Some politicians have rejected the idea that the US is currently in a recession. But if you look up the textbook definition, it seems we can’t avoid using the “R” word anymore.
A recession is defined as two consecutive quarters of contraction in real GDP. And real GDP in the US fell at an annual rate of 1.6% in the first quarter, followed by a 0.9% decline in the second quarter.
Recessions are prolonged declines in economic activity, usually associated with falling retail sales, lower industrial production, lower wages and higher unemployment.
The good news? Crashes also provide many opportunities for regular people to build wealth.
Every investor wants to buy low and sell high. A stock market slump during a recession can be an opportune time for bargain hunters.
While the GDP contraction in Q1 and Q2 wasn’t too severe, stocks are already down — by a lot.
The S&P 500 fell about 20% in the first six months of 2022, marking its worst first-half performance since 1970.
Investors looking to acquire stocks on the cheap may want to be cautious and focus on companies that can thrive during a downturn.
Warren Buffett, for example, loaded up on shares of food giant Kraft Foods (which later merged with Heinz to create Kraft Heinz) and electric power company NRG Energy (NRG) during the Great Recession of 2008.
According to Hartford Funds, the S&P 500 has actually gained an average of 3.7% during the 13 recessions since 1945.
You don’t need a lot of cash to start investing. Some investment apps even allow you to buy fractional shares with as much money as you are willing to spend.
Real estate offers another potentially lucrative opportunity during a recession.
A recession does not necessarily mean we will see a drop in property prices. But one particular factor could prevent the upward momentum in the real estate market: interest rates.
Right now, the Fed is aggressively raising interest rates to tame runaway inflation. Higher interest rates are bad news for real estate.
When the cost of borrowing is high, it makes people think twice about getting a loan to buy a home or investment property.
Real estate mogul Sam Zell — also known as the “Grave Dancer” — made a fortune buying real estate when no one else wanted it.
In 1973, when the economy went into recession, the real estate market collapsed as many loans defaulted. In this environment, Zell was able to acquire a portfolio of high-quality properties at a significant discount.
If you’ve been looking at real estate investing in recent years, a downturn in prices due to a recession can be a good entry point.
These days, new services are making it easy for you to get into the real estate game, no matter how big (or small) your budget is.
Starting 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 isn’t easy, and the idea of building a business in a recession—when other businesses may be closing—can seem daunting. But going against the grain has its advantages.
“Right now is the time to take advantage of an open field. Your competitors are falling behind — they’re spending less money on marketing and advertising,” says Charles Gaudet, CEO of business consulting and coaching firm Predictable Profits. “Some started laying off employees. Others are content to sit tight and hope for the best.”
When there is less competition, you have a better chance of establishing a niche in the market.
Of course, if you’re not yet ready to quit your job and jump on a business idea, consider starting a “side hustle” first.
There is no magic formula to get rich quick. Whether it’s investing in stocks, real estate or starting your own business, it’s important to do your own research and assess your financial situation first.
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This article provides information only and should not be construed as advice. Provided without warranty of any kind.