Get Ready for the Next Great Recession

April 16, 2025 - In 1973, Six Flags Over Georgia introduced the Great American Scream Machine, which was, at the time, the largest and fastest roller coaster in the world. Riders were ratcheted to the top of a hill, dropped to the earth below, and then, just when they thought the worst was over, dropped again. Within just a few minutes, the ride was over, and victims were back where they started, with windblown hair, abdominal discomfort, a story to tell, and sometimes a commitment never to do something like that again. 

In 2008, the Great Recession started. By the end of 2008, many people thought the worst was over. Lehman collapsed, interest rates were lowered three times in three months, the Dow dropped from a high in October 2007 of 14,000 to 8,000, and daily swings of 5-10% in market value were not uncommon. But there was more to come. By March 9, 2009, the Dow was down to 6,547, unemployment was up to 9%, and the economy seemed to come to a complete halt. Within a few years, we were back where we started with stories to tell about how we fared. Some were prepared, while others were not. 

Will Tariffs Lead to Recession? Is It Possible to Be Prepared?

The economic events of the past few weeks have centered around tariffs. The stock market volatility we are now experiencing isn’t what we sought out and paid admission for, but here we are. There is talk of a recession and its impact on investment returns. There is more talk of short-term pain for long-term gain. Getting an accurate prediction of what will happen is, we believe, a futile exercise.   

No one knows when the next Great Recession will occur. Volatility is part of natural economic cycles. How can one carry on through the next roller coaster ride, both economically and emotionally? We have been collecting stories for the last 15 years from those who have navigated downturns and have noticed four themes we believe can help one emerge successfully.

Buy Low, Sell High 

The list of those who sold out during the Great Recession is long. It is almost heartbreaking to hear stories of people who worked for a generation to save for retirement, then lost much of it in a financial crisis. Many of these scenarios happened because there was no plan, there was a plan that was abandoned, or the plan hinged on esoteric financial strategies that proved ineffective under the circumstances. We believe that a written plan, which included an investment policy statement (IPS), helped investors emerge successfully, and those without one may not have fared so well. An IPS forces one to override natural emotional reactions and know what to do in a financial crisis. Holding to a fiduciary standard, we require our clients to have an IPS to help flee the temptation to change direction when emotions are high. For our clients, the IPS compels us to buy low and sell high, which is the opposite of what most investors are doing during market turmoil.

No Debt, No Anxiety. Know Debt, Know Anxiety? 

In the 2008-2009 crisis, debt fueled anxiety, which fueled desperate behavior. The more debt people had, the more likely the recession resulted in financial pain, and conversely, the less debt, the less pain. Small business owners who were committed to having no debt tended to survive the recession and even had cash on hand to buy competitors who were less prepared. Families who had no debt tended to be content they would survive. Real estate investors with low loan-to-value ratios were more likely to be able to cash flow their properties.  

We are fans of having no debt and have walked through the decision to pay off homes with many of our clients. Every one of them has told us this was a great decision. One can make a mathematical argument that having debt, including in the family-owned business and on the primary residence, is fiscally prudent, especially when hanging on to a low-interest-rate mortgage. But sometimes, having debt can increase anxiety in bad times.

Maintain Liquidity

During 2008-2009, for many, illiquid assets became a ball-and-chain. Even for those with no debt, it was nearly impossible to sell houses, second homes, land, commercial property, private equity, and businesses. The less liquid they were, the more chained they were to their situation. For business owners, those with little to no fixed costs had flexibility when those who had more were unable to move quickly to survive. In a financial crisis, cash is king. Those with cash were able to buy assets at pennies on the dollar, creating significant wealth.  

Look For Opportunity

A long-term investor can look for opportunities in any situation. One way to take advantage of significant market volatility as we have seen lately is the process of “loss harvesting,” which is a methodical approach to “capture” tax losses to use for future tax deductions. This is a complicated process that is often executed incorrectly. Sophisticated investors should have a loss harvesting strategy as part of their investment plan. Another opportunity is the simple practice of buying asset classes when they are on sale. Unfortunately, many investors prefer to buy inflated assets because it feels good. Additionally, the potential for lower interest rates creates value for borrowers, as well as increasing bond prices.

This Time It’s Different

The four most dangerous words in investing are “This Time It’s Different.” This phrase is attributed to Sir John Templeton illustrating an investor’s tendency to believe the current financial crisis somehow defies historical patterns, and that this situation is not recoverable. In a financial crisis, it is prudent to consider following the financial plan that was designed knowing a crisis could eventually happen, and not in the heat of the moment. The worst time to come up with a new fire drill is after a fire breaks out, abandoning a thoughtful and practiced plan, and replacing it with one based on emotion, panic, and urgency.   

We do not know if recent events are a “crisis du jour” or if we are in for a protracted slog. We do believe families who have a thoughtful plan that expects the best and the worst can emerge from the next financial crisis with confidence. Are you prepared?

• Disclosures

  Information presented is for educational purposes only and is not personalized investment, financial, legal, tax, or accounting advice. Nothing on this website should be interpreted to state or imply that past performance is an indication of future performance. All investments involve risk and unless otherwise stated are not guaranteed. Be sure to consult with tax, legal, accounting, and financial professionals about your specific situation before implementing any planning strategies. Investment Advisory Services offered through Timberchase Financial, LLC, a Registered Investment Adviser with the U.S. Securities & Exchange Commission. Registration does not imply a certain level of skill or training.