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Simple Investing Wisdom to Get You Through the next Recession

by | May 9, 2022 | Money

The fear mongers will rob you blind if you let them.

Right now the US has had one quarter of negative GDP. If it happens for a second quarter then the US is officially in recession. Normally the rest of the world follows.

If you can remember the 2008 financial crisis it’s easy to still have nightmares about what’s to come.

The gaslighters are waiting on the sidelines ready to light your ass on fire, by spreading fear and calling this time “the end of America.” LOL. We’ve seen this clown show too many times.

Recessions aren’t pretty, but they’re not the end of the world either. No need to panic.

Here are some wisdom bombs to get you through the recession.

Every recession is different

This recession has record-high inflation and the biggest interest rate rises in many decades. We’re in unprecedented times.

Financial history is a good guide but it’s not a compass we can follow.

The US dollar’s dominance is changing too. The central bank of Israel, as an example, has dropped the US dollar for the largest asian currency beginning with a “Y.” Others are considering doing the same.

Financial guru Ray Dalio says there is a changing world order which is predicted based on all the previous empires in history. I’m yet to be convinced but keeping an open mind.

US dominance may shift.

Fighting inflation could be the catalyst

Inflation is 8.5% in the US. This is out of control.

If you calculate inflation yourself with a more realistic basket of groceries and living costs, you’ll likely get a number of 15% or more. In Australia our calculation used to include the cost of buying a home. The government and central bank removed housing to make inflation look smaller.

The US Federal Reserve plans to fight inflation by increasing interest rates. Business expert Naval Ravikant says “The Fed is going to fight inflation — and lose.”

The fed has tried this clown trick before and it hasn’t worked.

In fact, aggressively raising interest rates right before a recession usually causes the recession. This is what happens when inequality leads to rich grandpas making all the monetary decisions.

Now is the time we play musical chairs

Every 5–7 years people forget that recessions occur every 5–7 years — The Motley Fool

During a recession it’s a case of musical chairs, where we see who got greedy and who didn’t.

The greedy stay standing and get wiped out by a tidal wave. The humble thrive and get to take a seat and relax with Max.

All the bragging and flexing stops in a recession. Suddenly someone has to pay Uncle Bob’s car yard back for the Lambo.

I don’t wish bad things on anyone. The truth is those who get greedy will experience bad things. And the humble will get to buy their things at a discount and be rewarded for their humility.

This is the strange cycle of recessions.

In bear markets, assets return to their rightful owners — J.P. Morgan

Now’s probably not the time to quit your job

Look, I’m all for making money online and sticking it to your man-child boss. But recessions are a time to take fewer career risks.

Ride the storm. Work on your side hustles after hours.

Once the recession passes (and it will), then parachute out of your job like James Bond if you choose.

Expect 3-6 months of terrible income

In 2008 and in 2020 I saw how recessions affect humans.

We panic and zip up our wallets. We go from charitable human beings to incredibly selfish. Once we officially ring the bell of a recession I expect things to get nasty.

This means you’ve got to be able to make it through the 3-6 months of pain that follow.

  • Expect customers to cancel orders.
  • Expect your job isn’t going to give you a bonus or pay rise.
  • Expect customers to buy lower pricing tiers rather than high pricing tiers.
  • Expect you might get fired and need to survive a few months with no income.

Prepare for a recession and if your plan isn’t needed then nothing is lost. But if you do need your recession plan it’s a bloody lifesaver.

Multiple income streams

One income stream during a recession is a nightmare.

You have concentration risk. All it takes is your employer to whack your name in a spreadsheet cost-cutting and you’re tough outta luck.

Remember: in a recession, businesses don’t give a damn about you. They’re trying to survive, and profit is their number one goal.

The easy solution is to build online income streams after hours to de-risk.

The best opportunities occur during a recession

Sometimes a bull market, sometimes a bear market, always a builder’s market — Sahil Lavingia

The reason this article doesn’t spell the end of the world is because it’s actually one of the greatest times in history.

These businesses were all built through the huge recession of 2008:

  • Uber, 2009
  • Slack, 2009
  • Venmo, 2009
  • Pinterest, 2010
  • Groupon, 2008
  • WhatsApp, 2009
  • Instagram, 2010
  • Square (Block), 2009

Some of the best Web3 businesses will get built during this recession.

Try not to sell assets in a downturn

Right now I’m holding onto the edge of my seat. The last thing I want to do is sell financial assets in this environment at a discount.

If you can avoid it, try not to sell anything during a downturn. Otherwise you simply accept a haircut on the sale price for the privilege.

Financial markets always recover.

Image Credit-JKMolina via Twitter

The fire exits are good to know

Too much risk and way too much debt are what ruin people financially during a recession.

Powerful question: How quick can I sell this asset?

That’s the question you want to know. If you own a few properties, how quick can you sell them if you had to? What happens if lots of people have to sell their properties, too, at the same time as you?

If you own stocks, how quick can you get out of your trades if you had to? And who is storing your assets for you? Is it a bank or financial institution? What happens if they become the Lehman Brothers investment bank of this recession?

In 2008 the government saved the financial institutions holding onto our assets. But in Greece the government couldn’t do the same because the damage was too big. So they let the investors and depositors simply have their money taken.

Now’s a good time to ask yourself hard questions about what you own and who looks after it for you.

“Risk is what you don’t see”

(Morgan Housel)

In 2008 the risk normal people couldn’t see were the toxic CDOs (a financial product) banks loaded up on. In 2020 the risk we couldn’t see was a health crisis that would lock us in our homes for years.

The risk of this upcoming recession isn’t known either. Remember that we got out of the 2020 crisis without too much financial pain. The question I’m asking myself is, did this financial pain simply get stored up to re-emerge later?

I think so.

You can’t shut the world down for years and not build up huge amounts of risk.

Expect a bloodbath for crypto

I’m a little crypto fanboy. I have a naughty cheerleader outfit I wear that has “Go Ethereum” written on the front of it.

Still, crypto is going to get its face ripped off. Why? It’s a higher risk asset than pretty much anything else.

The good news: after the bloodbath there will be rainbows and sunshine.

Look at what happened after the 2017 crypto crash. Look at what happened after the 2020 crypto crash.

Crypto is volatile and goes up and down. But the trend is stable and will mint the next generation of millionaires who are patient.

Bear markets transfer wealth from short-term pessimists to long-term optimists — Brian Feroldi

This is when you invest your money

When there is blood in the streets and everyone is panicking, that’s when you want to invest your money.

The unfair advantage you get from all the discounts is often missed. When markets recover and roar ahead again, that’s when you want to slow down investing money, because value for money is lower.

As a wise man once said: “You make the best investments in the worst times.”

Don’t be a tax dumbass like me

When you’re facing a potentially nasty recession you don’t want to have loads of debt and zero cash in the bank.

That’s how you get wiped out.

I’ve done exactly that. I racked up a 6-figure tax bill and forgot about it. The money I made all went into financial assets to avoid the Will Smith slap from inflation. Now I have to pay the tax bill and didn’t do a good job of keeping money aside.

  1. Keep money aside for taxes.
  2. Don’t get so excited by the discount in asset prices that you have no cash.

Recessions make you a psychological badass

Let’s end this article on a high.

Until you’ve lived through a devastating recession your risk tolerance isn’t properly calibrated. A recession gives you the wisdom to take smarter risks, be more humble, and buy quality assets when everybody is fearful.

Recessions equal huge opportunities. Build your empire during this downturn.

This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.

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