Recession, somehow it sounds great I don’t know why. But whenever I say the word everyone around me starts to get anxious and immediately ask me if I know something. Where I’m getting at is that investors treat recessions, market crashes, market corrections like they are going to be the absolute end of the world. It’s good to be alert within the market, but the last thing you should do when you’re in a recession is to panic.
So, what is the ideal actions to make when there is a recession, I’ll tell you. In this article I will go over 5 solid points of action on what to do when you’re dealing with a recession…
1. Maximize your income and minimize your expenses.
When you’re in a recession, it’s important to take advantage and focus on what you can control. So therefore, the first action you should be taking when you’re in a recession is to maximize your income and minimize your expenses.
What I mean by this is to try everything in your power to get a hold of more money in any way shape or form. Easily said, make more money. Work two jobs if you must, work extra hours on your business to get more sales and so on, just maximize the amount of money you make.
And minimize your expenses. Moreover, try to cut down on your living expenses. If you can live like a student for some months or go for extremely cheap options. The main message is everything you save of your living expenses are just more money for you to invest in the opportunities the recession is going to provide.
2. Have a well prepared portfolio (All-Weather Portfolio)
Yes, it is important to act on what you can do when there is a recession, but the best thing to do is to be prepared, “Better to be safe than sorry”. So, the best scenario in the case of a recession is to have a solid and diversified portfolio of investments that is going to recover from the storm. Just make sure that your portfolio is not a highly risky investment portfolio, like having all your portfolio in less than 3 or 4 single stocks, because if you have a portfolio like this then it’s most likely going to be an extremely bad year for you. Just take an example of the average investor right now, the average investor invests in more specific single stocks, and believe it or not but the average portfolio of an investor right now is said to be around –20% to –30%, and if I would guess it is probably going to get worse.
So, the main message is to stay diversified with a strong portfolio. If you want inspiration on how to make your portfolio, then go check out one of my articles where I go through a strong all-weather portfolio.
– The portfolio every investor should have…
3. Have a decent amount of cash or commodity at hand
This one is a bit controversial because in theory you would want to invest all or most of your money, but I am a bit against that. Yes, obviously you should invest a big portion of your money, but you should hold a small portion of it in cash or commodity. This is because when recessions appear like the one, we are in now then it is important to have a portion of money that you can use to take advantage of the opportunities the recession will bring.
I am not saying to have all that portion in for say cash but have it in something that won’t be affected by a stock market recession and something you can easily sell, like gold or silver, or some form of commodity.
4. Take advantage of the opportunity’s that appear
Trust me when I say this, there is opportunities in every single market, especially recessions. So, when you are in a recession like the one we are in now then look for opportunities, easily said they are everywhere. You have probably heard someone say that when there is some form of market crash, then the stocks are on sale. This is somewhat true. If we go back in time, then we can see that after every market crash or recession, the market will eventually recover. So don’t freak out when you see your investments in the red, but rather sit down sip some coke and buy more…
This does 2 things (Considering what you’re investing in is a solid well researched investment) 1, you close down the gap of how much your investment is in the red, and 2, you get in on a lower position on your investment, in other words you get your investment on sale.
5. Control your emotions
Controlling your emotions when it comes to investing is not talked about enough, but it is probably the most important part of investing in itself. But controlling your emotions when a recession hit is also extremely important, because we have all felt that gut turning feeling when we see one of our investments in the red. But, keeping cool in these situations is VITAL, because if you leave behind all of your principals and planning when you made the investment and sell when you see it in red, then for starter you just lost money, and second you are now starting to doubt your investing skills and knowledge because you just sold of your hard work and final decision which can be career ending, and third if you actually did your research on an investment and you sell, you lost the opportunity of making a good return on your money.
Let me remind you when you should sell your investment.
1. You need the money
2. The company/investment Is going bankrupt
3. You find a better investment opportunity somewhere else.
So, the main message is to keep cool, worry only about what you can control, remember the investment plan you have made for yourself and stick to it. But most off all don’t make any stupid decisions. An easy way to know if you’re making a stupid decision or not, ask yourself “I’m I doing something stupid right now?” if you don’t know what to answer, do more research and then ask yourself again, but if you are even in the slightest doubt of what you’re doing, then do NOT sell and stick to your original investment plan.
Recessions are merely some sort of market correction that provides opportunities. So, don’t freak out, just keep calm and know that if you can implement all these traits to your investing, then you are going to be good of. And anyways, throughout history the market has almost always recovered.
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