A recession is coming. The cold wind of an economic downturn might reach you next week, or it could be several years away. But eventually, you will feel its bite.
Recessions are inevitable, and they are never good news. But those who prepare for hard times can actually benefit from them when they arrive.
Following are some ways you can survive and even thrive during a recession — but only if you prepare now.
1. Hoard cash to buy stocks when they’re cheap
The research is clear: Trying to time the market is a fool’s errand.
Study after study shows that investors tend to panic and bail out of stocks at just the wrong time. As a result, the average investor’s rate of returns typically is worse than that of the market itself, according to research firm Dalbar.
History shows that investors would do far better to simply buy a wide range of stocks — such as through an index mutual fund — and hold those investments for a long time, occasionally rebalancing their asset allocation.
But anyone who felt the pain of the epic 2008 market collapse knows how difficult the buy-and-hold strategy can be. So, here’s a little trick that might make a bear market easier to … well, bear.
Start building a cash cushion today so you can invest that amount — either in a lump sum, or via dollar-cost averaging — once the market plunges by a certain degree, such as 10% or 20%.
Are you guaranteed to make a killing with such a strategy? No. In fact, you could invest the money only to see the market plunge further. But history suggests that the deeper the market plunges, the higher it eventually will soar when a market recovery begins.
2. Shore up credit so you can refinance when rates are low
OK, mortgage rates already are low. In fact, by historical standards, they are ridiculously low.
But they could fall even further. In fact, last year, Fannie Mae chief economist Doug Duncan told the Dallas Morning News that he expects mortgage rates to slide if the economy sinks into recession.
So, refinancing your existing mortgage — or even getting a new mortgage — during a recession might save you a lot of cash via a lower mortgage rate.
To qualify for those great rates, you need to work now to make sure your credit is in tip-top shape.
For tips on boosting your credit, check out “What’s the Fastest Way to Increase My Credit Score?”
3. Save for a down payment so you can snatch a bargain home
In many markets, housing prices are sky-high. But a recession could change that fast.
Delaying a home purchase in the hope that prices eventually will fall — and you’ll snag a bargain — can be a mistake. As with the stock market, timing the housing market rarely works.
But “rarely” does not mean “never.”
If you guess right — or if you simply plan to buy and benefit from fortunate timing — you may be able to purchase a bargain-priced home when other potential buyers hit hard economic times and decide to remain on the sidelines.
After all, fewer buyers means sellers will likely become more interested in selling to you at a reduced price.
Save cash now so you will have a fat down payment and be ready to pounce when hard times arrive and sweet deals on homes appear.
Not only will a large down payment help you secure less-expensive mortgage terms, but it also will reduce the amount you need to borrow — a twofold way to save.
4. Plan for a big expense now and save on it later
Sadly, a recession leaves few people untouched. Once-thriving businesses can suddenly become desperate for new sales and revenue.
That is also true of your neighborhood contractor. If you plan — and save for — a major home renovation project now, you might save big money by hiring contractors willing to work for less when times turn tough.
This tip applies to other big-ticket purchases as well. For example, car dealerships might be more willing to negotiate when sales are slow, and resorts may cut prices just to keep the customers — and income — flowing in.
5. Get ready for a career change
Do you hate your career? Even if you do, you might feel compelled to stay at your current job if the pay is great and the position is stable.
Still, it never hurts to dream. So, start thinking about something else you’d like to do. Educate yourself about new career paths until you find something that seems right for you.
If the new job requires schooling, get all your ducks in a row — look into local or online programs to save money — and be ready to pounce if the economy turns down and you find yourself on the wrong end of a layoff.
During a recession, fewer companies will be hiring. But rather than trying to fight that wave, you will be in a position to ride it by going back to school and training for a new career. With any luck, you’ll emerge from school newly trained and ready to go just as the economy heats up again.
Do you have more ideas for using a recession to your advantage? Share your thoughts in comments below or on our Facebook page.