalued. Investors saw this in 2022 when many growth stocks sold off, only for them to recover in the following year.

Pause Before Making Any Stock Trades

Volatile markets are fast. Price swings can take a stock from a 1% gain for the day to a 1% loss in a matter of minutes. Sometimes, growth stock investors may feel like they are trading an altcoin, given the price fluctuations some stocks experience.

Financial markets have fast-paced environments that can lead to rushed decisions that release pain now but hurt in the long run. While everything moves quickly, it’s important to pause before buying or selling any stock. Think it over for a few seconds before buying or selling a stock. You can even decide what would cause you to sell a stock, such as earnings missing expectations. 

It’s okay to trade stocks during a recession as long as you think about it first. Don’t let greed or fear make you trigger happy with stock trades.

Revisit Your Long-Term Financial Goals

Preparing your portfolio for a recession is personal. It’s different for each person, and the battle plan you use largely depends on your financial goals. Many young investors buy the dip because they have plenty of time to wait for rebounds. However, retirees may want to get more defensive. 

Older investors don’t have to exit the stock market entirely, and some of them prefer to stick with equities. However, risk-averse investors may want to consider putting more money into assets with less downside, such as consumer staples stocks and bonds.

While it’s easy to feel like you have to do something to your portfolio during a recession, doing nothing can also work. Investors who don’t need money from their portfolios for the next five years may benefit from riding it out. However, you may want to carefully assess your portfolio if you need some of those funds to make a down payment this year.

Build Up Your Emergency Savings

A high-yield savings account with a big balance can make it less likely that you sell stocks during recessions. Some people want to buy and hold stocks for the long run, but surprise expenses may force them to make difficult decisions. 

It’s always good to pick up a side hustle if you want extra cash. You can also look for career advancement opportunities that may require developing new skills. While you can get a raise, job hopping is one of the best ways to boost your income in the long run.

An emergency savings account that can cover 6-12 months of expenses makes it easier to avoid selling your stocks during a recession. If you compare online banks instead of sticking with traditional institutions, you may get a savings account with a 4% APY.

Do Some Buying

Recessions and sharp corrections don’t come that often. Although they can create fear and panic in the stock market, these low points present attractive long-term buying opportunities. It pays to be a contrarian, and buying when others are selling can pay off nicely in the long run.

Some investors make the mistake of trying to time the bottom of a correction or a recession. However, if you buy some stocks each week, you get to capitalize on any short-term downward pressure on stock prices. It may feel scary to buy stocks as the headlines scream “Sell,” but accumulating shares in reliable companies can position you well for the nextrecovery.

Only buy what you can afford to hold on to for a few years. You don’t want to make a lot of stock purchases only to sell those positions because you have to pay the bills.