How to Prepare for a Financial Crisis: What Smart Investors Are Doing Now

Recession warnings are coming from every direction. A senior Federal Reserve official recently warned about massive layoffs from major companies, with U.S. job cuts up 65 percent compared to last year. October saw the highest monthly job losses since 2003. Meanwhile, more than half of U.S. homes have lost value in the past year, the most since 2012. Consumer confidence has dropped to near record lows in November.

These aren't predictions. These are current conditions that show the economy is more fragile than headlines admit.

The Warning Signs Are Already Here

Treasury Secretary Scott Bessent recently stated that some parts of the economy are already in recession. The Cleveland Federal Reserve's model shows a 24% chance the U.S. economy was in recession last month.

Here's what the data shows:

• Major companies cutting jobs. Amazon announced 14,000 job cuts, Paramount cut 1,000 positions, and Target eliminated 1,800 workers.
• Housing values dropping. Denver saw 91% of homes fall from their peaks. Austin values dropped 20.5%. Dallas saw 87% of homes lose value.
• Consumer confidence falling. November's reading hit near record lows, a pattern that comes before most recessions.

What You Could Consider

With job cuts growing and consumer confidence falling, having a plan could help.

Pay down debt where possible. If you have credit card balances or loans with high interest rates, those payments could hurt more during a downturn. Paying off what you can while you have a steady paycheck might help.

Build up cash savings. With October showing the worst job losses since 2003, keeping 3 to 6 months of expenses in savings is a good idea. If you work in tech, retail, or media where cuts are hitting hardest, you might aim for the higher end.

Consider safer investments. This may not be the time to bet everything on high-risk stocks. Some investors are moving money from growth stocks to dividend-paying companies in essential sectors and treasury bonds.

Gold and Real Estate

With a Federal Reserve official warning about a possible recession and consumer confidence at record lows, gold could make sense. When companies announce mass layoffs and financial stability is in question, it is worth considering investing in assets that could hold value regardless of what happens to stocks or government promises.

Gold prices have been rising as investors seek safety from market uncertainty. Growing job losses and slowing growth create an environment where gold historically performs well. If you don't own any precious metals, putting 5 to 10% of your portfolio there would make sense, though this should be based on your individual situation.

Housing is more complicated. While 53% of homes lost value over the past year, most homeowners still have plenty of equity. The typical home value has gone up 67% since the last sale. This isn't 2008 with people owing more than their homes were worth. Only 4.1% of homes are worth less than what owners paid.

But if you're thinking about buying, waiting could pay off. Prices are falling, more homes are available, and there could be opportunities for people with cash or good credit.

Stay Alert

Big tech and retail companies are cutting thousands of jobs. Consumer confidence has dropped to levels that come before most downturns. 

Watch the job market. The Federal Reserve just called recent job cuts massive. Pay attention to which industries are cutting the most. Official recession announcements typically come months after it starts, so don't wait for them.

Smart investors often share common traits. They see the warning signs, make changes before everyone else panics, and keep cash ready for opportunities.

The warnings are clear. How you respond should depend on your specific situation and risk tolerance.