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THE NEXT RECESSION:
EVERYTHING BECOMES LESS EXPENSIVE
The way I see it – even though one person might think: “This is a bad time to invest…my stocks are down 30%” – a WEALTHY person would see this as an OPPORTUNITY to buy those exact same companies…for a 30% discount.
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 more aggressive, smaller companies to stand out and take their place.
In a way, a recession is the markets way of “Weeding out the weak," giving opportunities to newer, smaller people and businesses to develop.
AFTER EVERY BEAR MARKET…COMES A BULL MARKET.
As Yahoo Finance points out, “historically, the S&P 500 has fallen an average of 29% around a recession with a median drop of 24%” – but, once stocks have found their low…the average return the following year is 40%…and, within two years…the market has increased by 58%.
In terms of what to do:
One, Scale Back On Your Expenses.
This means that you track your income, cut back on the unnecessary spending, and operate “lean” while you continue re-investing on a regular basis. It should also include a plan to outline what you would do if your income drops 20-50%, how you would make up that difference, and if you can take preventative measures – AHEAD OF TIME, to protect yourself from this happening.
Two, Hold Some Cash.
I’m a firm believer that, even though your money is statistically BEST OFF invested as soon as possible…there is the peace of mind of having a cash position, at all times, to take advantage of any opportunities that may come up.
Three, Protect your career.
This, at the end of the day, is going to be your BEST HEDGE against whatever happens…after all, your worst case scenario, financially, isn’t a market going down…it’s a market that goes down, during a time where you lose your job, and can’t afford to hold your investments long enough for them to recover. NOW is the time to IMPROVE yourself, learn new skills, double down on everything, and use that your advantage.
Four, ONLY INVEST LONG TERM
Generally, it’s best not to invest any money that you might need in the next 5 years…and, preferably, even longer. The best course is action – when it comes to investing – is not to do anything different, and carry on as usual. Its shown dollar cost averaging, or the practice of buying into the market at regular intervals over the long term – is the most profitable investing strategy. So, stay in the markets…and continue buying in.
And Five, DIVERSIFY YOUR INVESTMENTS.
If you personally can’t handle a 20% drop in prices without panicking…then, maybe, you’re invested too aggressively. For instance, if you’re completely in US tech stocks, look into adding large cap and international stocks into the mix. Or, potentially look into investing in real estate, where rents tend to be a little more stable. The more legs your portfolio has to stand on, the less likely it’ll collapse if one or two of them decline.
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