Management Consulting
April 2, 2020

Ladder Advisors Shares How to Prepare For The Coronavirus Recession

The Coronavirus pandemic has sent many different industries and business sectors into freefall with Wall Street seeing some historic losses at various times over the last few months. The question we are all facing is how will the markets react in the long-term and how badly will small and medium-sized businesses be affected by the spread of COVID-19 that provide much of the financial stability for parts of the U.S. In the majority of cases; small businesses bear the brunt of any problems when a recession strikes the U.S., as was seen during the 2008 financial crisis.

One of the main reasons why Ladder Advisors and the theory of laddering is such a right choice during the current COVID-19 pandemic is the staggered way investments are judged. The use of many different investments with a range of maturity dates means the investor does not see any significant losses because their funds are spread across a range of stocks, shares, and funds. Investopedia reports the use of laddering has become popular in retirement funds where members need their funds to come maturity at different times. One of the main benefits of laddering is the ability to mitigate risk by purchasing bonds that may have a lower chance of rising and falling by a considerable amount and are not as affected by the changes in interest rates.

Ladder Advisors are looking at how the future of the markets in the U.S. and around the world are being affected by the changing economy during the Coronavirus pandemic. One of the great fears of many in the U.S. and financial experts across the planet is the increased risk of a recession following the lockdown of cities, states, and entire nations. Among the academic institutions that are looking at the possibilities of a COVID-19 recession is the Brookings Institution that is comparing current conditions to those of the 2008 recession.

What is being shown in the research by Brookings is now is not the time to invest in a small to medium business or a young company looking for investment. Instead, larger, well-established companies that have the size and backing to absorb significant losses should be sought out. Looking back at the 2008 global recession shows upwards of 60 percent of all job losses came from small to medium and young businesses that did not have the customer pool or resources to absorb major losses. As major metropolitan areas are locked down and struggle to keep employees at work, the trickle-down effect to largely unaffected areas will continue to be a problem with few areas of the world likely to escape the coming recession. 

Reports of a recession on the horizon are becoming more widespread with the conditions the economy is set to face changing all the time. For the majority of Wall Street, the lessons of the recession of 2007-2009 have been mainly learned with those chasing a quick profit the investment specialists in most danger of major losses. Ladder Advisors is always looking at the best ways of protecting customers by spreading the risk across multiple investment opportunities. At the current time, the exact recession issues that will be faced have yet to be revealed, but a similar batch of issues as those seen in 2008 may face many in the financial sector. In a recent article for CNBC, it was revealed one of the problems investors and financial experts face is losing sight of long-term goals. It can cause problems for an investor who is hoping to achieve a specific goal but fears the losses a recession may bring.

One of the most common problems faced by investors is this lack of long-term vision, which can make it difficult to achieve the goals we all have for our financial future. Laddering is often used to create a retirement fund for investors, but a recession can make many nervous and lose sight of their future being based on an investment that may last years. Instead of taking a panicked approach to investing for retirement or another long-term project, it is best to stay firm in the beliefs of success in the future.

The laddering approach to investing is all about absorbing the risk facing investor, which can mean looking at the different scenarios and considering how a market specialist will react. The COVID-19 recession could take many various forms with the best-case scenario seeing the virus come to an end in a few short months with only the most vulnerable businesses seeing major losses, according to Forbes. It is the best-case scenario and is made less likely by the long-term lockdowns in Spain and Italy, but should see little change to any investment strategy if it comes to fruition.

The second most commonly discussed theory is that the global economy is plunged into a years-long recession caused by health impacts in major economic centers. It is the most difficult to consider, and most investors find it challenging to consider planning for both scenarios. In general, the advice should be to stop chasing short-term gains and look to the long-term with investments planned over a multi-year program. By taking part in the long-term planning process, every investor has the chance to avoid the major issues caused by a recession that has not yet fully formed in the minds of the public and experts alike.

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