Whether or not you believe a recession is imminent, you can take steps to prepare your finances.
Historically, recessions have ranged in length from two months (the COVID-19 downturn in 2020) to more than five years (the Great Recession of 2007-2009).
But this week’s stock market tumble, economic reports suggesting slowing growth and rising anxiety are fueling worries. In January, consumer spending dropped for the first time in nearly two years—even after adjusting for inflation and the typical pullback after holiday buying season.
The Commerce Department recently revised its estimate of gross domestic product, the economy’s overall measure of size and health, to a contraction in the first quarter of 2025. The report also cited the effect of President Trump’s tariff policy on trade with China and elsewhere.
General fear proxies such as the VIX index rose to record highs this week, reflecting growing concern about the impact of slowing global growth on markets and consumers. However, Google searches for the term “recession” have increased to levels not seen since the COVID-19 pandemic, suggesting that fears are largely political and psychological, rather than grounded in current economic data.
During economic downturns, unemployment rises sharply, the value of stocks falls and it becomes harder to obtain credit. You can protect yourself by following a budget, saving money and avoiding debt. You may also want to consider diversifying your portfolio. Ideally, your investments should be diversified to match your risk tolerance and the length of time you plan to stay invested.
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