But, according to Tara Sinclair, an economics professor at George Washington University and a senior fellow at Indeed’s Hiring Lab, one of the finest investments you can make to recession-proof your life is obtaining an education. Those with a bachelor’s degree or higher have a substantially lower unemployment rate than those with a high school diploma or less during recessions.
“Education is always being emphasized by economists,” Sinclair argues. “Even if you can’t build up a financial cushion, focusing on ensuring that you have some training and abilities that are broadly applicable is quite important.”
During a recession, how do people make a living?
Three weeks ago, Fool writer David Stevenson predicted that the United Kingdom will enter a recession.
Since then, we’ve had Northern Rock, swaying stock markets, and more bleak economic news.
Even if the recession isn’t considerably closer, as the optimists claim, the risk of a slump hasn’t gone away.
I wrote about strategies to recession-proof your money in early September, based on my experiences living and working during three recessions (1980-82, 1990-91, and 2001-2002). What is the basic message? Reduce your spending, get out of debt, do all you can to increase your income, and put money aside for an emergency.
I’m going to look at methods to profit from the current economic downturn today.
You’re undoubtedly helping to buffer your finances in the event of a loss of income by living a little more frugally and building up savings, but you’re also building up a cushion of cash that can help you take advantage of the deals that an economic downturn brings your way.
In other words, when people or businesses are desperate to sell and buyers are few, you’ll be the one who has cash on hand and can drive a hard deal.
As the pool of consumers shrinks, vendors of discretionary goods such as new automobiles, kitchens, and bathrooms are among the first to drop prices and offer 0% financing.
If you’re in the market for a new car or kitchen and are willing to wait, you could save a lot of money.
Even better, if you’re willing to be flexible in terms of styles, colors, or designs, you can save even more money as manufacturers try to get rid of hard-to-move inventory.
Back in 1990, I didn’t particularly want a blue Ford Escort, but the price was incredible, and we’re still driving it seventeen years later!
2. Stocks
Shares become cheaper during a recession, some because they’re in sectors that have been particularly hard hit by the slump, and others because there are more sellers than buyers.
If you’re willing to take the long view, you can purchase up holdings in strong, reliable companies at enticing price-earnings ratios.
Expect the Fools on our value shares discussion board to be among the first to recognize potential investing opportunities if the downturn occurs.
If individual company shares aren’t appealing, index trackers can be just as appealing.
I was putting every spare pound I could at my FTSE All Share tracker in early 2003, as the previous stockmarket collapse bottomed out.
Earlier this summer, I was sitting on an almost 100% profit and that’s before dividends.
3. Real estate
Property is seized in a full-fledged recession, sellers trying to sell take practically any offer they can receive, and prices collapse.
It took a long time for a friend of mine who bought an apartment during the 1990/91 recession at the wrong moment to get out of negative equity.
While I only sometimes check the Fool’s Property Markets & Trends discussion board (we’ve lived in our current home for over two decades and have no intentions to relocate), it’s evident that more than one Fool has gained from buying property on the cheap.
Our local market town, like most other areas in the UK, has seen a recent housing price boom, but I recall when the local paper’s property pages were full of repossessions, marketed for a quick sale at extremely attractive prices.
4. Trades with a high level of expertise
People put off plans to rebuild or extend their homes in the same way as sales of new automobiles, kitchens, and other similar items dry up during a recession.
Builders and allied crafts like carpenters and plumbers are in short supply, and building materials prices are falling as well.
In summary, if you have the cash and need some construction work done, a recession can be a great opportunity to get a decent deal.
It’s not ‘taking advantage’; it’s providing job to individuals who are grateful to have it at a time when there may not be much available.
These words are being penned in my attic office: we hadn’t planned to finish the job so quickly all those years ago, but the price on offer was simply too excellent to pass up.
(The builder is now a family friend, and his wife is a fool!)
Hello, Sue!)
5. Tourism and travel
Airlines, hotels, and other travel-related enterprises all have two things in common: they charge whatever the market will bear, and they have a lot of capacity in big, ungainly lumps.
You can’t cut a plane in half because fewer people want to sit on it, and you can’t take a hotel floor out because fewer people want to stay there.
What you can do – and what the owners of such businesses do – is lower prices in order to get whatever revenue they can to assist offset the fixed costs they confront.
In summary, if you have the means, a recession is an excellent time to take a long-haul vacation or any otherwise difficult-to-afford trip.
Even better, you don’t necessarily have to hand up cash.
We’re avid Air Miles and frequent flier program savers, and have previously taken advantage of market downturns to visit San Francisco, Toronto, and Boston, all thanks to fantastic redemption deals.
What kind of occupations withstand a downturn?
8 industries with the best job security during a downturn
- Health-care services. People get sick and require medical care regardless of the state of the economy, thus the demand for health-care occupations is fairly stable, even during a downturn.
Are products less expensive during a recession?
Lower aggregate demand during a recession means that businesses reduce production and sell fewer units. Wages account for the majority of most businesses’ costs, accounting for over 70% of total expenses.
Is it beneficial to have cash during a downturn?
- You have a sizable emergency fund. Always try to save enough money to cover three to six months’ worth of living expenditures, with the latter end of that range being preferable. If you happen to be there and have any spare cash, feel free to invest it. If not, make sure to set aside money for an emergency fund first.
- You intend to leave your portfolio alone for at least seven years. It’s not for the faint of heart to invest during a downturn. You might think you’re getting a good deal when you buy, only to see your portfolio value drop a few days later. Taking a long-term strategy to investing is the greatest way to avoid losses and come out ahead during a recession. Allow at least seven years for your money to grow.
- You’re not going to monitor your portfolio on a regular basis. When the economy is terrible and the stock market is volatile, you may feel compelled to check your brokerage account every day to see how your portfolio is doing. But you can’t do that if you’re planning to invest during a recession. The more you monitor your investments, the more likely you are to become concerned. When you’re panicked, you’re more likely to make hasty decisions, such as dumping underperforming investments, which forces you to lock in losses.
Investing during a recession can be a terrific idea but only if you’re in a solid enough financial situation and have the correct attitude and approach. You should never put your short-term financial security at risk for the sake of long-term prosperity. It’s important to remember that if you’re in a financial bind, there’s no guilt in passing up opportunities. Instead, concentrate on paying your bills and maintaining your physical and mental well-being. You can always increase your investments later in life, if your career is more stable, your earnings are consistent, and your mind is at ease in general.
Is cash useful during a downturn?
In today’s economy, where stock market circumstances are unpredictably volatile, knowledgeable investors are looking for more reliable assets to avoid losing money. While our economy appears to be improving, recent events have had a significant impact on the stock market. History has demonstrated the importance of having assets that can withstand a downturn. When it came to how to protect wealth amid a slump, the Great Depression was one of the finest teachers the world has ever seen.
Gold And Cash
During a market meltdown or downturn, gold and cash are two of the most crucial items to have on hand. Gold’s value has typically remained stable or only increased during depressions. If the market is falling and you want to protect your investment portfolio, it’s in your best interests to invest in and safely store gold or cash in a secure private vault.
As a general rule, your emergency fund should be at least three months’ worth of living expenditures.
While banks may appear to be a secure place to store money, safety deposit boxes are neither insured nor legally accountable if something goes stolen.
Furthermore, the Federal Deposit Insurance Corporation (FDIC) will not always be able to cover your money in banks.
Investing in physical assets such as gold, silver, coins, and other hard assets is preferable.
Real Estate
During a slump, real estate is also a smart strategy to secure wealth. Another investment possibility that often retains its value and appreciates is debt-free real estate ownership. Of course, the location is a big consideration. Near colleges is an area of interest for wise investors because these locations tend to weather depressions better. However, the long-term viability of this wealth-protection strategy is contingent on the soundness of the local economy.
Domestic Bonds, Treasury Bills, & Notes
During a depression, mutual funds and equities are considered high-risk investments. Treasury bonds, banknotes, and notes, on the other hand, are more secure assets. The United States government issues these things. When they mature, they pay the buyer a fixed rate of interest.
You can choose short-term bills that mature in as little as a few days depending on your demands.
If you’re searching for a longer-term investment, there are notes available that mature in as little as two years.
Foreign Bonds
Many experts in the past would have suggested foreign bonds as a depression-resistant investment option. Recent events have demonstrated that this is not always a safe bet. Pandemics and other market instability around the world have rendered this a risky investment, as all countries’ economies are affected.
In a crisis, how do you make money?
Another strategy to profit from a crisis is to stake a wager that one will occur. One approach to profit from a bear market is to short sell equities or equity index futures. A short seller borrows shares they don’t own in order to sell them and, presumably, repurchase them at a cheaper price. Option techniques, such as buying puts that grow in value as the market falls or selling call options that expire at zero if they expire out of the money, are another way to profit from a falling market. In the bond and commodity markets, similar tactics might be used.
During a recession, what happens to your money at the bank?
Benda said the rapid outflow of withdrawals has subsided, but he expects them to resume once people receive their stimulus checks from the federal government. “If another spike happens, the system has a lot of spare capacity,” he said.
He did warn, though, that people’s stimulus money is probably safer in the bank: “Once that money leaves the bank… there’s no insurance on it.” He warned, “You could get robbed.” “Robbing a bank is far more difficult than robbing a person.”
The FDIC, which was established in 1933 after the Wall Street crisis of 1929 and the advent of the Great Depression saw thousands of banks fail, is a major cause for this. Since the FDIC’s inception, no depositor has ever lost a penny of the money it protects.
The bank is a safe place for your money, even if it fails
The 2008 financial crisis began in the financial sector and spread throughout the economy. This time, the crisis is originating in the broader economy, with businesses closing and millions of Americans losing their jobs, and then spreading to the banking sector.
The government is taking steps to ensure that banks have the funds they require right now, and banks are better capitalized this time around than they were the last time, which means they are better financially prepared to weather the storm. Banks are also encouraged to use the Federal Reserve’s “discount window” to obtain loans if they require them in order to continue lending to individuals and businesses. The Federal Reserve said last month that the largest financial institutions have $1.3 trillion in common equity and $2.9 trillion in high-quality liquid assets. This was essentially a reassurance that the banks are fine, that they have access to a large amount of cash if they need it, and that the central bank will assist them if things go much worse.
Even still, banks, like the rest of the economy, are suffering right now. However, if your bank fails, your money isn’t lost, as long as it’s insured by the FDIC.
“If your bank fails for whatever reason, the government takes it over” (banks do not go into bankruptcy). In an email, Aaron Klein, policy director at the Brookings Institution’s Center on Regulation and Markets, stated that “this is frequently done on a Friday night, and by Monday morning your local branch is operating again, often as if nothing happened from the depositor’s point of view.” “In most cases, the FDIC seeks to locate a new bank to buy the failed bank (or at least its accounts), and your money is automatically transferred to the new bank (just as if they had merged).” If not, the FDIC will continue to operate your old bank under a new name until they can find a new bank to take over your accounts.”
For example, in early April, the FDIC shuttered the First State Bank of Barboursville, a tiny bank in West Virginia. MVB Bank has taken over its deposits, and the bank’s branches will reopen as well. As a result, those who had previously banked with First State Bank have switched to MVB.