Some politicians have rejected the idea that the US is currently in recession. But if you look at the textbook definition, it looks like we can no longer avoid using the “R” word.
A recession is defined as two consecutive quarters of contraction in real GDP. And US real GDP fell at an annual rate of 1.6% in Q1, followed by a 0.9% decline in Q2.
Recessions are prolonged declines in economic activity, usually associated with falling retail sales, lower industrial production, falling wages, and higher unemployment.
The good news? Recessions also provide many opportunities for ordinary people to accumulate wealth.
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Stock up
Every investor wants to buy low and sell high. A stock market slump during a recession can be a good time for bargain hunters.
While the GDP contraction in Q1 and Q2 wasn’t too severe, stocks have already fallen — by a lot.
The S&P 500 fell about 20% in the first six months of 2022, marking its worst first-half performance since 1970.
Investors looking to snap up stocks on the cheap may want to err on the side of caution and focus on companies that can thrive during a recession.
Warren Buffett, for example, amassed shares of grocery giant Kraft Foods (which later merged with Heinz to create Kraft Heinz) and electric utility NRG Energy (NRG) during the Great Recession of 2008.
According to Hartford Funds, the S&P 500 has actually gained an average of 3.7% during the 13 recessions since 1945.
You don’t need a lot of money to start investing. Some investing apps even let you buy pieces of stock with as much money as you are willing to spend.
Property
Real estate offers another potentially lucrative opportunity during a recession.
A recession doesn’t necessarily mean we’ll see a drop in property prices. But one specific factor may be holding back the upward momentum of the real estate market: interest rates.
The Fed is currently aggressively raising its benchmark interest rates to tame soaring inflation. Higher interest rates are bad news for real estate.
When the cost of borrowing is high, it makes people think about whether to get a loan to buy a home or an investment property.
Real estate mogul Sam Zell – also known as “The Grave Dancer” – made a fortune buying properties when no one else would.
In 1973, when the economy went into recession, the real estate market collapsed as many loans defaulted. In this environment, Zell was able to acquire a portfolio of high-quality properties at a significant discount.
If you’ve been looking at investment properties in recent years, the recession-induced pullback in prices can provide a good entry point.
These days, new services make it easier for you get into the real estate gameno matter how big (or small) your budget is.
Starting your own business
Not everyone wants to start their own business. But according to The Economist, 47% of millionaires are business owners.
Being an entrepreneur isn’t easy, and the idea of building a business in a recession — when other businesses may be closing — can seem daunting. But going against the grain has its advantages.
“Now is the time to take advantage of an open field. Your competitors are pulling back – spending less money on marketing and advertising,” says Charles Gaudet, CEO of business consulting and coaching agency Predictable Profits. “Some have started to lay off employees. Others are content to sit back and hope for the best.
When there is less competition, you have a better chance of gaining a position in the market.
Of course, if you’re not yet ready to quit your job and go all-in on a business idea, consider starting a “side hustle” first.
There is no magic formula to get rich quick. Whether it’s investing in stocks, real estate, or starting your own business, it’s important to do your own research and assess your financial situation first.
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This article provides information only and should not be construed as advice. Provided without any warranty.