man with laptop on desk terrified by stock market chart

A short lesson on navigating YOUR FIRST recession

Risk Management

Recession is a scary, but ordinary word. 

According to the International Monetary Fund, any given economy is in a state of recession 10-12% of the time. Consider that within the context of 195 countries, each with its own economy. Recessions aren’t rare! What is rare, is knowing in advance, when one occurs.

What is a recession? The formal definition is two consecutive quarters of negative real Gross Domestic Product (GDP). But, when its raining, you don’t need someone to tell you “it’s raining”, just look out your window. A parallel can be drawn. The formal definition of a recession may not apply to your personal situation or the industry within which you are working.

man with laptop on desk terrified by stock market chart
Photo by Karolina Grabowska on

What does the frequency of recessions mean for you? It’s not a matter of “if,” but “when” the next recession will occur.  Knowledge allows you to make informed decisions, and recognizing this reality is an important first step towards preparing for it.

The BBC released an October 14, 2022 article, “Why Gen Z are right to be worried about money.” YES, there is much to be concerned about at the moment. Inflation, rising interest rates, an uncertain job market, financial insecurity and global conflict. Adversity comes in different, shapes, sizes and colors – but in some form, it is a constant companion on our life and our financial journey. Worrying is ok, doing nothing about it, is not.

In the face of adversity, we are measured by how we respond.

Let’s look at 4-steps you can take today.

Build an emergency fund: Understand your essential costs, and begin to build an emergency fund that will cover 3, 6, then 9 months of living expenses. Don’t panic if you don’t have one. Big gains in your financial well-being don’t occur with a single step. They occur through the successful completion of many small steps. Take that first step, no matter how small.

Build your human capital: Make yourself less likely to get fired and more hirable in the event that you do. In a recession companies may lay off employees as sales slow and revenue drops.  Take steps today, to maximize the likelihood of keeping your job when the economic environment does worsen.  Examples include on the job training, pursuing professional certifications or higher education.  In the event that you do experience the loss of your job, this step will still be of BIG value.  Why?  Because , no one can take away YOUR human capital. You are more qualified for that next job which you are now pursuing.

Build a financial plan: When something you want to own for a long time goes on sale – in the case of a recession, the stock market, the prudent thing is often to buy more. This is easier said than done when in the midst of difficult circumstances.  Build a plan that recognizes recessions as a reality and write down what you will do when one occurs.  For example, “I will cancel these three subscriptions and use that money to continue contributing to my Roth IRA.” This IS NOT the time to invest a little bit less to “try and time the bottom.” It IS the time to buy a little bit more each contribution period. 

Get ahead and stay ahead: This financial approach isn’t talked about as often as it should be. Use good times or good fortune to get ahead financially. For example, record homes sales created a boom for realtors. Rising interest rates have made homes more expensive and now reversed that reality.

To stay ahead in bad times, you’ve got to get ahead in good times.

Own your financial future.

About the Author

Gene Natali
Gene Natali

Gene Natali is Co-founder and CEO of Troutwood, a software company founded out of the Carnegie Mellon University Swartz Center.  He is a Chartered Financial Analyst, board member of CFA Society Pittsburgh, Executive in Residence at the Black School of Business|Penn State Behrend and a part-time lecturer at the University of Pittsburgh, where he has taught Personal Finance since 2015.

Prior to founding Troutwood, Gene spent 17-years personally working with some of the largest and most sophisticated institutional investors and retirement plans in America.  He is an award-winning author (The Missing Semester), has spoken in over 1000 unique high school and college classrooms, and regularly keynotes investment and education conferences across the country. 

Gene holds an MBA with a concentration in finance from Carnegie Mellon University and a bachelor’s degree with a concentration in economics from Allegheny College. He, his wife, four children and chocolate lab, live in Pittsburgh, Pennsylvania.


what is liquidity

What is Liquidity? 

Risk Management & Insurance

Short Answer: Wondering what is liquidity? It’s how quickly something of value can be converted into cash.

What is liquidity?

If you need money fast, how quickly can you turn something of value into cash? That’s how to define the liquidity of any asset.

Liquidity is a spectrum, with some assets being more or less liquid than others. To add another wrinkle, a very liquid asset should be able to convert to cash without an impact on its market price. 

For example, if someone has a comprehensive Pokemon collection, it may be very valuable. However, it’s not very liquid. If they needed to sell it, it wouldn’t be very easy. It’ll likely take time to find the right buyer, or they may have to sell it off piece by piece. Additionally, if they’re under pressure for cash, they may settle for lower offers, missing out on the true value of the card collection.

Every item of value has some form of liquidity, but some more than others. When determining liquidity, consider:

  • Can I get my money? 
  • How long will it take to get my money? 

Range of liquidity

Understanding liquidity more about asking “How liquid?” instead of “What is liquidity?” 

Assets come in a range of liquidity, from very liquid to less liquid. 

Consider the following assets and their liquidity:

  • Cash. This is the most liquid asset. In the case of an emergency, having cash on hand is helpful, as you can cover the costs as quickly as possible without losing its market value. 
  • Bonds. Treasury bills and bonds are especially liquid. These bonds are backed by the government and can be sold in the secondary market, even if they haven’t matured. 
  • Investments. Stocks, mutual funds, and ETFs trade on public exchanges, meaning they’re fairly liquid. Typically, you can get the cash in a few days. However, liquidity in stocks can be tricky. If the market is down and you need to sell, you stand to lose some of the asset’s value. 
  • Real estate. A home or other property is considered “illiquid” or not very liquid. If you were in a bind and needed the value of your home in liquid form, it’d take a while to sell, and if you’re under pressure, you may get less than market value. 
  • Fine art, jewelry, or antiques. Whether it’s a notable painting or specialty collector’s item, fine art, antiques, collectibles may be the most illiquid. To realize the market value, you’ll need time to find the perfect buyer willing to pay. Similarly, if you need to sell jewelry fast, you may take it to the pawnshop, where you’d likely net much lower than the item’s market value. 

The above examples are just a sampling of assets and their liquidity. 

Importance of liquidity

Figuring out what is liquidity can help you determine if your budget can handle an emergency or unexpected expense. 

With the right liquidity balance in your finances, you’re less likely to take on credit card debt or another form of personal loan when an emergency crops up. 

For example, say your car breaks down. The repairs cost a few grand, and you need to repair it as soon as possible to get to work. If you don’t have liquidity in your finances and have no easy way to get cash fast, you may take on credit card debt (or some tool like Afterpay) to pay for the repair. 

On the other hand, if you have cash, or another highly liquid asset set aside for an emergency, you can pay for the car repairs quickly, without waiting for cash, taking on debt, or losing the market value of a less liquid asset. 

Having liquidity built into your budget is an important part of financial planning. If you don’t have an emergency budget, consider setting a financial goal to set aside three to six months of living expenses in a liquid account.  

Liquidity, in some form, in your finances can lend you peace of mind if and when an emergency strikes. 

Extra Credit

How do I determine my liquidity? 

Figuring out personal liquidity in your finances can help you prepare for emergencies. Create your own simple balance sheet of assets and debts. Rank them from most liquid to least. Do you have three to six months of highly liquid emergency savings? 

Another way to tackle liquidity is by playing out the following hypothetical scenarios.:

  • How would I cover expenses if I lost my job? 
  • How would I pay the medical bill for a broken leg? 
  • How would I cover the cost of a $1,000+ car repair?

“How important is FDIC and why do I need it?”

Risk Management & Insurance

Short answer: FDIC protects the values of your checking & savings accounts

If you’ve ever walked into a bank branch, chances are you’ve noticed one of the ubiquitous “FDIC insured” signs on the window. It’s certainly a financial hoop that banks must jump through in order to function, but it’s actually an extremely valuable assurance to customers.

FDIC stands for Federal Deposit Insurance Coverage. If you bank at a credit union, you might have seen it’s sister agency National Credit Union Agency (NCUA.) FDIC and NCUA were formed in 1933 by Franklin Roosevelt. It was part of the New Deal, intended to re-inflate the economy after sharp declines in prices and boost consumer and investor confidence after the Crash of 1929.

Understanding the why can us understand FDIC’s valuable to this day.

So how does it benefit you?

FDIC protects the balance of certain accounts in the event of a bank liquidity or insolvency event. (We’ll get into account types below.) Depositors are guaranteed a recovery of their money up to $250,000 per account. Covered accounts include: deposit accounts, savings accounts, checking accounts, CDs, cashier’s checks, and accounts denominated in foreign currency.

Accounts that are not covered by FDIC: Stocks, bonds, mutual funds, and money funds. The Securities Investor Protection Corporation is a separate entity that protects against brokerage failure or insolvency (not investor losses, however.)

With growing options on where to put your money, it’s important to know when you’re protected and when you’re not.

Finn’s Fact:
Prior to 1933, and the New Deal, banks were at risk of going “belly up” if too many depositors withdrew their money too quickly. These situations created panic both for banks and for consumers, since many banks did not have the cash on hand to cover all of the withdrawls. Therefore, those who did not make it to the bank “in time,” lost all of their money.