Why "Riches Are Made During Recession"

This is potentially going to be a once in a generation opportunity to build wealth because now it could be one of the easiest times to increase your net worth dramatically if you know what you're doing after all there's a popular saying that

“Riches Are Made During Recessions”

and it doesn't take much to realize that we're already beginning to move towards that point just take a look at the headlines today more than 9 out of 10 CEOs are bracing for a recession 97 to CFOs are cutting costs by 10 and JPMorgan warns the stock market could fall by another easy 20 from current levels now 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 so let's talk about exactly what's expected to happen throughout these next 12 to 24 months the best benefits that you would be able to take advantage of today and precisely what you can do to make sure you're in the best position to make as much money as possible.

What is a Recession?

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 a drop in wages a 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 but Secondly, along with the recession usually comes a decline in earnings see every quarter companies report the revenue and give guidance on their future outlook but lately they've been cutting forecasts bracing for slow or even negative growth inciting recession risks at the highest Pace in 10 years that leads us to third layoffs when consumers earn less they spend less and when companies see less demand they begin to scale back on their expenses with usually employees being the first to get let go in fact just a quick Google search for Mass layoffs shows you dozens upon dozens of companies who are all trimming their Workforce and as Bank of America explains the U.S economy will soon start losing 175 000 jobs per month so in terms of what this means for you and your Investments as well as how you could use this information to make you money let's start here with number one stocks as of now all three major indexes are down between 20 and 30 percent with analysts like JP Morgan who believe that we have 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 percent with the most severe having been in 2009 when the SP 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 percent which just for reference right now we're down about 25 all of that is to say that generally the absolute bottom occurs when we see capitulation across investors usually that's a time of the start of the recovery and things begin to bounce back now I'll cover exactly how much you can make from this but first we have to talk about number two real estate even though every area is different and some locations might continue to flourish housing declines on a national level are actually incredibly rare in fact as you can see throughout the last 60 years there have only ever been a few times where prices meaningfully fell more than 10 percent but now the general Wall Street consensus is that National housing prices are going to decline seven percent with a worst case decline of 10 to 15 percent should interest rates continue to increase of course every Market is going to be different and according to 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 now in the big picture it's probably not going to make that big of a difference for anybody with a fixed rate mortgage who intends to stay in their property for another five to ten 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 we'll cover shortly because we have to also talk about third cash clearly 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's significant when someone like the billionaire Ray Dalio admits that cash is no longer trash the truth is many people forget that as recent as 2018 cash was the best performing asset and had you just been saving your money in a high-yield savings account you would have far outpaced 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 and Citigroup said that cash is the only asset that investors could use as a recession hatch 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.

So, in terms of why this next recession could be a once in a generation opportunity just to consider this first everything becomes less expensive the way I see it even though one person might think this is a bad time to invest everything is falling 30 percent a wealthy person would see this as an opportunity to be able to buy those exact same companies for a 30 discount Warren Buffett really had the perfect analogy for this he said when hamburger prices go down in price we sing when hamburgers go up in price we weep for most people it's the same thing with everything in life that they're 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 a falling Market could work to your advantage the second there's less competition the fact is when times are difficult companies scale back they fold they can serve 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 16000 companies found that those who continue to advertise increase their value and got more bang for the buck with Positive Growth years after the recession ended the third there's way more opportunity in a way a recession is the Market's method of weeding out the week and Patrick met David made a fantastic comparison 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 or 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 and bankrupting the companies who no longer are able to sustain themselves giving opportunities for newer smaller businesses to continue to develop and fourth after every bear Market comes a bull market as Yahoo finance points out historically the SP 500 has fallen an average of 29 around a recession with a median drop of 24 but once stocks have found their low their average return the following year is 40 percent and within two years the market has increased an average of 58 percent this means that investing in the way down is much more profitable than pulling out of the market and waiting and long term the market is always recovered in every single example so far throughout history and finally fifth you have to act before anyone else knows about it.

I know it sounds easy to think oh perfect I'll just invest during a recession but the truth is recessions are never confirmed until 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 of 2001 but they didn't call it a recession until November later that year and this continues with about a six to 12 month delay until we actually know we are in a confirmed recession but in terms of what,  how to profit you could do about this to profit number one scale back in your expenses this means that you track your Market cut back on unnecessary spending and operate lien while 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 were to drop 20 to 50 percent how you would make up the difference and if you could take preventative measures ahead of time to protect yourself from that happening two hold on to some cash now. 

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 sidelines just in case of something to fall back on for me cash makes up anywhere between 15 and 20 percent of my portfolio depending on the time of the year but generally this has given me so many opportunities to jump on good deals when I find them and it lets me sleep at night knowing that no matter what happens I have something to fall back on the three protect your career this at the end of the day is going to be your best hedge against whatever happens because financially your worst case scenario is not the market going down but instead it's the market going down at the same time that you lose your job and have to 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 and after that four invest long term the best course of action when it comes to investing is to Simply carry on as usual and pretend like nothing's happening it's shown that dollar cost averaging or the practice of buying into the markets on a regular basis is the most profitable strategy so stay in the market and continue buying in and five diversify your Investments now if you can't personally handle a 20 percent drop without panicking and probably a sign that you're invested too aggressively for instance if you're completely in U.S tech stocks then it's probably a good idea to add large caps and international stocks to the mix too or potentially look into investing in real estate or buying REITs for rents tend to be a little bit more stable the more legs your portfolio has to stand on the less likely it's going to collapse should one or two of them fall out although in terms of my own plan.