No. 3. Be ready to buy when stock prices plunge: Markets typically tank in recessions. Use the cash you raised from selling your garbage holdings and develop a plan of action while you are still calm and objective. Have the confidence to act when the time comes.
It can be simple, too. For example, plan on deploying your cash in tranches: Buy a U.S. index fund when markets are down 20 to 25%; add a developed global index fund when markets fall by 30%. And if we are lucky enough to enjoy a 35 to 40% decline (that's assuming you prepared for this moment), buy emerging-market stocks.
The trick to create this plan NOW, set some alerts and be prepared to put the cash to work when the predetermined levels are hit. You might look (and feel) foolish for a few months, but seem like a genius a few years later.
No. 4. Check and clean up your credit score: I found an erroneous blemish on my credit rating some time ago that took two years of arduous work to remove. Improving your credit score allows you to borrow at more advantageous prices. This helps if you want to refinance when mortgage rates drop, which usually happens during recessions, or take advantage of falling prices to buy a home. Improve your credit score when you don’t have to.
I hope I am wrong, and we don’t see a recession for a long time to come, although that seems unlikely. But even if we are fortunate enough to never have another recession, all of the steps described above will serve to help you get your financial house in order and make you a better investor.
This column was provided by Bloomberg News.