It’s impossible to turn on the news, or even have a conversation around the water cooler, without someone bringing up the word “recession.” Even though the economy, by some measures, continues to be strong, markets have fallen significantly as the Bank of Canada continues to raise rates and slows the economy to tame inflation. The downside of all this is that some experts believe a recession is all but inevitable in 2023.

A recession technically refers to at least two quarters of negative growth. By that definition, the U.S. entered a brief recession in early 2022. More broadly, recessions result in significant declines in economic activity, which is what experts worry may be on the horizon. Recessions, or even talk about recessions, can be stressful. Unemployment tends to rise, market volatility often intensifies, and there’s a general uncertainty about the future that can be difficult to handle.

Whether the next recession will be short-lived or last a year or two is to be determined, but it will end, and economic growth will occur again. Although you can’t avoid that cycle, you can prepare yourself for a slower-growth world – and even come out stronger on the other end.

Recession survival tips

If you’re going to survive the recession, you’ll want to focus on two key areas: your portfolio and your personal finances. A downturn can have an impact on both. Stocks and bonds are more volatile during uncertain economic times, while a potential job loss could affect your earnings. Here are some survival tips to consider within each category.


Reassess your risk tolerance levels.

If your investment statements in 2022 made you uneasy, you might need to rethink how much risk you’re taking on in your portfolio. While stock declines don’t always signal a recession is coming, market volatility can increase as fears about the economy mount. If you’re not sure you can stomach much more of the ups and downs, consider increasing your allocation to fixed income, which tends to move around less than equity. On the other hand, if you’re not sweating and can see the light at the end of the tunnel, you probably have a suitable asset allocation for your risk tolerance, or you might even consider increasing your allocation to equities to seize on the low prices.

Assess your diversification.

If there’s one investing rule of thumb to follow, it’s to be diversified. Diversification comes in many forms. You can diversify by asset class, spreading your investments across equities and fixed income, and possibly gold and real estate, too. Within each asset class, you also want to hold a mix of different sectors, such as technology companies, consumer staples businesses and utilities. To seize all the benefits of diversification, you’ll also want to own a mix of foreign and domestic markets, so that an economic slowdown in one region doesn’t have too much of an impact on your overall portfolio. Diversification can limit volatility in your portfolio, because these assets classes, sectors and regions tend to move somewhat differently than one another. For instance, one sector might move higher while another falls. Put simply, it’s a strategy that will help you avoid big losses by not putting all your eggs in one basket.

Consider dollar-cost averaging.

If you have a longer time horizon, then it may be beneficial to keep investing through a recession, especially because markets are down. (Buy low, sell high, right?) By investing at regular intervals, monthly or quarterly, for instance, you can take advantage of what’s called dollar-cost averaging. If you save the same amount every month and the market falls, you’ll end up buying more stocks in that down month than in the previous one – and more shares are a good thing to have when markets rebound.

Make tactical portfolio moves.

While it’s important to keep your eye on your prizes – long-term goals, such as retirement or a house – you could consider having a tactical sleeve within your portfolio. If you think one sector might outperform another over the coming months, you could tilt your allocation to the more opportunistic area. If you want to limit your risk, you could invest more money in fixed income than equities. In any case, it’s a good idea to focus on high-quality and potentially dividend-paying stocks, as they produce income that can cushion the impact of price declines resulting from reduced revenues and profits.

Personal finance

Try being frugal for a little while.

We all buy things we don’t need – and while it’s good to indulge yourself every so often, you may want to pause some of your spending during challenging economic times. Save money by scaling back vacations, eating out less frequently and cutting back on entertainment expenses. Being conscious of your spending can already have meaningful effects on your day-to-day spending.

Pay down debt.

Debt can easily mount during difficult periods, especially if you find yourself temporarily out of work and need to continue paying the bills. If you’re worried about how a recession might affect your finances, then consider paying down any loans now, before a cash crunch occurs.

Focus on your high-interest credit card balances first, followed by lines of credit, student loans and car loans. If you can improve your credit score, you’ll be able to borrow on better terms when you need it.

Create or top up your emergency fund.

Whether we enter a recession or not, it’s a good idea to save enough to cover three months’ worth of household expenses to deal with unforeseen challenges. If you fear your job is at risk, try to grow those savings to pay for six months’ worth of expenses. Start topping up that fund now. Consider storing your emergency fund in safer investments, so even if the market dives, your emergency fund can stay relatively intact.

Adopt a financial plan (or stress-test the plan you have).

Everyone needs a household budget, a system to set aside savings and an investment plan geared toward achieving their financial goals, such as buying a first home, putting a child through college and retiring comfortably. If the recession is severe, how much will it set you back? Go through the numbers now so you know how much you’re spending, saving and earning. You can then adjust that plan if needed. Speak with your financial advisor to help you with the details.

Stick to your long-term plan.

A recession shouldn’t force you to change your investment goals. Continue to contribute to your savings goals on a regular basis. That way, you continue to accumulate assets while their prices are down. You’ll then be poised to benefit when the rebound happens.

If you can get ready for a recession today, then the impacts shouldn’t be as severe as they could be. Stay invested, track your budget, and talk to an advisor. With careful planning, you’ll not only survive a downturn, you may even thrive through it.