Some politicians have dismissed the idea that the United States is currently in a recession. But if you look up the textbook definition, it seems we can’t avoid using the ‘R’ anymore.
A recession is defined as two consecutive quarters of real GDP contraction. US real GDP declined at an annualized rate of 1.6% in the first quarter, followed by a 0.9% decline in the second quarter.
Recessions are prolonged downturns in economic activity, usually associated with lower retail sales, lower industrial production, lower wages, and higher unemployment.
The good news? Recessions also provide plenty of opportunities for ordinary people to build wealth.
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Stores
Every investor wants to buy low and sell high. A stock market dip during a recession might be a good time for bargain hunters.
While the GDP contraction in the first and second quarters wasn’t too severe, stocks actually fell — a lot.
The S&P 500 fell about 20% in the first six months of 2022, posting its worst first-half performance since 1970.
Investors who want to snap up stocks on the cheap may want to be careful and focus on companies that can thrive during a recession.
For example, Warren Buffett held shares of food giant Kraft Foods (which later merged with Heinz to create Kraft Heinz) and electrical utility NRG Energy (NRG) during the Great Recession of 2008.
According to Hartford Funds, the S&P 500 has actually risen 3.7%, on average, in 13 recessions since 1945.
You don’t need a lot of money to start investing. Some investment apps allow you to do this Buy fractional shares How much money you want to spend.
Real estate
Real estate offers another potentially profitable opportunity during a recession.
A recession does not necessarily mean that we will see a drop in property prices. But there is one specific factor that could deter the bullish momentum in the real estate market: interest rates.
For now, the Fed is aggressively raising benchmark interest rates to tame rising inflation. Higher interest rates are bad news for real estate.
When the cost of borrowing is high, it makes people think twice before getting a loan to buy a home or investment property.
Real estate mogul Sam Zell – aka “Grave Dancer” – made a fortune buying real estate when no one else wanted to.
In 1973, as the economy entered a recession, the real estate market plunged with many loans defaulting. In that environment, Zell was able to get a bunch of high-quality real estate at a huge discount.
If you’ve been eyeing investment properties in recent years, the downturn in prices may 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.
Start 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 is not easy, and the idea of building a business in doldrums – when other businesses are shutting down – can seem daunting. But going out against the herd has its advantages.
“Now is the time to take advantage of the open field. Your competitors are falling behind — spending less money on marketing and advertising,” says Charles Gaudet, CEO of business advisor and coaching agency Predictable Profits. “Some are starting to lay off employees. Others are content to sit still and hope for the best.”
When there is less competition, you have a better chance of establishing a position in the market.
Of course, if you’re not ready to quit your job and engage in a business idea just yet, think about it start a “side hustle” first.
There is no magic formula to get rich quickly. Whether it is investing in stocks, real estate or starting your own business, it is important to do your research and assess your financial situation first.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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