DEFINITION:
A recession is a significant decline in economic activity across the economy, typically defined by two consecutive quarters of negative GDP growth, along with rising unemployment and reduced consumer spending.
WHEN AND WHY IT’S USED:
Recessions are used to describe periods of economic downturn that affect both businesses and consumers. They signal reduced economic output, lower corporate profits, and increased financial uncertainty. Advisors and policymakers discuss recessions to address challenges such as job losses, decreased spending, and tighter credit conditions.
IMPORTANCE IN COMMUNICATION:
Discussing recessions with your advisor is essential for understanding how broader economic slowdowns impact your investments and financial goals. It encourages proactive planning, such as stress-testing your portfolio against economic downturns and identifying areas for defensive adjustments. Clear dialogue ensures you’re prepared for potential impacts on income, asset values, and long-term growth.
Moreover, an open conversation about recessions helps you explore strategies to safeguard your financial well-being—whether by diversifying assets, reducing exposure to cyclicals, or bolstering cash reserves. This discussion builds a shared understanding of economic risks and supports the development of a resilient financial strategy.
EXAMPLES IN CONVERSATION:
“How might a recession affect my current investment strategy, and what adjustments do you recommend?”
“What steps can we take now to protect my portfolio against an economic downturn?”