Few economists are predicting recession for 2008, but most say the risk is higher than it’s been in some time. The key culprits include the plunge in housing values sparked by the sub prime lending crisis, high energy prices and slowing job growth. One of the best sources for economic cycle research is the Economic Cycle Research Institute (ECRI), which publishes a closely watched weekly leading indicator of economic activity and makes some of its research available to consumers at no charge.

In a recession, stock portfolios would take a hit-historically, the S&P 500 has dropped about 26 percent in periods leading up to and during recessions. That’s not a reason to bail out on the market; investors never win by trying to time economic cycles. But it is a good time to take stock, and to make sure your investment mix is appropriate for your target retirement age.

“Right now, we know we’re not in a recession, even tho it feels like one,” says Lakshman Achuthan, ECRI’s managing director. “With a retirement agenda, by definition you don’t have a lot of time to recover. So you don’t want to be blindsided by a recession.”

Automatic rebalancing

Automatic rebalancing or life cycle fund plans are one of the best ways to avoid worry about economic ups and downs. If your employer offers one of these options, give serious consideration to using them. Learn more about automatic 401(k) options at AARP and FINRA.

Tags | 401(k), portfolio