This recession time is actually going to be a once-in-a-generation opportunity to build wealth because now could be one of the easiest times to increase your net worth dramatically if you know you’re doing. after all, this a popular saying that riches are made in recessions and it doesn’t take much to realize that we’re already beginning to move towards that.
WHAT IS RECESSION
Precisely what you can do to make sure you’re in the best position to make as much money as possible so before we talk about the best upcoming opportunities, you first need to understand what you’re going to be up against and to start we need to talk about a recession. Generally recessions are accompanied by a significant rise in unemployment, drop in wages, loss in consumer confidence and a decline in values across everything from stocks, food, energy and services with sometimes long lasting effects throughout the entire world.
Along with the recession usually comes a decline in earnings. Every quarter companies report their revenue and give guidance on their future outlook but lately they’ve been cutting forecasts bracing for slower even negative growth inciting recession risks at the highest pace in 10 years that leads us to 3rd layoffs when consumers earn less they spend less and when companies see last demands they begin to scale back on their expenses with usually employees being the first to get let go in fact to quit.
IMPACT OF RECESSION
Just take a look at the headlines today more than 9-10 CEOs are bracing for a recession. 97% to see if those are cutting costs by 10% and JPMorgan mourns the stock market could fall by another easy 20% from current levels, even though this sounds negative the fact is recessions happen on a regular basis and if used correctly it’s possible to set yourself up for the rest of your life through some incredible opportunities and discounts with even Warren Buffett being quoted to saying bad news is an investor’s best friend.
So let’s talk about exactly what’s expected to happen throughout these next 12 to 24 months best benefits that you would be able to take advantage of today.
Google search for mass layoffs shows you dozens upon dozens of companies who are all trimming their workforce and is Bank of America explains US economy will soon start losing 175,000 jobs per month so, terms what this means for you and your investments as well as I can use this information to make your money.
let’s start here with number one stocks as of now all three major indexes are down between 20 and 30% with analysts at JPMorgan who believe that we’ve another 20% to go from current levels however if we take a look throughout history since 1946 the average bear market drop was close to 30% with the most severe having been in 2009 when the S&P 500 fell 57% from the peak.
Now once you combine the average with the recession bear markets tend to do even worse with an average drop of 34.8% which just for reference right now we’re down about 25%, all of it is the same but generally the absolute bottom occurs when we see capitulation across investors usually that’s the time of the start of the recovery and things begin to bounce back.
We will cover exactly how much you could take from this in the next part but first we have to talk about real estate even though every area is different, in some locations might continue to flourish housing declines on a national level or actually incredibly rare in fact as you could see throughout the last 60 years they have only ever been a few times for prices meaningfully fell more than 10% but now the general Wall Street consensus is that National Housing prices are going to decline 7% with the worst case decline of 10 to 15%.
Should interest rates continue to increase of course every market is going to be different, it couldn’t Moody’s analytics the most vulnerable markets could see upwards of a 25% decline from the peak including parts of Florida Arizona Idaho and Southern California with the decline lasting another 12 to 18 months before bottoming out in the big picture.
It’s probably not going to make that big difference for anybody with a fixed rate mortgage who intends to stay in their property for another 5 to 10 years but for anyone looking to invest or buy a house we may begin to see some deals starting to come on the market which will cover shortly because we have to also talk about third cash.
IMPACT OF KEEPING CASH IN RECESSION
Really up until now there’s been this mindset that cash is wasting away to inflation but when every other asset is falling in price sometimes cash could be the safest place to store your wealth and you know that significant when someone like the billionaire rate daliyo admits that cash is no longer trash, many people forget that is recent as 2018 cash was the best performing asset and had just been saving your money in a high yield savings account.
The market cash is now becoming such a significant part of the portfolio that even fund managers are holding on to the highest amount of cash since 2001 in Citigroup said the cash is the only asset that investors could use as a recession hedge but as far as what you could do about this to make money and why so many people never take advantage of what’s about to come here’s what you need to know,
In terms of why this next recession could be a once in a generation opportunity just consider this first everything becomes less expensive the way we see it even though one person might think this is not the time to invest, everything is falling 30% however a wealthy person would see this as an opportunity to be able to buy those exact same companies for the 30% discount.
WHY TO INVEST IN STOCKS IN RECESSION
For most people the same thing with everything in life that they are buying except for stocks when stocks go down and you can get more for your money, people don’t like them anymore so first reframe your belief because of falling market work to your advantage.
There’s less competition the fact is when times are difficult companies scale back they fold they conserve cash and they play it safe but this opens the door for smaller more aggressive companies to stand out and take their place for example one study across 16,000 companies found that those who continued to advertise increase their value and got more bang for the block with positive growth the years after the recession ended.
The third opportunity in recession is the markets method of weeding out the weak and Patrick and David made a fantastic appearance in a few months ago that the peak of the market cycle is exactly like a forest, this means that only the largest most established trees were companies get access to all the resources or in this case sunlight everything at the bottom has a difficult time being able to compete and it’s hard to grow but just like natural forest fires our economy has a way of repeatedly clearing out in bankrupting the companies who no longer are able to sustain themselves giving opportunities for newer smaller businesses to continue to develop.
After every bear market comes a bull market as Yahoo finance points out historically the S&P 500 is fallen an average of 29% director recession with the median drop of 24% but one stocks have found their low their average return the following years 40% and within two years the market is increased in average of 58% this means that investing in the way down is much more profitable than pulling out of the market awaiting and long term the market is always recovered in every single example so far throughout history and finally if you have to act before anyone else knows about it.
WHY TO INVEST EARLY
It sounds easy to think oh perfect I’ll just invest during recession but the truth is recessions are never confirmed until much much later for example the Great Recession that began in December of 2007 was not officially announced until December of 2008 only a few months before it officially ended the recession before that began in March 2001 but they didn’t call it a recession until November later that year and this continues with about a 6 to 12 month delay until we actually know we’re in a confirmed recession but in terms of what you could do about this.
kill back in your expenses
this means that you track your market cut back and unnecessary spending and operate lean will you continue reinvesting as much as possible back into the market this should also include a plan on what you would do if your income word dropped 20 to 50% how you would make up the difference and if you could take preventative measures ahead of time to protect yourself from that happening
hold on to some cash
Even though statistically your money is best off invested as soon as possible there is something to be said about the Peace of Mind of having cash on the side lines just in case something to fall back on for us cash makes up anywhere between 15 and 20% of our Portfolio depending on the time of the year but generally this is giving us so many opportunities to jump on good deals when I find them and let’s be sleep at night no matter what happens I have something to fall back on.
protect your career
at the end of the day is going to be your best hedge against whatever happens because financially your worst case scenarios not the market going down but instead it’s the market going down at the same time that you lose your job and half the sell off your investments at the bottom before they have time to recover so now is the best time to improve yourself learn new skills and double down on whatever you’re currently doing
invest long term
the best course of action when it comes to investing is to simply carry on as usual and pretend like nothings happen it’s shown that dollar cost averaging or the practice of buying into the markets on a regular basis is the most profitable strategy sustain the market and continue buying it.
diversify your investments if you can’t personally handle a 20% drop without panicking it’s probably a sign that you’re invested to aggressively for instance if you’re completely in U.S. tax docs then it’s probably a good idea to add large caps it international stocks to the mix two or potentially look into investing in real estate are buying reads for rents tend to be a little bit more stable the more legs are portfolio stand on the less likely it’s going to clash one or two of them fallout
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