Are You Prepared for the Next Recession?
Nobody knows exactly when the next recession will arrive.
But history has shown us one thing repeatedly: markets move in cycles, and periods of optimism are often followed by periods of correction. The real question isn’t if volatility will return - it’s whether your portfolio is truly prepared when it does.
Many investors today have portfolios heavily exposed to market risk after years of strong equity performance, rising asset prices, and a prolonged bull market. While growth is important, it’s equally important to ask:
What happens if the next downturn looks more like 2008 than a normal correction?
Since the 2008 financial crisis, markets have experienced extraordinary gains fueled by low interest rates, government stimulus, and investor confidence. But we’re now facing a very different environment:
Persistent inflation concerns
Higher interest rates
Elevated consumer debt levels
Global geopolitical uncertainty
Slowing economic growth indicators
Increased market concentration in a small number of large companies
These aren’t predictions of an imminent crash - but they are valid reasons to revisit your current risk exposure and overall strategy.
One question I encourage people to ask themselves is simple:
What have you done differently since 2008?
If the answer is “nothing,” it may be time to re-evaluate whether your current portfolio still aligns with your long-term goals and tolerance for risk.
This becomes even more important for those approaching retirement or already retired. Losing a significant portion of your portfolio shortly before - or during - retirement can have lasting consequences. Recovering from a major drawdown is much harder when you no longer have decades of earning years ahead of you.
Understanding the Impact of Losses
One of the most overlooked realities of investing is what I call “inverse math.” When a portfolio declines, the percentage gain required to recover is always greater than the percentage loss itself. For example, if your portfolio loses 20%, you don’t simply need 20% to get back to even - you actually need a 25% gain. A 40% loss requires roughly a 67% return to recover, while a 50% loss requires a full 100% gain just to break even. The deeper the loss, the harder the recovery becomes. This is why managing downside risk is so important, particularly for investors nearing retirement who may not have the time needed to recover from major market declines.
A shift in focus?
Many investors focus heavily on returns during strong markets but spend very little time evaluating:
Downside protection
Portfolio diversification
Liquidity needs
Income stability
Sequence-of-returns risk
How their investments may perform in a prolonged downturn
A portfolio that performs well during bull markets isn’t necessarily a portfolio built to withstand difficult markets.
The goal isn’t to eliminate risk entirely - that’s impossible. The goal is to ensure your strategy is intentional, balanced, and aligned with where you are today, not where you were 10 or 20 years ago.
Markets reward preparation far more than reaction.
If you’ve been wondering whether your current portfolio is positioned appropriately for the years ahead, now may be the right time to have that conversation.
Even small adjustments made proactively can make a meaningful difference over the long term.
As always, if you’d like a second opinion on your current strategy or simply want to discuss how prepared your portfolio may be for a changing market environment, I’m always happy to help.