“Are we in a recession now?”
Recession is when there is a significant decline in the economy for at least six month. Business starts to fail, people are making less, unemployment rate skyrockets, and people of all income level feel the impact of economic decline.
Most recent recession:
- Covid-19 crisis have triggered our most recent recession in the 2019 to 2021.
- Great recession caused by the U.S. housing bubble in the 2007 to 2009.
Recession is the time when economy and business worldwide are failing, thousands of business went bankrupt and millions of jobs are lost.
Often, we will face long period of time without a recession. A bull market run that can lasted for years.
But history told us, whatever goes up must come down.
We call this.
Editor’s Recommendations: What are the warning signs of a market crash?
How do you profit in a recession?
There are many ways to profit from a recession, and this is especially true for great investors such as Warren Buffett.
For value investors, a recession is the best time to buy great companies at dirt cheap price.
“Recession is the best investing opportunity of a decade.”
But there is a catch.
Before you can make money in a recession, you’ll need the following:
- Learn how to prepare for the market crash to protect your investment.
- Learn to see the warning signs of the next market crash.
- Create a investing budget through smart budgeting.
Here, we will look at 5 ways to profit from a recession and get rich during recession!
1. stop renting, start owning
With recession, everything you see will be ‘On Sale’.
Government or The Federal Reserve Board (the Fed) set the interest rate with the use of monetary policy.
In a recession, they will lower the interest rate to encourage additional investment spending. Lower interest rate will boost the economy in the times of slow economic growth.
Bank interest rates will be made low which means that you can afford a better house with a smaller mortgage payment.
When is good time to buy a house?
During a recession, this is the best opportunity to purchase your dream home rather than renew your lease.
Many real estate investors who are cash rich find recession the best time to look for fantastic real estate deals at attractive low prices.
On the other hand, those who over-leverage during the bull run are forced to sell their properties at a discount.
Which means, tones of great properties are on sale at low prices with low mortgage interest.
An successful investor once told me,
“You don’t profit after you purchase, you profit when you purchase.”
At a recession, the economic relationship of rent versus own will changed dramatically.
If your time horizon of owning the real estate extends beyond 20 years or more, it will be much better choice for you to buy the property instead of renting.
Owning a real estate will require a high upfront cost and commitment to pay the mortgage.
Although these factors may make renting to look more attractive.
But over a long time horizon and at the right price, owning the real estate maybe a better choice over renting.
Nonetheless, there are risk involved for any form of investing.
Over-leverage is usually the cause of many downfall of an investor, thus should be treated carefully.
2. Bargain Shopping
Sale! Sale! Sale! The great everything ‘Sale’ is here!
If you are doing business or simple consumer, recession is the time where many suppliers and shopkeeper are offering steep price markdown. Everyone are having stuff that is on sale!
If you are a consumer, congrats you may just be able to buy everything at almost cost price. Not only you are helping business to survive during this tough times, as business needs the cash flow to continue operation.
But remember not to overspend or you may not be able to take advantage of the recession to invest in some of the best investment vehicles such as stocks or real estate.
If you are a business owner, this might be a tough time for you, but it is also the best opportunity for you. This is the time you can renegotiate with your suppliers and vendors for a better incoming price of your goods.
In a recession, your suppliers will be much more willing to cut their prices.
During the recession, you can have a mutually beneficial renegotiation with your supplier.
- Your supplier can help you by lowering their sale prices during recession.
- You help them by ensuring they will have a consistant business even during the recession.
But the prerequisite is, you need to have Cash to survive the recession period, so you may profit from recession when the economy pick itself up in the future.
You’ll be amazed by how much money you can save from a recession by increasing your margin, thus your profit.
Recession is one of the times where many opportunities arrives.
On the surface, it may seems to be bad for business, but when it is made used correctly, it can be once in a life time opportunity where you can really profit from recession.
Read Also: How to invest when you have little money?
3. Stocks Bargain Hunting
When is a good time to invest in stock?
When it is on sale of course!
The best time to invest in stocks and build your stock investment portfolio is when Mr. Market makes everything On Sale!
Who is Mr. Market?
Mr. Market is an allegory first introduced in 1949 by Benjamin Graham, father of value investing. Benjamin Graham use Mr. Market to describe the irrational movement of the stock market.
In Benjamin Graham’s book, “The Intelligent Investor”, Mr. Market is a fickle investor who’s action is primarily ruled by his emotions.
Without fail, Mr. Market will appears daily and name a price at which he will either buy your interest or sell you his.
Why a recession is a good time to buy stocks?
During a recession, stocks of great companies will be at bargain price as the general investors will price the company unfavorably due to fear. When the price of the stock is low, you can buy more shares of great businesses at favorable price.
Mr. Market have a temperament of selling you great stocks at a cheap price during a recession.
Fear is the main reason why Mr. Market (common investors) sell a stock at a lost.
During a recession, fantastic stocks with extremely great balance sheet will be beaten down to a bargain price which happens only once in a decade.
Great companies such as Coca Cola will drop to a bargain price.
Today, Coca Cola have grown nearly 16 times its value.
Warren got an annualized gain of 11% for the past 3 decades.
He is also earning a passive income in the form of annual dividend from Coca Cola, which generates a 62% yield on cost basis.
Warren Buffett once said:
“It is better to buy great companies at good price, than bad companies at great prices.”
Recession is uncommon. It only occurs very few times in history.
When the stock market have a lot of fear, this will be the best time for you to buy great companies at great price.
History have shown, recession happens approx. every 10 years. If you miss this opportunity, you may have to wait for another 10 years to buy one of these great companies.
Build your portfolio when stocks are “On Sale!”
Mr. Market was first introduced in the book, ‘The Intelligent Investor‘. Mr. Market is an allegory created by the Father of value investing, Benjamin Graham. Who is also the mentor of Warren Buffett.
Warren Buffett explains the irrationality of Mr. Market through his investing strategies which made him one of the riches man in the world as according to Forbes.
This is what Warren Buffet says about investing:
“Price is what you pay. Value is what you get.”
4. refinance during recession
Mortgage interest rates will usually be at all time low during recession. Which means, you will need to pay less for your home mortgage. In additional, it will be easier for you to apply for mortgages if you’ve got good credit.
The reason is because during a recession, the government will promote policy that will encourage banks to lower their interest rates to help stimulate the economy. Lowering of the interest rate will give rise to cheap debts.
“A dollar saved, can be a dollar invested.”
You can take advantage of refinancing in 2 different ways.
Home Loan Refinance
Home loan refinance is to refinance your existing loan and replacing it with a new one.
There are mainly 3 reasons why homeowners choose to refinance
- To obtain a lower interest rate.
- To shorten the term of their mortgage.
- To convert mortgage from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
Refinancing your home loan is a low risk way of benefiting and profiting from a low interest rate environment during a recession.
During a recession, banks will often offer a list of low interest refinancing package.
You can actually take advantage of the low interest rate environment and lock in the fix rate for a number of years.
Simply by locking down low, long-term, fixed rate mortgages can save you thousands over the years and is an extraordinary opportunity in today’s recessionary environment.
Cash out refinance
Cash out refinance is a mortgage refinancing option your existing mortgage loan is replaced with a new loan amount that is larger than the amount you owned previously.
There are mainly 2 reasons why homeowners choose cash out refinance
- To obtain a lower interest rate.
- To withdraw a portion of your home’s equity in a lump sum.
Cash out refinancing is a high risk way of benefiting and profiting from a low interest rate environment during a recession.
Cash out refinancing is only suitable for professional investors who have a high risk appetite.
With a low interest rate, these investors can withdraw the equity from their property for investing in purchasing assets.
Cash out refinancing is risky, because you are getting into more debt.
Although the mortgage loan after refinance may be low on interest rate.
All debts have to be paid someday.
Leveraging is how the rich gets richer, but it is much riskier and is not for everyone.
Unless your investment return is much higher than your interest rate of your loan, it is not recommended to do so.
Fortunately, there is one thing you can do to reduce the risk.
In order for you to reduce the risk, you can choose to fully amortize your loan payment by refinancing into a fixed rate loan over a long-term.
Leverage is a double edge sword. It can help to to become richer, but it can also ruin you totally.
Over-leveraging is usually bad, Warren Buffett’s thoughts on leverage basically sums it all:
“I’ve seen more people fail because of liquor and leverage, leverage being borrowed money. You really don’t need leverage in this world much.
5. Take Back Time
Money can’t buy time, but time can buy money.
Strange it may sounds, but a recession can actually save you time which helps you to profit from recession.
Make your free time count
Normally, most people will spend their weekends or rest time laying on the coach with a bag of potato chip watching Netflix.
With a whole weekend spend wasting away. This habit actually cost them lots of money.
The same weekends can be used to learn a new skill where it will help them in their next career move, get a pay raise or even a promotion.
For those who are ambitious, the time saved may even allow them to create a side business where they may one day leave their 9 to 5 job and be their own boss.
But in order to create a passive income, you’ll need to change your habit of watching Netflix all day, and use that time to create a side hustle.
Improve business acumen
Busyness is the act of just being busy and it robs you time in the form of ineffective meetings, or longer meetings than necessary.
If you are a startup or an entrepreneurs, this is the difference between growing your company and struggling in your company.
During a recession, you’ll need to improve your business acumen.
How to improve your business acumen?
- Plan through strategic thinking.
- Understanding all areas of your business’ operations.
- Understand how different operation of your business is interconnected.
- Identify areas where it makes the most difference to your business.
- Apply the 80/20 Rule (Pareto Principle).
- Lean your processes.
Making a profit during a recession will require you to lean your process and maximizing the results with minimal resources.
Most of the time, young entrepreneurs and inefficient management team spend their time doing things that doesn’t matters. They make themselves busy doing work that have little or no value.
Being busy by doing things which customer doesn’t cares won’t get you anywhere.
Improving your business acumen by making your process lean can save you time and money.
Lean your process don’t only makes the work worthwhile and keep your efficiency high.
It allows you to have time to create the best strategy to grow your company.
24 Hours is all we are given each day, and this is the only thing that everyone is give equally. How you use your time each day determines where you stand tomorrow.
The difference between success and failure is how you use the time that is given to you.
In my other article, a 61 Years-Old Multi-Millionaire tells us what are some of the worst time waster you should avoid.
Read Also: Key Traits to Success
cash is king during recession
Cash is the most important resource during a recession or depression. Not only cash is required for our living expenses, cash is required for us to maximize our profit during recession.
Investors who are cash rich become wealthy during recession, because they have resources to invest when others don’t.
And this is especially important if you want to profit big from a recession. Without tones of cash, you can still profit from a recession, but when you have lots of it, you become extremely wealthy from a recession.
In our article on Steps to Prepare for Market Crash, we have shown you what are the steps you have to do to prepare yourself for the market crash.
If you have done these steps correctly, you will probably be rich in cash during a recession or market crash.
One quick advice about investing.
The market is ruled by irrational behavior of greed and fear. Therefore you must be wary of the herd mentality.
“Be Fearful When Others are Greedy, Be Greedy When Others are Fearful.”
By Warren Buffett.
If you want to profit from recession.
Cash is king.
You want to make sure your are ready, when Mr. Market have create an opportunity, where everything is on sale!
We at Income Buddies call it, “The Mega Recession Sale!”
Before anything else, preparation is the key to success.
By Alexander Graham Bell
Interesting Facts about Recession
“Recessions is when more Millionaires are made than any period of time!”
In the news, Trillions of dollars were reported ‘lost’ during the last recession, but in reality it is just being transferred.
A recession is actually the biggest opportunity to grow your wealth and business.
Money itself don’t just disappear or evaporate into the thin air, money only gets transfer to some’s else bank account.
Example: When you buy a coffee from café for $4.50, you transfer $4.50 to the store owner and made the store owner slightly richer.
Question: “Do you want to be the one paying for the coffee, or the one receiving the money?”
how to profit from the next great recession
Profiting from a Recession is possible by anyone who is prepared.
We cannot avoid recession, because it is part of the market cycle where wealth is transferred from those who are prepared to those who are not.
In this article, we have just explored some of the best ways you can profit from a recession.
These are some of the best kept secrets why the rich get richer, especially during a recession.
Nonetheless, every actions or investment comes with risk and care should be taken when performing each task.
Ways to profit from a recession
- Stop renting, start owning
- Bargain shopping
- Stock bargain hunting
- Refinance during recession
- Take back time
Many thousands of millionaires are made from a recession.
Question, “Will you be one of them?”
Reading this series on Market Crash and our blog post will help you drastically in your journey of building wealth and protecting you and your family’s finances.
“More You Learn, More You Earn.”
Wisdom from Billionaire Warren Buffett:
Success is not made overnight, but through determination and the conviction to keep learning and getting better.
Remember the difference between success and failure is what you know, and what actions you take.
Here are some resources what will help in guiding you to your success.
- Investing Books to Riches
- Business Startup Books
- Leadership Books for aspiring Leaders
- Sales Books to Wealth and Success
- Life Changing Books to a Future of Success
Taking your first step is always hardest,
But it is the most important step of all.
Ultimate Stock Market Crash
Part 1: Signs of Market Crash
Part 2: How to Prepare for Market Crash
Part 4: How to Profit from Market Crash
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Disclaimer: We are not your financial adviser or lawyer, information found in our website are our opinions and should be used for entertainment purpose only. You should always ask your financial adviser or lawyer for any financial or law related advice.