(upbeat music) - I am your host, AShira Nelson, and this is Forum 360 where we have a global outlook from a local view.

All the talk about a recession may have you worried about your finances, but you are not alone.

74% of US consumers are concerned about a recession according to a new survey from Empowered and Personal Capital.

In addition, 85% are worried about inflation and 56% are already seeing their standard of living decline.

From Investipedia.com, a recession is defined as a significant decline in economic activity spread across the market, lasting for more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale retail sales.

My guest today is Katie Madzsar.

Katie is a certified financial planner, also known as a CFP and senior wealth advisor at Wellspring Financial Advisors.

Here to share steps with you on how you can take to prepare for a possible recession.

Hello.

- Hi AShira.

- How are you?

- Good, how are you?

- Very good, so happy to have you here.

- Happy to be here, thanks for having me.

- I know you're super, super busy.

So much going on in the real world.

So, let's just dive into it.

So tell me about yourself and your background.

- So as AShira mentioned, I'm a CFP, certified financial planner.

I was born and raised here in Cleveland on the East Side and kind of never left.

And I started working at Wellspring actually as an intern right out of college and started kind of the process to become a certified financial planner in within the first year of being there.

And I've stayed and never left and kind of made my way up the ranks and I'm now at the managing director level.

- Very cool.

I always love stories of starting as an intern and kind of sticking with the company and working your way up through the chain.

So how was that experience for you?

- [Katie] Well, it's been very rewarding.

- Okay.

- And also challenging, - Okay.

- 'cause kind of being the first intern and being kinda the only one at that level when everybody else was kind of probably five steps ahead of you was probably good in the long run, because it forced me - Yes.

- to kind of meet their expectations and I learned a lot.

I still learn a lot, but it's been really neat to see the company grow from kind of ground up to where it is today and hopefully, where it will continue to be in the future.

- Very cool, so how long have Wellspring been in business?

- Since 2007.

- Okay.

- And then I joined two years later so.

- [AShira] Very cool, very early in the process.

- Yes, yes.

- So what did you go to college for?

What was your major?

- So I was a finance major.

- Okay.

- With a international business and Spanish minor originally.

And then I finished as a finance major and a Spanish minor.

I do not know how to speak Spanish at this point anymore, but - I was about to say - I have to use Spanish every day.

- No, no, no.

- Are you sure you don't wanna.

- I'm sure not.

- Okay.

- Not today.

- So did you see yourself in any other industry before kind of committing to the financial industry?

- I actually wanted to go into real estate finance and I graduated in 2008.

- [AShira] Okay.

- So kind of the worst possible time to try and get into that field.

- [AShira] Yes.

- And I actually through networking, I graduated from John Carroll and through a classmate there I networked and was able to get in touch with Wellspring and was told all about what being a financial planner is 'cause I never knew that was an option.

So it worked out pretty well.

- Awesome, awesome.

Let's switch gears a little bit.

Let's talk about the recession, because a lot of people is struggling with the idea of a possible recession.

So how would you define a recession?

I kind of got into it a little in my intro, but personally, how would you define a recession?

So it's funny you mentioned that we talk about that all the time.

It's probably been all over the news as well.

- Yes.

- It's really hard to define it.

Historically, it's been consecutive two quarters of negative GDP or negative economic growth.

And right now where we have that, but we're not in a recession, because we have very low unemployment and really good jobs reports.

So it's been really tough to kind of say, are we in one or not?

I don't feel like we're in one today, but I think we will be in one probably in the next 12 months or sooner.

- What components kind of causes a recession?

- So there's a multitude of components.

- Okay.

- Things that are pretty much top of mind and what people are seeing today are inflationary pressures.

So definitely, inflation is everywhere.

- Oh, okay, yes.

- On the news, it's in the election discussions and having things be inflated in price, that's just being really hard to deal with for a typical consumer.

- Yeah.

- When you start to see the jobs reports and unemployment start to creep up, that's also an indicator.

- Okay.

- One of the biggest leading indicators has been the yield curve.

- [AShira] Okay.

- So typically, a yield curve is upward sloping.

Interest rates on the low end - [AShira] Okay.

- are low and then on the high end you're earning more money by holding your money out longer term.

In this case, what the Fed's been doing is raising rates on that short end.

- [AShira] Okay.

- And so rates have been going up significantly this year and it's inverted the yield curve, so downward sloping.

- [AShira] Oh, okay.

- And that's usually 6 to 12 month leading indicator for recessionary period.

- How should consumers handle inflation with the rise in food costs?

Honestly, living any tips that you can provide?

- So, that's a tough question.

A lot of times what we typically start to do, or at least what I start to do when we see this type of situation in the market is look inward and say, okay, what do we really need versus what we want?

- Oh yeah, okay.

- Can we buy the brand that's not the luxury brand and buy the cheaper brand and - Absolutely.

- Is it the same quality and kind of question those things as you go through the grocery store and kind of pick and choose.

And same thing with, do you go out, do you cook at home?

So it's really kind of starting to pull back on spending wherever you can.

Obviously, you need to feed your family so that, that can't be compromised and really on rising costs of living, Wherever you can try and lock in rental rates, trying to negotiate - [AShira] Yeah.

- with landlords.

Some people are staying at home longer, living with their parents - [AShira] I'm for that.

- Longer.

- Yes.

If you have the option, go with it.

- If you have the option Go with it.

- Yes.

- It will save money in the long run.

- Absolutely.

- So, yeah, but good question, tough to answer for sure.

- Yes, yes.

So many different factors just play into it so.

Let's talk about financial steps someone could take to prepare for a recession.

- Sure, so I think the number one thing to do is to look at your budget.

- And look to say, okay, here's what I bring in, here's my typical spending and do I have any excesses left over?

And if I do, then I think this is a good time to say, look, let's put this aside.

Maybe not spend something on something you might really want or you have a plan in mind.

Just kind of reserve as much as you can.

It's really becomes - [AShira] Okay.

- a pullback strategy and being more conservative.

And if you already have assets in play and you're invested, then maybe being a little bit risk off.

So, not going for - [AShira] Okay.

- the big swings and the home runs just kind of, - [AShira] Right.

- getting a little bit more conservative overall in your investing and your spending.

- Okay, I like that.

So how important is an emergency fund during this time?

- I think it's very important.

You can't plan for everything.

We can't plan for illness, you can't plan for hardships.

- [AShira] Right.

- And if you are invested and all of a sudden you need funds and you don't have an emergency fund and you're in this market that we're in today, you're selling most likely at when something is declined in price.

So it hurts even more to sell when you don't have something - [AShira] Right.

- kind of in the wings helping you out.

So I think at this point in time, especially this year and next year, it's very important to have something built up if you can.

- How would you say the easiest way or practical way to establish an emergency fund?

- So I think it comes from, again, understanding, educating yourself, knowing what you have available to you from your income coming in and your expenses going out.

And also, if at any time you need to pull back from say, retirement funding maybe you, - [AShira] Oh, okay.

- Reduce that a little bit and say I need to keep more in my hands and building something up.

So it's kind of just on the margin.

- [AShira] Yeah.

- Pairing back wherever you can and being disciplined and not touching it.

That's the other factor that's... - Yes, I think that's the hardest factor for individuals.

- Sure, 'cause you kind of see it and it's there.

- Yes.

- So maybe setting up a separate account where you like allocate - [AShira] I like that.

- some of your pay or whatever you're bringing in.

You do a percentage and you say, let's put this aside.

It's outta sight out of mind.

I don't have to be tempted to spend it.

- Absolutely, absolutely.

I like that advice.

So any advice surrounding debt?

- Sure, so a lot of times people hear the word debt and they get scared.

- Yes.

- I think there's some debt instruments that are healthy.

- Okay.

- And okay.

It all comes down to kind of minimizing your costs.

So, interest rates are a factor and really mortgage debt is pretty much the healthiest debt option out there.

- [AShira] Okay.

- I would say from credit card and student loan and car loan debt, those would kind of be secondary if necessary.

But having some mortgage debt is okay.

You have an asset to support that debt and rates while they're high today are not as high as a credit card rate would be.

- Okay, okay, I like that.

So, during a recession many people need to borrow money through to just get through difficult times.

How can people better prepare to take on debt?

Like possibly tips on raising their credit?

- Sure, so credit scores are pretty much based on are you able to pay your payment, make your payments.

- [AShira] right.

- So, for sure if you haven't now I would start trying to make your payments on time.

- [AShira] Okay.

- You'd take out credit cards if only if necessary.

While it is helpful to have credit cards and showing a history of debt to boost your score, I wouldn't take out more than two or three.

And also, again, I think it's the biggest thing is just paying everything on time that you can from your mortgage to your car loan to your credit card debt.

- Yes, yes, very key, very key.

You kind of talked about credit history and having credit available.

Any advice on keeping credit accounts active through a recession?

- Do you mean like having a balance on your credit card?

- More so about should someone close a card or kind of keep that history going?

- Mm, so I think as in today's times, they still kind of ding you if you close a credit card down.

So again, as long as it's a zero balance, - [AShira] Okay.

- It's still on your credit.

But I think closing it - [AShira] Yes.

- might show a red flag to the credit agencies - [AShira] Yeah.

- and it's a little counterintuitive, but I would say keep it there.

Just don't draw on it or if you do draw on it make sure it's fully paid.

- Okay, so do you have any recession money rules that you kind of live by?

I know you mentioned that during 2008 when you graduated you went through the 2008 recession or real estate was down at the time.

Any money rules that you kind of follow?

- So I would say definitely pull back on spending and be ready to deploy.

You're gonna see opportunities going in and out of a recession to invest and buy things on sale.

So having whatever you can set aside ready to go is how I kind of view a recession.

- [AShira] Okay.

- From a tip standpoint.

- Okay.

What would you say, what industries do you say suffer the most through a recession?

- So typically, you see smaller companies and also growth companies struggle.

- Okay.

- It depends obviously for each company, but usually, smaller size or growth companies are so focused on growing the business and really quickly that they're not as focused on - Yeah.

- generating cash flow.

- Okay.

- Or secure cash flow all the time.

And so, you'll start to see that them struggle, those companies struggles.

Also, smaller companies rely on debt and so debt instruments, the rates are going up, because if Fed's - [AShira] Yes.

- raising rates.

- [AShira] It's so expensive right now.

- Right, right.

- [AShira] Yeah.

So, you typically see those industries hit harder than, the run of the mill.

- [AShira] Okay.

- Income-producing companies.

- Okay.

Hi guys, this is Forum 360 and I am your host AShira Nelson.

Today my guest is Katie Madzsar and she's providing steps we can take to prepare for a possible recession.

So, to jump back in to our questions.

So as an investor, what actions can people take to manage risks or mitigate from it?

- So, the stock market is not without its risks as you're seeing today.

- Yes.

- One thing is helpful is to understand where you kind of fall on the risk scale.

- Okay.

- Are you willing to take losses, but understanding that, that might yield future gains.

Or are you kind of like, I can't stomach watching this?

- [AShira] Yeah.

- and the news reports.

So you kind have to understand from yourself, on your own terms, are you risk averse?

Are you a risk taker?

And then once you establish that, implementing that into the way you invest and kind of saying discipline to that theory or the way - [AShira] Yes.

- that you manage risk, because if you stray from that, then you're not really, you're gonna feel it harder, because you're not sticking to what you feel is what's best for you.

So I think it's helpful to really self-assess.

- Oh yes, yes.

- And invest in that way.

And there's tools out there that you can do questionnaires and kind of come up with almost like what you feel from a gut check.

And those tools - [AShira] Okay.

- can then help you implement that into a portfolio.

- How can people use these different tools?

Like are they online, free resources available or?

- Yes, there's plenty of resources out there.

If you Google like risk questionnaires.

- [AShira] Oh okay.

- That should give you, it's a lot of it is theory based and kind of emotionally how people respond.

And based on those responses you give to the different questions, it's usually a 10 question quiz.

- Okay.

- A questionnaire and it then kind of gives you can take moderate risks or you're more of aggressive investor and from there you can put that into a portfolio structure.

- Okay, great tip.

So what advice do you have for your clients during these hard down times?

- Sure.

So one of the advice we try to give, it's obviously, very personalized and individualized, - Yeah.

- 'cause everybody has their pressure points and what they're most worried about.

But it's pretty much trying to explain that, try not to look at your portfolio every day or every week.

- [AShira] Okay.

So don't look at it.

- And we're in this for the long run and over time things will improve.

We've lived through this before, there's been more than one recession in the history of the stock market and the economy.

So it's really just kind of be patient.

- [AShira] Yeah.

- Ease the fears as best as we can and we'll get through it.

- Okay, so how important is it to kind of stick to your plan during a recession?

- So I think it's very important.

- Okay.

- 'Cause you hear news reels or you see things or you see your portfolio.

- Yes, it's social media.

- Yeah.

- Yeah, social media, your portfolio and conversations with your neighbor.

It's so many different factors so.

- Right, right.

So it comes down to what are your goals?

Do you need this money in the long run or the short term.

You invest in that manner.

- Okay.

- And then you try to stick to the plan, 'cause at the end of the day the plan will work and trying to react to something you might hear could maybe potentially benefit you.

But it's hard to see that.

- Yeah.

- And by sticking to the plan, you kind of take the emotion out of it and you really just kind ride the wave and make it out the other side.

- Okay, okay.

So what advice do you have for investors trying to time the market?

'Cause that's always a huge factor or conversation, especially, for the media also.

- Right, so typically being the long term focused.

Time in the market is number one very, very difficult.

- [AShira] Yeah.

- You're never gonna know when the lowest point is in any given cycle, market cycle.

It's okay to be in the baseball analogy in the second income and in the second inning.

- [AShira] Yeah.

- It doesn't have to be the lowest point, but you can hit it at something that's a little bit lower.

- [AShira] Yeah.

- And still make profits at that point in time.

So really try not to stress on, I have to get in at the ultimate bottom.

- [AShira] Right.

- And just have kind of an approach where you say, okay, I see it a target price, or I see something go down to a certain percentage and now I'm gonna use that as my trigger to go back in and you're gonna still do well even if you don't hit the day.

It's kind of a bit of luck in that case so.

- I like that.

I like the analogy of the second ending.

I never really thought of it like that, but that's a great, yeah.

'cause you can still win the game so.

- Yes.

- Yeah, so how do you handle conversations with clients when let's just say they like, okay, I think this might be the bottom, let's go for it.

Let's buy more.

- So I think it's a combination of things.

One, we try to stick to the ultimate plan, like I mentioned before, and the longer term picture and not so much on the short term.

- [AShira] Okay.

- Most of the time recessions can be lived through within 14 to 18 months.

So it's a short amount of time.

- [AShira] Oh, okay.

- So we try to remind clients of that.

But ultimately, if they're not comfortable and they really wanna - Yeah.

- make a change, we try to facilitate that and also, educate at the same time.

- Okay, okay.

So if the stock market is down, which we all can see that right now based off our portfolio, what are some other alternatives an investor can consider?

- So also a very difficult question to answer.

This year specifically, there's been no good place to be invested.

- Yeah, okay.

- Kind of across the board from bonds to stocks.

- [AShira] Okay.

- I think we're all surprised that the stock, the bonds have been acting almost like stocks.

- [AShira] Yeah.

- So, they normally... - How do they normally operate?

- So, normally when there's volatility or there's downturns in a stock market, bonds typically stay steady or might go down, - Oh, okay.

- but not down as much as stocks.

- Okay.

- So while they're not exactly down as much as a stock is, they are still down pretty significantly.

So this time around bonds usually are the answer.

They weren't really the answer.

They're still part of the portfolio and it's important, - Okay.

- but really cash has been the best place.

And also, kind of sticking to more risk averse, very, very secure assets.

- Oh, okay.

- So US treasuries like government securities, that type of thing where they're not gonna go bankrupt and things like that.

- Okay.

- So cash and some bonds, but specific kind of bonds.

- Have you heard of, I think they're called I bonds.

- Yes, I have.

- Okay, would that fall into this type of category?

- Yes, I would think so.

- With the treasury stock.

- They have limits like how much you can purchase, - [AShira] Okay.

- So you wanna look into that.

- [AShira] Okay.

- But they were having significant yields.

So more income being generated from that bond than in the past, 'cause it's affected by how the interest rates are changing.

- Oh, okay, okay.

So, just do a little more research before kind of jumping - Research.

- into that option.

- Right, absolutely.

- Okay, okay.

So financial experts like to recommend investors to buy the dip.

I know we kind of talked about it a little, but what would you say to that like general type of advice?

- So it's hard to say if it works out in the long run.

Some people like being more active in their trading and so I could see that - Okay.

- being something that they would wanna participate in.

Again, kind of from this side of the table and the way we manage money, we try to stay the course.

- [AShira] Okay.

- Not necessarily try and time things again and just be cognizant of what you can do with your money and try not to be so focused on inter day change or intra week changes in the market.

- Okay, okay.

So there's no real senses on whether a recession will likely occur in the next quarter, next 12 months.

Any thoughts here?

- So I think it's gonna be hard to not get into a recession over the next, I would say six to nine months.

- Okay.

- We think interest rates are still gonna go up one more time if not more.

Inflation is still an issue.

And then again, if you see any changes in the jobs report or even just global manufacturing activity, that's also something - [AShira] Okay.

- that's to be aware.

- [AShira] Okay.

- And if we start to see various triggers change, I just don't see how we can avoid a recession coming in the next year.

- Okay, okay.

Is it possible to build wealth for the average investor through a recession?

- I think so.

Again, kind of going back - Okay.

- to the earlier comments on wherever you can start building up something no matter how big or small it is, and then be ready to put that into the market if you're able to stomach being invested in the market and kind of coming, not necessarily in the throws of the recession, but coming out of the recession, you should start to see portfolios definitely build.

- Oh yeah.

- And earn more as we kind of recover.

Come out of that recessionary period.

- Okay, what advice do you have to offer for beginning investors like the fresh out of college?

- So my advice would be just start.

- Okay.

- It's the hardest thing to do at times, but I would say even if it's 100 bucks, 300 bucks, just start small and keep it simple.

The kiss method.

- Okay.

I like that, okay.

So, let's dive a little bit, not too much, but the idea of keeping it simple, what does that look like?

- So there's obviously, a multitude of investment options out there and you start seeing things on the media, social media, and to invest in this stock or that stock.

- Yes.

- But really just say, am I comfortable with ups and downs?

How comfortable am I?

And buy the S&P500, - Oh, okay.

- One position, maybe two positions and buy a bond.

Kind of have a blend approach and you don't have to worry about trying to have every single unique company out there in your portfolio.

You can keep it to a couple names and still experience positive returns as you kind of are in recovery phase and on the downside have the bonds to protect the portfolio.

- Okay, so one final question I like to ask all of my guests.

So what would you like to be remembered for?

- I would like to be remembered as being a kind person and giving back to those who need it.

- Okay, okay.

Well, thank you, Katie, for being here.

I am your host, AShira Nelson, and this is Forum 360 where we have a global outlook from a local view.

Today Katie shares steps on how we can prepare for a possible recession.

And I hope this helps you as we look into the future.

Have a great day.

(upbeat music) - [Promoter] Forum 360 is brought to you by John S. and James L. Knight Foundation, The Akron Community Foundation, Hudson Community Television, The Rubber City Radio Group, Shaw Jewish Community Center of Akron, Blue Green, Electric Impulse Communications and Forum 360 supporters.