If you want to get wealthy, investing in a recession is an excellent way to make that dream a reality. The stock market isn’t just a get-rich-quick scheme; it can be a way to build sustainable wealth. We now have in front of us the most incredible opportunity of our lives. Today we will talk about why you should invest in a recession.
- We define recessions on paper as two consecutive quarters with a negative GDP
- Recessions are normal
- Wealth is built during recessions.
- Build up as much liquidity or cash as possible to invest starting in 6 to 8 months.
- Do not sell; hold on tight.
I’m not an economist or a financial advisor, but history repeats itself. Yes, stuff is expensive, but inflation is going to come down. It will allow us to re-calibrate and re-load our canons, and I will explain why this is such a fantastic opportunity.
What Is A Recession?
What a great question, one for which the answer is widely debated. We define recessions on paper as two consecutive quarters with a negative GDP for those who don’t know. So it just means that the economy is not growing and shrinking.
Recessions usually follow bear markets, and we’re in a bear market. For those who don’t know, a bear market is just a 20% decline from all-time highs.
Another vital factor in this definition is the duration of the downturn. One popular rule of thumb is that two consecutive quarters of decline in a country’s Gross Domestic Product (GDP) constitute a recession. But, six months or more of falling GDP; means that the economy is not growing or shrinking.
Many schools of thought can agree on one thing: A recession is a significant, widespread, and prolonged downturn in economic activity.
What are the impacts of a recession? Recessions are the black clouds in the sky. With economic output declines and consumer demand spinning off to layoffs, the downward spiral is rapid yet predictable. People are scared; childhood memories of chicken little announcing, “the sky is falling,” illustrates this phenomenon perfectly.
If you have been watching the news, almost every billionaire, analyst, or economist has warned us that a financial crisis is approaching. Bill Gates says that a global economic shut slowdown is hitting this year. Not to mention Elon Musk running around cutting jobs. Jamie Dimon says that he expects a financial hurricane to hit us. 70% of Americans think a recession is coming.
Recessions Are Nothing New
If you open the Wikipedia list of the number of recessions in the United States, you will realize that recessions are nothing new. They might sound like a catastrophe but they are essential to our economic cycle. So it’s normal, yes, NORMAL, that the economy reaches a particular ceiling and then slowly starts cooling down.
But if you pay close attention, you will realize that back before the creation of the fed, recessions were much more common. After around 2 to 3 years of economic growth, the economy would peak and slow down before its subsequent expansion. After the central bank entered the picture, six, seven, or even eight years of economic expansion was the norm. We just broke the record of 10 years and eight months of economic growth.
It makes sense to find out how to prepare for the next recession so we can benefit from it. The opportunity that is at our feet right now is insane. And if you take advantage of opportunities that come to you, you’ll be able to grow your wealth substantially.
Why Are Recessions Good?
Most of you know basic economics, but this is how the economy works. First, growth is followed by a period of correction, and then what follows the correction is growth. And this is good. It’s good because e prices on employees, goods, assets, and investments reset. So you can buy anything that historically goes up and value and significant discounts, like stocks, gold, commodities, real estate, and crypto.
Recessions present opportunities for new companies to come into the space and grow and flourish. Finally, the end of a recession marks the beginning of a long period of growth.
By the recession’s end, if you saved up and invested accordingly, you’ve become much wealthier than you were going in. Of course, the longer you hold, the better; eventually, the market will hit bottom and go back up.
So how should you invest during a recession? I’m not a professional, but I do have some experience.
This is the greatest opportunity of our lives.
How To Get Out Of The Next Recession Better Off Financially
1. Stockpile Cash
One best ways to prepare for the next recession is to stockpile cash. An economic crisis is a period of turmoil; this is when cash on the table matters most. Only a few care about money when the economy is booming. People invest in risky assets without being concerned about the consequences. That’s why crypto and ape NFTs have grown like crazy in the past two years.
But, when the Fed hinted we’re likely headed into a recession, even the world’s richest man sold their bitcoins and began to grow their cash position. Suddenly everyone began following the footsteps of Warren Buffett, prioritizing cash over risky investments. His name wasn’t shining the last two years like the lakes of Cathie Woods or Elon Musk; that makes him different.
Buffett is sitting on an enormous cash pile, waiting for an opportunity strike. So, be like Buffett, save, and strike when the opportunity is right.
Maintain cash for when the depression arrives, and you’ll be able to grab investment opportunities in money. All the assets you require during this discounted period will increase, and they will go to an all-time high on average.
2. Invest In Liquid Businesses.
Because cash is scarce during financial turmoil, many businesses often shrink dramatically or file for bankruptcy. So people are going to work for free. Remember that they have stomachs to feed. So it is normal for companies are going to shut down.
During the 2008 financial crisis, even giant corporations, such as General Motors, Chrysler, and AIG, filed for bankruptcy. Instead, more prominent, more stable companies or governments acquired them.
So if you’re investing, invest in companies out of cash to survive the storm. That’s why some companies like Apple and Microsoft are sitting on a massive pile of money despite high inflation since it’s far better to let inflation slowly eat away the fortune and then face a recession without enough liquidity.
How To Find Out How Liquid A Business Is
To determine a business’s liquidity, you must look at its balance sheet. If it’s a public company, it’s easy to find its financial statements.
3. Start A Business
Recessions are opportunities. Recessions seem like the worst time to start a business; however, experience proves the opposite is true. Competing with top players is difficult, if not impossible when the economy is growing.
However, during crises, when massive corporations are distracted by bureaucracy, start-ups have the opportunity to thrive. Whatsapp, for example, was found during the .com bubble of 2000 when the crisis crippled the economy. Years later, Facebook acquired WhatsApp for $19 billion. And today, with over 2 billion users, it’s worth a lot more. YouTube is another example, it was founded in 2009, and today it is worth almost $50 billion even though it is still struggling to turn a profit.
My suggestion is this: Start a cash-flowing business. If you don’t have one already, you need to get something that produces income for you and start saving that income as fast as possible. Then, build up as much liquidity or cash as possible to invest starting in 6 to 8 months.
I guess what I am trying to get at is that a recession is an ideal time to boost your wealth.
4. Don’t Cash Out
It’s easy to be patient and excited when everything is growing. You watched your wealth multiply if you purchased bitcoin at $11,000 before its rise. The truth is that the absolute opposite happens during a bear market. Many people aren’t patient and sell off, thinking the world is about to end. But, chicken Little, the sky is NOT falling!
It’s far too easy for investors to lose perspective. Whenever something big goes wrong, many people panic and sell their investments. But, looking at history, the markets recovered from the coronavirus, the 2008 crisis, the dot-com crash, and even the great depression. They’ll probably get through whatever comes next as well.
Investing is a very long journey, one that tests our temperament. You have to have the capacity to suffer for long periods. You should strap yourself into the rollercoaster and hold on tight.
The stock market has survived the great depression and World War II, except for recessions and the Vietnam and Iraq wars. Investors who made money are the ones who sold before the crash, which is almost impossible since the time in the market is not easy, as you might imagine, or waited until the crisis passed.
5. Don’t Go Into Debt
If you have prepared yourself for a recession, you’ll be ok. But unfortunately, many people get into debt when they can’t for their basic needs. If a downturn happens, like in our case now, as the Fed raises rates to slow down the bubble, debt will be more expensive.
Just look at the height of the housing bubble in 2007 when the Fed raised interest rates to 5.25%. In 2000, during the.com bubble, the Fed raised the rates to 6.5%. Imagine what the rates do to consumers struggling to get by. Recessions make the rich richer and the poor poorer because poor people often struggle to put food on the table. The rich, however, can use their excess cash to take an opportunity when the time is right.
Final Thoughts
Recessions are where millionaires are created; you should do everything possible to double and triple your investments if you are young or middle age.
Right now is the PERFECT opportunity to double down on high-quality investments and practice patience. There is a reason n why the rich get richer during market mayhem as they capitalize on the average Joe selling out of fear.
I don’t know who needs to hear this but stop saving all your money. Instead, save it to invest it in value if you want financial freedom.
