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Don’t let a second recession catch you off guard

So when will the economy get the news?

It was reported late September that the “Great Recession” has ended. At least that’s what the National Bureau of Economic Research, a private, nonprofit, nonpartisan research organization had to say.

The organization ruled that June 2009 was the official end to the recession that started 18 months prior and based this ruling mainly on the rise in gross domestic product over the past four quarters. While this group is considered the “official” party to call and end recessions, there are a number of other economists and scholars, as well as most American people, who would argue this announcement.

While we may have seen positive economic output over the past four quarters, the Federal Reserve has opted to not increase interest rates — which are evaluated each month and set based on the strength of the economy — and has even gone as far as explaining the reason the rates remain unchanged is due to the economic recovery “slowing in recent months.” And while this ruling may mitigate the likelihood of another recession being called a “double-dip” recession, the recent sputter of the economic growth and the continuation of its downturn would land us in “another,” albeit “brand new,” recession.

Regardless what you call it, the indicators are still there: high unemployment and an unstable real estate market, combined with reduced consumer spending, growing federal debt, the possibility of tax increases and more. It’s no wonder that consumer confidence is low.

So what does this mean to you? Since North Carolina is experiencing it’s own economic difficulties, including 9.7 percent unemployment rate — higher than the national average — it’s important that you take strides to protect your finances in the event of a second, brand new recession.  Here are a few tips to get you started:

1.) Learn from experience: Reflect on how your personal finances faired at the end of 2008 and, if you could have a “do-over,” what would you have done. If you lost too much in the stock market, reconsider your risk tolerance. Be sure your investments match your goals. If you need that money to cover expenses, such as college or retirement in the next three to five years, then make sure it’s invested more conservatively. Additionally, consider “noncorrelated” investments, such as interest-bearing accounts, insurance products or government bonds. While you may only earn low returns, there is a much lesser risk of losing any money due to market volatility.

2.) Take control of your money:  Remember, no one will care for your money as much as you will. Whether it is ponzi schemes or scams, or just the error of an uninterested 401(k) plan administrator who placed your retirement savings in high-risk options, one thing is for sure: You need to be involved. Get reacquainted with your adviser’s financial plans for you, ask questions and hold them accountable. If their plans don’t match your goals, get a second opinion. Double check your investments on “auto-pilot” and make sure that your changing needs don’t warrant a change in investment strategy.

3.) Turn a “taxing time” into a tax-advantageous time: With the fear of increased income taxes, coupled with the already passed increase to capital gains and dividends taxes, be sure some tax planning is in your immediate future. Consider tax-advantageous investment options, such as a Roth IRA for retirement. This is the year that Roth conversions come with the most benefits, one being that converting now allows for you to pay taxes on the principal at today’s rates and not at tomorrow’s projected increased levels. Additionally, you may want to reconsider your investment strategy in order to reduce your taxes. If paying your income tax rate on short-term capital gains makes the allure of its associated risk less appealing, perhaps dump the investments now and consider more tax-advantageous investments moving forward.

Whether it’s called a double-dip recession, a brand new recession or an economy in recovery, one thing is certain: You need to take an active role in planning and protecting your finances. While the odds are still in favor of a recovery lasting, one can never be too sure.

Bryan Philpott is a registered financial consultant and Todd Witt is a financial adviser, both for Aspire Wealth Management, a financial-advisory firm headquartered in Cornelius.

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