People are worried, stressed out, and panicked due to the warning indications of an impending economic recession.
Unfortunately, we are beyond control to prevent a recession on our own. But we can always control how we prepare for a recession or respond to economic instability to ensure that we survive and thrive.
What is a recession?
A recession is a significant decrease in economic activity that lasts for months or even years. Experts proclaim a recession when a nation’s economy sees negative gross domestic product (GDP), increasing levels of unemployment, declining retail sales, and contracting measures of income and manufacturing for an extended time.
It’s also an inevitable component of the economic cycle or the regular cadence of expansion and contraction in a country’s economy.
Why do recessions occur?
Here are several reasons why recessions occur:
1. Economic shocks.
Economic shocks include an unforeseen occurrence that significantly disrupts the economy, like a natural disaster or terrorist attack. The most recent illustration is the brief recession due to the COVID-19 pandemic.
2. Stock Market Crash
The following bear market can be caused by an abrupt decline in investor confidence, which will drain business capital.
The opposite of inflation is deflation.
When demand drastically declines, prices for goods and assets drop. Prices decrease as demand declines as vendors compete for customers. Customers watch for prices to drop as a result of this downward trend, which further reduces demand. The downward spiral slows economic growth and raises unemployment, which feeds into a vicious cycle of declining growth and rising unemployment.
4. Falling Housing Prices and Sales
When homeowners lose equity and can’t obtain second mortgages, they may be obliged to reduce spending. Banks eventually lost money on complex deals predicated on underlying falling property values.
5. Asset Bubbles
Asset bubbles happen when the costs of investments like gold, equities, or real estate go beyond sustainable value. When a bubble pops, it already creates the conditions for a recession to take place.
10 Ways to Survive a Recession and Thrive Afterwards
1. Know that the markets recover.
Richard Harrington, investor and founder of the RH Group, says there may be an opportunity in every crisis. And his top secret for making money during a downturn is knowing that the markets always bounce back.
If you want to survive a recession and thrive afterwards, learn to become greedy enough to invest your money in the market when everyone else is selling in a panic, and everyone is afraid. The key lies in understanding that markets always recover.
2. Monitor market trends.
John Lee, a co-founder of Membby and CEO of Wealth Dragons Group PLC, believes that observing and understanding market trends is essential to developing a successful investing plan. “Marketing, sales, and automation are the three constants in any business, and we need to investigate any emerging business trends that might improve these processes.”
To thrive during a recession, finding your speciality and conducting market research must come first. Broad, micro, and nano niches are the three different types of niches. A nano niche is something so tiny and specific that it allows you to dominate your market. You make the greatest money in the nano niche of the three.
3. Create a financial plan.
If you don’t have a financial plan yet, now is the time to make this your first financial priority.
Your financial plan examines your entire financial picture to determine where you are now and how you can achieve your short- and long-term goals.
A financial plan takes risk management and emergencies into account is one of the most important—and frequently ignored—parts of the plan. It’s there to help you negotiate any financial difficulty that comes your way with confidence, both in the good times when things are going well and in the bad times.
4. Focus On Solving People’s Problems Quickly.
While most advice concerns maximising financial investment, Danelle Delgado, CEO of Life Intended, emphasises the importance of investing in helping others. And when you do, you’ll begin to earn in several ways.
Danelle believes that making money during a recession depends on assisting people immediately.
In times of crisis, “people and pace are vital to big profit. Your leadership will clear the path to your profit if you help others, find solutions to issues, and move forward when most people stop.”
5. Diversify Your Portfolio.
Diversification spreads your investments around so that your exposure to any one type of asset is limited. This strategy is designed to help reduce the volatility of your portfolio over time, balancing risk and reward in your investment portfolio.
According to Anthony Watson, diversification is essential when preparing for a recession.
You can eliminate company-specific risk by choosing funds over individual firms because you won’t necessarily notice one company failing among 4,000 others in an exchange-traded fund. By distributing your investments, you can reduce your exposure to any one sort of asset.
Try building a portfolio of investment pairs that aren’t correlated, so that when one investment is up, the other is down, and vice versa (like stocks and bonds). Also, consider asset classes and stocks in businesses unrelated to your primary occupation or source of income .
6. Stay away from conventional investment.
Conventional investments include stocks, bonds, and cash.
Alternative investments normally have a low correlation with those in standard asset classes. This low correlation means they often move counter to the stock and bond markets, which makes them a suitable tool for portfolio diversification.
Investments in assets, such as oil, gold, and real estate, also provide an effective hedge against inflation.
7. Remember why you picked your investments.
Ideally, you picked your investments for diversification. Spreading out your investment assets reduces risk in the same way that placing all your bets in one location increases the likelihood of losing money.
Allocating your funds among various investment types, such as stocks and bonds, is not the only way to diversify your portfolio. Additionally, it implies that your funds are distributed among numerous sizes of businesses, regions, and industries.
Although this is crucial, careful diversification can help keep you safe during a recession. When buying the dip, consider investing in items that will diversify your portfolio.
8. Invest in the future.
Because of the market’s cyclical nature, you’ll have many chances to sell high in the long run. If you invest when the market is down, you might be thankful for it later.
As you get closer to retirement age, you should make enough money in liquid, low-risk investments to fund your retirement promptly and give your stock portfolio time to recover.
Remember, just a percentage of your retirement savings are necessary at age 66. The market might be down when you’re 61, but it could be a bull market by age 65.
9. Invest in yourself.
Investing in yourself is one thing you can invest in when a recession hits.
Returning to school to acquire new knowledge or abilities that can help you land a better career is one way to bounce back if you lose your job and source of income during a recession.
10. Get advice and talk to a financial professional.
Set up a meeting with your advisor or direct contact at these organisations if you have insurance, investment, accounts, mortgage, or loan services with banks or other financial institutions.
Have a direct conversation with your advisor about how a recession can affect these services, your current financial well-being, and your future finances. You should include all relevant information, from the value they provide to the cost.
Understanding how to manage your finances through difficult times and where to keep your money is crucial. Because of this, it’s always advisable to seek a second opinion from a financial expert.
Opportunities will always come your way, even in trying circumstances.
Although we have no control over a recession, we have control over how we prepare for difficult financial times and the choices we make throughout them.
Making wise financial decisions and taking preventative measures can ensure your financial security and help you survive a recession.
If you want to know more about what to do during a recession, give us a call today.
Rest assured that someone from our team will get in touch with you and answer all your questions.