To curb inflation and turbulent markets, the US Federal Reserve has marked 2023 with rising interest rates. This economic climate has many financial experts apprehensive about a possible recession. According to Bankrate’s Fourth-Quarter Economic Indicator poll of economists, there is a 64% chance of economic contraction in 2023.
Recessions affect people in all industries, including those in healthcare. Anthony Watson, CFA, CFP, of Thrive Retirement Specialists offers insights into how investing physicians may be affected by a recession. For instance, Watson notes a slowing down of the economy due to the Federal Reserve’s anti-inflation interest rate policies. Rather than skirting the possibility of a recession, specialists like Watson factor the likelihood of a recession into their strategies. This avoids creating a financial plan that completely unravels due to a surprise economic downturn.
Despite this year’s challenging economic climate, Watson’s clients are accumulating financial gains due to safely constructed portfolios with fitting asset allocations that are built to withstand downside cycles. Watson also notes that his retired clients have an alternative plan in place, which allows them to pay retirement expenses in lieu of selling investment assets during a markedly low period of value. This strategy shields clients’ nest eggs from any possible damage.
According to Watson, diversification, rather than individual stock and bond investments, is key for managing financial risk. Specifically, physicians should shoot for a “60% US to 40% international stock allocation with broad stock exposures to Europe, Asia-Pacific, and emerging markets.” Broad-based index funds and investment-grade bonds offer more safety for investors than do stocks. Bond prices are less vulnerable to price decline amid temporary earning declines and are perhaps likely to experience a price increase upon lower Federal Reserve rates. Watson also suggests that physicians honestly assess their individual capacity for dealing with paper losses, in an effort to avoid converting paper losses into actual losses.
Watson urges physicians not to shy away from investing this year, particularly if they can stomach market volatility and are not in a situation requiring imminent investments. According to Watson, there are some decently priced stocks available, given the tendency of analysts to lower their earnings forecasts amid the possibility of a recession, along with the decreased likelihood of investors to pay a higher multiple for those earnings.
Physician’s Weekly | September 26, 2023