Recession Survival Guide
“Recession.” It’s right up there with “We need to talk” as one of those phrases that makes your stomach drop. Now, we’re not here to unpack why relationships fall apart (we’ll leave that to the therapists), but we can talk about how to survive a recession—and spoiler alert: it might not be as terrifying as people make it out to be. Before we get started, we are fee-only financial advisors in California serving La Jolla and the surrounding communities as well as clients all over the country.
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This blog is your step-by-step guide to navigating a recession—whether we’re headed into one or not. Just to be clear: we’re not predicting anything. We don’t have a crystal ball (though if we did, we would’ve bought Apple stock before the boom). What we do know is that the economy moves in cycles. Ups and downs are part of the process.
At the present moment, there’s a lot of noise—economic changes, political shifts, headlines flying across social media. And in times like these, understanding the bigger picture helps quiet the panic. Here's the truth: market downturns are natural. Just like your body needs rest to stay healthy, the economy needs slowdowns to reset. But just like a green juice cleanse, what’s good for you doesn’t always feel good. We all want the cupcake—but sometimes we get the carrot.
So… what Is a Recession, Really?
Let’s break it down.
A recession is technically defined as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.” (Wikipedia, n.d.)
Translation? The economy slows down because people stop spending money. Here's how that ripple effect works.
How a Recession Unfolds (Without the Jargon)
People spend less.
Inflation makes things more expensive, so consumers pull back.
Example: Remember when your grandparents said a movie ticket cost $0.10? Now it’s $15 for the ticket, plus $30 for popcorn and a soda. Netflix starts looking pretty good.
Businesses feel the crunch.
Less spending = fewer customers = lower revenue. Especially for small businesses, that can mean closure.Hiring freezes and layoffs follow.
Companies cut costs to survive. That means fewer jobs, and especially tough times for new grads trying to enter the workforce.Degrees start to lose value.
With fewer job opportunities, many pursue higher education. But when everyone does the same thing, degrees get “diluted.” More debt, fewer jobs, more stress.People pull back from investing.
When wallets feel tight, people take fewer risks—including in the stock market.
That’s when we enter what’s known as a Bear Market—a market that has dropped more than 20% from its recent peak. It continues until it rebounds by 20% from the lowest point.
So yeah—it sounds rough…
And it can feel rough, too.
But here's the thing: recessions, while uncomfortable, are necessary.
They are part of how the economy stays healthy. During boom times, money flows fast, demand spikes, and prices rise (that’s inflation). A downturn helps reset those imbalances. You can think of it like the seasons—winter may feel harsh, but it prepares the soil for spring.
Still not sold? Picture this (thanks, Fidelity!): imagine the economy like a circle—ever-moving, ever-cycling. Recessions aren’t the end of the story. They're just the plot twist before the comeback (2025)
So... How Do You Survive a Recession?
We’re glad you asked. Here’s your recession survival guide—
1. Save Like Your Future Depends on It (Because It Might)
We know saving is tough, especially when the cost of living feels like it's on a treadmill—at full speed. In fact, the personal savings rate has dropped to around 4.9%, down from 12–22% just five years ago (St. Louis Fed, 2025).
But this is exactly why it’s crucial to:
Aim to build (or increase) your emergency fund to cover 6+ months of living expenses.
Prioritize cutting flexible (non-essential) spending—think streaming services, dining out, or impulse buys.
Make sure your savings earn something. A high-yield savings account is a good start, but there are other options that can work even harder for you. We’re happy to help explore them with you.
2. Diversify, Diversify, Diversify
“Don’t put all your eggs in one basket” is more than just one of those lines you hear but never really understand—it’s an investment principle.
Whether you’re working with an advisor or self-managing, ask yourself:
Is my portfolio diversified across sectors, asset classes, and risk levels?
If my portfolio dropped 20% tomorrow, could I stomach the dip?
Let’s simplify this with a story:
You have $1,000 to invest and five friends with start-up ideas. You love Joe’s chocolate shop, so you give him all $1,000. Then, news breaks that chocolate causes a rare illness. Joe goes under—and so does your entire investment.
Now, instead, imagine you gave $200 to each of your 5 friends, spreading out your risk. Joe’s shop still fails, but Sarah’s flower shop blooms (pun fully intended), turning your $200 into $320 (let’s stick with simplicity and assume your other three friends didn’t make or lose money). You’re only down $80 overall—not $1,000. That’s diversification in action. It's insurance for your wealth.
3. Don’t Panic—Stay Invested
It’s tempting to “get out” when the market drops. But history shows that staying put is often the wiser move.Unless you absolutely need the money, avoid selling during downturns. You don’t want to miss the market’s best recovery days.
“Be fearful when others are greedy, and greedy when others are fearful.”
—Warren Buffett
In fact, Exhibit 2 (a 2025 study by Dimensional Fund Advisors) shows that missing just a few of the market’s best-performing days can dramatically reduce your long-term returns. It’s a marathon, not a sprint—sit tight and let your portfolio do the work.
Final Thoughts: This Too Shall Pass
From the dot-com bubble to the 2008 housing crash, the U.S. economy has weathered some serious storms. And every time, it came back stronger.
These times can be hard—but not hopeless. They’re part of the cycle. If you're prepared, diversified, and focused on the long game, you'll not only survive a recession—you might even thrive.
We’ll leave you with this:
“You must have hope. If the people have no hope, then there would be no point to do anything.”
—Unknown
You're reading this because you do have hope—and maybe even a plan. And that’s a great place to start.
We are fee-only financial advisors in La Jolla. If you’d like to discuss your retirement savings strategy, please reach out to set up a time.
Marcelle joined Financial Alternatives in 2024 as a Financial Planning Analyst. She assists senior advisors with the financial planning process for clients. A recent graduate with a BS in Finance from San Diego State University, Marcelle will soon begin her education requirements to sit for the CERTIFIED FINANCIAL PLANNER® exam.
Sources:
Chen, James. https://www.investopedia.com/terms/b/bearmarket.asp#:~:text=Error%20Code%3A%20100013)-,Definition,generally%20of%2020%25%20or%20morevestopedia. Bear Market Guide: Definition, Phases, Examples & How to Invest During One. https://www.investopedia.com/terms/b/bearmarket.asp#:~:text=Error%20Code%3A%20100013)-,Definition,generally%20of%2020%25%20or%20more
Dimensional. 2020, March 4. Recent Market Volatility. https://www.dimensional.com/ca-en/insights/recent-market-volatility
Fidelity. 2025, April 1st. What's a recession, and how does it work? https://www.fidelity.com/learning-center/smart-money/what-is-a-recession
U.S. Bureau of Economic Analysis, Personal Saving Rate [PSAVERT], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PSAVERT, June 12, 2025.
Wikipedia. Recession. https://en.wikipedia.org/wiki/Recession