The current economic climate has many people worried. In times of recession, priorities shift, and even historically solid industries like pharma will feel the pressure. What that looks like will differ from company to company, but it would not be unusual to see mass layoffs, mergers, hiring freezes, or reduced bonuses.
Unfortunately, despite a long-range positive market for pharma, life sciences, and healthcare, employees are not immune to the broader economic cycle. While the companies will (mostly) survive, it might be at the expense of their employees.
Above all – don’t panic! Protecting yourself from recession is about being financially flexible, and a well-structured financial plan can help you stay confident despite the ups and downs.
Today, we’ll share a few practical ways you can recession-proof your financial plan.
Build Up Your Cash Reserves
Liquidity is one of the most critical things to focus on in recession planning. When the economic outlook is good, you may have prioritized investment over cash savings, but in uncertain times, building a robust emergency fund might be the smartest thing you can do.
Even if your company is stable and established, anything can happen. Product launches could be delayed, incentives might be dialed back, or clinical trials might not go the way the company had hoped. Of course, there are myriad other potential challenges. Still, the point is, a strong emergency fund can help you absorb these shocks without having to start withdrawing from your investments or disrupting your lifestyle.
Save enough for three to six months of expenses for a dual-income household, or up to 12 months for single-income households, executives, or employees in highly specialized roles.
If you receive a significant portion of your income through bonuses, stock options, RSUs, etc., it might make sense to pack in some extra reserves to offset compensation variability.
Give Your Monthly Spending a Stress-Test
Do you know where your money goes each month?
If you’re a high earner, you might not think about this too much. However, the expenses you commit to during peak earning years might prove challenging during a market downturn. Mortgages, luxury vehicles, private schools for your kids, vacation properties, and high discretionary spending can be hard to justify when compensation is clawed back.
What I find to be a useful exercise is to audit your spending and sort items into three distinct categories:
1. Essential
2. Lifestyle
3. Discretionary
Doing so will give you a clear picture of where your money is going. It will also allow you to reduce in certain areas, as needed.
Financial planning, including recession planning, should be flexible. The goal is not to whittle it down to nothing but to have options. You can re-adjust as the situation changes.
Diversify Your Portfolio
If the bulk of your investments is in company stock, stock options, or any deferred compensation, your concentration risk rises. During a sector downturn or a recession, this can be particularly risky.
Keep in mind that if there are layoffs, your income and portfolio value will decline.
Ideally, to reduce the risk, you’ll want to diversify across asset classes, industries, geographies, and tax treatments. You won’t want to sell all your company stock, but building a more structured diversification strategy is smart, as you will likely be able to avoid emotional decision-making when shifts occur.
Review Your Bonus Structure
Your compensation structure likely included bonuses, incentives, performance awards, and equity vesting schedules.
Keep in mind that, during a recession, your company may reduce or even eliminate variable compensation before they’ll cut your pay. If you’ve come to depend on your bonuses and the powers that be decide to do this, you could face some cash flow stress.
Here are a few tips to mitigate the fallout:
· Recurring expenses should be covered primarily by salary.
· View bonuses as supplemental income, not a main income stream.
· Use variable compensation strategically, such as for retirement fund top-up contributions, paying down your mortgage, saving for college tuition, or paying off debt.
The less you rely on variable compensation as your primary source of income, the more resilient your financial picture becomes.
Keep Investing
While some might think abandoning all investing activity is the smartest thing to do in a recession, the opposite is actually true.
Sure, the downturn might be uncomfortable, but if you remain disciplined, you’ll still be in a better position than those who try to time the markets.
All that is to say, recessions can actually be opportunities. You’ll typically see lower asset pricing, more attractive valuations, and increased long-term potential. So, instead of reacting to the headlines, focus on your liquidity needs, risk tolerance, asset allocation, and long-term goals. Doing so will help you sidestep volatility before it arrives.
Is Your Career at Risk?
You may not have considered what a downturn could do to your career. Some roles may be more vulnerable than others.
Some of the most at-risk areas include:
· Sales and other commercial functions (could be restructured)
· Small biotech firms may struggle to find funding to stay afloat
· Mergers and acquisitions may result in redundancy
· Regulatory changes and currency fluctuations can impact international operations
Are your skills transferable? Are you willing to relocate? How current is your professional network? Are your certifications aligned with modern needs? Could you segue to an adjacent industry if needed?
These are all critical aspects of career resilience. Financial uncertainty should stimulate some thinking around these topics.
Focus on What You Can Control
Preparation is your best defense as markets decline.
Revisiting your retirement assumptions, limiting risk exposure, and protecting yourself from the unexpected (illness, disability, etc.) is smart.
Nobody can predict how a recession will impact markets in the short term, so the better prepared you are, the better you will weather the storm. While you may be facing uncertainty, it’s an opportunity to strengthen your financial foundation and make your plan recession-proof.
And there's one last thing I would consider if you're worried about a recession.
How strong is your company stock? How might it hold up in that environment?
That’s why it’s critical to step back and evaluate your position with objective, research-backed insight.
You can receive a complimentary Morningstar report on your company stock when you schedule a brief intro call with me.
It’s a simple perk: you get a customized snapshot of what investment researchers are saying (ratings, risks, and key fundamentals) so you can be more informed about your shares. Let's see if working with a Financial Advisor with a pharma focus is a good fit for your needs.
If not, no hard feelings; I’ll point you in the right direction. Book your spot and claim your report here:
