ChatGPT Tips For Recession-Proofing Your Finances

Financial recessions will always be a part of the landscape as economic cycles change. Although we cannot predict the next economic downturn, we can still take proactive steps to secure our finances in times of uncertainty.

I was wondering what I should ask OpenAI’s ChatGPT How to Prepare for a Recession

The answer is:

Recession tips from ChatGPT

Prepare for a potential recession by combining financial planning, personal development, and risk management. Although it is impossible to predict the exact date of a recession, you can prepare yourself by taking these steps:

1. Build an emergency fund Save 3 to 6 months of living expenses into a low-risk, easily accessible account such as a money-market fund or high-yielding savings account.
2. Repay high-interest debt Reduce your debt, especially high-interest personal loans and credit cards. It will increase your financial flexibility during a downturn and reduce your risk of default.
3. Diversify your investment: Diversifying your portfolio will help you protect yourself from the volatility of the market. You can tailor your portfolio to suit your financial goals and risk tolerance by combining stocks, bonds and other assets such as real estate and commodities.
4. Keep a high credit score A good credit rating can be beneficial in a downturn, since it could provide lower rates of interest on credit cards or loans.
5. Review your budget: You should regularly assess your income to ensure that you’re not living beyond your means. Prioritize essentials such as food, housing, utilities and groceries and cut unnecessary costs.
6. Continue investing Fear of recession should not cause you to stop investing. Stay with a long-term investment plan investment plan Dollar-cost averaging can be used to capitalize on potential market declines.
7. Develop your professional skills Investing in yourself by learning new skills, obtaining certifications or completing education will increase your value on the market. You can use this to maintain or find work during a recession.
8. Maintain a solid professional network In order to find new opportunities for employment or gain support in difficult times, networking is essential. Attend industry events and take part in online forums. Stay connected to colleagues.
9. Establish multiple income streams: Consider creating additional income streams by starting a side business, freelancing or investing in rental property. This can give you extra financial security if there is a recession.
10. Stay updated: Stay informed by regularly monitoring economic indicators, news, or expert opinions. This will allow you to make better financial choices and adapt your plans accordingly.

ChatGTP Specific Asset Investment Strategies for A Recession

All of the above tips are useful not just for a time of recession, but in general. What I wanted more information about was what investments performed better. What specific investments perform better? “highest performing assets in recession historically.” It said:

Certain assets have historically shown resilience and even performed well in recessions. These assets were considered safer investments in economic downturns, even though past performance does not guarantee future results.

1. Government Bonds Government bonds, which are generally considered to be safe assets, and especially those that come from stable countries like the United States have done well in recessions, as investors look for less risky investments.
2. Treasury Inflation Protected Securities Bonds issued by the U.S. Government are designed to protect you against inflation. They are a hedge for rising prices in a recession as their value increases along with inflation.
3. Gold: Gold Gold has always been considered a safe haven during economic downturns. Investors flock to gold when the financial markets and currencies are insecure.
4. Consumer staples stocks: During recessions companies that produce essential goods such as household products, food, beverages and other household products tend to be more resistant, because the demand for those items is relatively stable.
5. Stocks of utility stocks Investments in utility companies such as those that provide electricity, gas and water services are usually more stable and have lower volatility. This makes them an attractive investment during economic downturns.
6. Dividend-paying stocks: Dividend-paying companies that have a proven track record of dividend payments can offer a reliable income and stability during recessions.
7. Defensive Stocks In recessions, companies in the healthcare, pharmaceuticals and telecommunications sectors tend to perform well, since their products and service are still in demand.
8. Cash and cash-equivalents When the market is volatile, holding cash or cash-equivalents like money market funds, short-term certificates or deposit can help to preserve capital and provide liquidity.

What about the specifics? So I asked. “can you give me the performance numbers of each asset class during the last recession?”

The response was:

The performance of different asset classes during the Global Financial Crisis, or the recession of 2007-2009, differed depending on the time period and assets taken into consideration. Here is a rough overview of some key asset categories during that time:

1. U.S. Government bond: The 10-year Treasury bond yield in the U.S. dropped from about 5% in 2007, to a low around 2% at the end of 2008. This led to a substantial price increase for existing bondholders.
2. Treasury Inflation Protected Securities TIPS performed worse than nominal Treasuries due to the low inflation expectations during the crisis. They still outperformed other equity classes and provided positive returns.
3. Gold: The gold price increased by more than 25% between 2007 and 2009, going from $840 an ounce to $1,100 at the end.
4. Consumer staples stocks: While the S&P 500 index experienced a decline of around 56% from peak to trough, the Consumer Staples Select Sector SPDR ETF (XLP) experienced a drop of approximately 30%, showcasing the relative resilience of this sector.
5. Stocks of utility stocks During the recession the Utilities Select Sector SPDR ETF(XLU) saw a drop of about 40%, which was not as severe as the overall market decline.
6. Dividend-paying stocks: Dividend-paying stocks’ performance varied according to the company and industry. For example, iShares’ Select Dividend ETF, or DVY for short, dropped by about 55%, in line roughly with the broader stock market, during the recession.
7. Defensive Stocks Healthcare and telecommunications, which are defensive sectors, experienced lower declines than the overall market. Health Care Select Sector ETFs (XLV) & Vanguard Telecommunication Services ETFs (VOX) both experienced losses of around 37% & 30% respectively.
8. Cash and cash equivalents Cash or cash equivalents are a good way to preserve capital and provide stability during a recession.

You can also read our conclusion.

I didn’t find the advice given by ChatGPT to be great or bad. Just a high-level general opinion. I believe that as AI improves, we will get more precise advice. I think I should also learn how to use the prompt more effectively.

The logic was clear when I asked for a specific performance.  Buy gold. Before investing, always seek advice from a professional financial advisor (not an AI bot).