It’s been nearly six years since the Great Recession officially ended. Is it time to start worrying about the next one? Here’s this week’s question:
I keep hearing about the next recession is on its way and will make the last one, from 2008, look like a walk in the park. Truth?
Before I answer Lynn’s question, here’s a video I did last year. It’s called “Things Beginning Investors Don’t Know But Should.”
Recession on the way? Bet on it
I’ve been interviewed on both TV and radio countless times about the economy and the stock market, most commonly in times of trouble. In fact, my television career began when I was working as a stockbroker and was interviewed multiple times during the days after the infamous Crash of 1987, a cataclysmic economic event that pushed the global economy into recession and the Dow Industrials down 23 percent in a single day. Then there was the bursting of dot-com bubble, when the tech-heavy NASDAQ lost two-thirds of its value between 1999 and 2002. And, of course, our most recent recession, which cut the Dow in half between 2007 and 2009 and was the worst economic downturn since the Great Depression.
While those are some of the downturns we’ve had in the past few decades, they’re hardly the only ones. And that’s the point. Our economy is cyclical; always has been, always will be. So when the question is, “Will we have another recession?” The answer is always “Absolutely.” It’s just a matter of when it will arrive, how severe it will be and, most important, how you’re positioned to take advantage of it.
The worst of times can be the best of times
When you think of recessions, you probably think of economic turmoil and misery. And you’re right, particularly if you’re one of those laid off, or maybe living in a house that’s not worth what you owe on it. But if you’re not personally and directly affected, and if you’re prepared, recessions can afford you the opportunity of a lifetime.
Wealth is realized when the economy is booming, but that’s not when it’s created. Wealth is created when times are bad, unemployment is high, problems are massive, everybody’s freaking out, and almost nobody is willing to make a move.
Would you rather buy a house for $400,000, or $200,000? Would you rather invest in stocks when the Dow is at 18,000 or 7,000?
Obviously, nobody wants every 10th American to be jobless. But the cyclical nature of our economy all but assures that this will periodically happen. If you’re one of the 90 percent who still has a job, this is the time you’ve been saving for. Stop listening to all the Chicken Littles in the media: The sky isn’t falling. Get busy, and put your cash to work and create some wealth.
In 2009, I bought a bunch of stocks at the exact time when the media was screaming daily that the world was ending. Those stocks have now doubled. In 2012, when nobody in their right mind would touch a house in South Florida, I went in with a partner and bought one for $360,000. We put $100,000 of improvements in it, rented for a year or so, and sold it last month for $618,000.
Why did I make these moves? It’s not because I’m smart. It’s because I’m old. I’ve seen this all before. I froze like a deer in the headlights and missed the rally in stocks after the 1987 crash. I was too scared to buy Citibank when it dropped to 14 during a real estate/banking crisis in 1990. So this time, when it looked like the world was coming to an end, I acted.
Those who don’t learn from history are doomed to repeat it
Lynn wants to know if there’s another recession coming, and if it will make the last one look like a walk in the park. The first part I’ve answered: Yes, another recession will come. When? Probably not this year; possibly next. Nobody knows, including those who insist they do. Nor does anyone know how severe it will be. There are simply too many variables to know what the future holds.
During the decades I’ve been following stocks and the economy, there have always been “experts” predicting that the end of the world is right around the corner. More often than not, these dire predictions are accompanied by offers for books, newsletters or some other form of advice.
Like sex, disaster sells.
While it may not be sexy, here’s all you need to know, Lynn: Always be prepared. Keep an emergency fund in case you lose your job. Develop alternative income streams with side gigs. If you’ve got it to spare, always keep some money in the market, but always keep some powder dry. Read about what’s happening in the world and develop your own 30,000-foot view rather than a knee-jerk, reactionary one. And avoid the herd. Be a buyer when everyone else is selling and a seller when everyone else is buying.
What about you, reader? Do you think a recession is imminent? Have any additional advice for Lynn? Sound off below or on our Facebook page.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get way more questions than I have time to answer.
I founded Money Talks News in 1991. I’ve earned a CPA (now inactive) and spent 10 years working for Wall Street firms. I’ve been licensed in securities, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. You can learn more about me here.
Got more money questions? Browse lots more Ask Stacy answers here.