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Published on: 11/18/2022 • 6 min read

Money Tips For Surviving a Recession

As the United States sees instability in gross domestic product (GDP) and interest rates dramatically increasing, many investors are panicking, looking for tips on how to survive these market lows. However, the question shouldn’t merely be about surviving a recession. Rather, it should be about how you can be thriving during this decline in economic activity.

If you’re looking to build wealth during a recession, start by reviewing your fixed expenses and making changes where necessary, invest in quality companies that have a history of surviving recessions, consider purchasing investments that do well in a recession — such as gold — and stay the course with your long-term investment strategy.

With these tips you can not only survive a recession, but come out on the other side stronger than before.

How to take advantage of a recession

To take advantage of a recession, you must first understand what causes them and how to identify one. A recession is defined as a decline in the gross domestic product (GDP) for two or more consecutive quarters. This can be caused by a number of different factors, including a decrease in consumer spending, an increase in interest rates, or a decrease in exports.

While a recession can be a daunting time for many people, if you take the proper precautions (read more about how to prepare for a recession) and make smart investments, you can set yourself up to come out ahead financially. All of this to say, don’t let the current market conditions stop you from working towards your financial goals.

Here’s what to do in a recession if you’re looking to profit from this economic downturn. 

1. Review your fixed expenses

The first step in taking advantage of a recession is to review your fixed expenses and make changes where necessary. This will allow you to see where you can cut back so that you can save more money that can then be used to invest, assuming you already have a comfortable emergency fund in place.

Some common fixed expenses include rent or mortgage payments, car payments, insurance premiums, and subscription services. While you may not be able to eliminate all of your fixed expenses, there are likely areas where you can cut back, even if it’s by a little. 

2. Invest in quality companies that have a history of surviving a recession

When the stock market takes a hit, as it did during the recession of 2008, it’s important to remember that not all companies are created equal. While some will struggle to stay afloat, others will find ways to adapt and even thrive.

Therefore, when looking for companies to invest in during a recession, it’s important to consider those that have a history of weathering economic downturns. These companies tend to have strong balance sheets, solid management teams, and a diversified customer base. Additionally, they tend to be in industries that are less sensitive to economic fluctuations.

Is it good to invest during inflation?

Inflation is one of the most fundamental factors to consider when making investment decisions. 

Exactly how does inflation affect investments? In simple terms, it reduces the real value of your money, meaning that the purchasing power of your money goes down. For example, if you have $10,000 invested and inflation is 3%, then the real value of your investment would be $9,700 one year later.

When selecting where to invest your money, It’s important to choose investments that will protect your purchasing power and maintain your standard of living.

3. Diversify your portfolio

In addition to investing in quality companies, you may also want to consider purchasing investments and diversifying your portfolio with investments that tend to do well in a recession. So, what investments do well in a recession?

Gold is often seen as a safe haven investment because it holds its value well during times of economic turmoil. Bonds are another option as they tend to perform well when interest rates are falling, which is often the case during a recession.

You could also invest in real estate. While the housing market may take a hit during a recession, and interest rates may still be high, it’s important to remember that property is a long-term investment.

While there are a number of different investments that do well in a recession, it’s important to remember that diversification is key. You don’t want to put all your eggs in one basket, so to speak. By diversifying your portfolio, you’ll be able to weather any economic storm because not all of your investments will decline in value at the same time.

4. Stay committed to your long-term investment strategy

Surviving a recession is one thing, but taking advantage of a recession is a whole different story. While everyone else is selling and panicking, smart investors are buying quality assets at a discount. If you want to take advantage of a recession, you need to have a long-term investment strategy in place and stay the course.

Of course, this isn’t always easy. It can be difficult to remain calm and rational when the market is in freefall and your portfolio is taking a hit. But if you want to come out ahead, it’s important to stick to your investment strategy and resist the urge to sell.

Investors who held onto their investments during the recession of 2008, for example, were rewarded handsomely when the market eventually recovered. Those who sold near the bottom missed out on the rebound and saw their portfolios shrink even further.

So, if you want to take advantage of a recession, commit to your long-term investment strategy, and don’t sell when the market is down. Head to our recession survival guide to learn more.

Continue reading: Are we facing a recession?

What should a retiree do during a recession?

Periods of economic instability can be especially difficult for retirees whose income can depend on market conditions. Ideally, your retirement plan would have been created to protect your financial future from a decline in economic activity well before it even happens. However, if you find yourself in retirement during a recession, there are steps you can take to help to lessen the burden, whether you were prepared or not:

  1. Diversify your portfolio across a variety of asset classes, including stocks, bonds, and cash. This will help to protect your portfolio from any sudden market swings.
  2. Focus on investments that offer stability and income, such as dividend-paying stocks, high-quality bonds, and annuities. These types of investments can help to provide a cushion in case the stock market takes a downturn.
  3. Don’t be too aggressive with your investment choices. Remember that your retirement savings are meant to last for many years. While it’s important to try to grow your nest egg, you don’t want to put your hard-earned savings at risk.

Talk to a financial advisor if you’re unsure about the safest investments for retirement during a recession.

Plan to thrive — not just survive — during a recession with Avidian Wealth Solutions.

So, how do you build wealth in a recession? While most people are focused on surviving a recession, smart investors are looking for ways to thrive. If you have a long-term investment strategy in place, a recession can actually be a great time to buy quality assets for less.

Whether you’re looking to tap into the opportunities available during a recession or want to develop a financial plan that keeps risk management in mind, the multi-disciplinary team of financial professionals at Avidian Wealth Solutions can help. We take a holistic approach to our wealth management strategies that take risk management into consideration for times just like these.

Contact us today to learn more about how we can help you weather any economic storm.

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