Certain politicians have rejected the idea that the US is currently in a recession. But if you look up the textbook definition, it seems that we can no longer avoid using the “R” word.
A recession is defined as two consecutive quarters of contraction in real GDP. And real GDP in the US declined at an annual 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 falling retail sales, lower industrial production, falling wages and rising unemployment.
The good news? Recessions also provide many opportunities for ordinary people to build wealth.
do not miss
Every investor wants to buy low and sell high. A stock market crash during a recession can be an opportune time for bargain hunters.
While the contraction in GDP in the first and second quarters hasn’t been very severe, equities have already fallen – a lot.
The S&P 500 is down about 20% in the first six months of 2022, marking its worst first-half performance since 1970.
Investors looking to buy stocks cheap may want to be cautious and focus on companies that can thrive during a recession.
Warren Buffett, for example, carried shares in food giant Kraft Foods (which later merged with Heinz to create Kraft Heinz) and electric utility NRG Energy (NRG) during the Great Recession of 2008.
According to Hartford Funds, the S&P 500 actually gained 3.7% on average during the 13 recessions since 1945.
You don’t need a lot of money to start investing. Some investment apps even let you buy fractions of shares with as much money as you’re willing to spend.
The real estate industry offers another potentially lucrative opportunity during a recession.
A recession does not necessarily mean that we will see a drop in property prices. But one specific factor could hold back the upward momentum in the housing market: interest rates.
At the moment, the Fed is aggressively raising its interest rates to tame rising inflation. Higher interest rates are bad news for the real estate industry.
When the cost of borrowing is high, people think twice about getting a loan to buy a home or investment property.
Real estate mogul Sam Zell – aka “Grave Dancer” – made a fortune buying up properties when no one else wanted to.
In 1973, as the economy slipped into recession, the housing market crashed 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 eyeing investment properties in recent years, a recession-driven price pullback could provide a good entry point.
These days, new services make it easy 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 herd has its perks.
“Now is the time to enjoy an open field. Your competitors are pulling back – spending less money on marketing and advertising,” says Charles Gaudet, CEO of business consultancy and coaching agency Predictable Profits. “Some have started laying off employees. Others are content to keep quiet and hope for the best.”
When there is less competition, you are more likely to establish a foothold in the market.
Of course, if you’re not yet ready to quit your job and pursue a business idea, consider starting a “side hustle” first.
There is no magic formula for getting rich quick. Whether investing in stocks, real estate, or starting your own business, it’s important to do your own research and assess your financial situation first.
what to read next
Sign up for our MoneyWise investing newsletter to receive a steady stream of actionable ideas from top Wall Street firms.
If your retirement plans have been crippled by inflation, here’s a stress-free way to get back on track.
“There’s always a bull market somewhere”: Jim Cramer’s famous words suggest that you can make money no matter what. Here are 2 powerful tailwinds to take advantage of today
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.