The 2023 Recession Just Started | DO THIS NOW

What's up guys, it's Graham here.

So, as it turns out, we might very well be seeing the beginnings of a 2023 bear market. In fact, the slowing inflation was just reported: more than a third of small businesses couldn't afford to pay all of the rent in October. Fifty percent of employees expect potential layoffs, and the Federal Reserve is only three weeks away from another rate hike, with more expected to follow.

That's why, with everything going on from declining home sales, record consumer debt, and rising rates, I'd like to throw my own thoughts into the mix. Because as it turns out, there is a historically proven way to invest if you want to profit from a market exactly like this. Even when Michael Burry says that you have no idea how short I am, in which case Google says he's five foot six.

So, in an effort to break down the likelihood of seeing another drop, let's discuss exactly what's happening, the preventative steps that you could take ahead of time to make as much money as possible, and how we could begin to see a terrific buying opportunity coming very soon to a market near you.

Although speaking of another drop, it would help out tremendously if you dropped a like on the video and subscribed if you haven't done that already. Okay, I know it's getting annoying, so how about this: if this video gets 20 thousand likes in the first 24 hours, I'll stop asking for it for the rest of the month. So, there we go. Thank you so much, and now that said, let's begin.

Alright, so in order to prepare for what's about to come, it's first important to understand what type of downturn that we could see. Because despite what most people think, there is a big difference between how you would approach a recession, versus depression, versus an all-out stock market collapse.

To start, we should talk about the elusive recession. Even though this is simply defined as two consecutive quarters of declining GDP, the deeper you begin to look, the more you begin to realize that this affects a lot more than just the headlines of CNBC. And it's surprisingly a lot more common than you would expect. After all, since the 1940s, we've seen a total of 18 recessions, the longest lasting 18 months, the shortest being about two months during the COVID shutdown.

Since 1900, the average recession tends to last about 10 months, with usually not-so-good effects. For example, the Economic Policy Institute found that throughout recessions, we tend to see complete contraction throughout our economy, including:

1. Job losses. As companies anticipate lower earnings, they'll seek to reduce their costs, and that usually begins with laying off employees to reduce their overhead.
2. Because of that, we also tend to see declining wages. A study in 2009 found that the average worker saw a six to seven percent income loss for each one percentage point increase in the unemployment rate. Even after 15 years, the loss is still two and a half percent.
3. There tends to be less private investment. Just like businesses scale back, individuals also tend to make smaller, safer investments, and that in turn leads to less economic growth and less innovation in the future.

However, when it comes to making money during a recession, here's the good news, or I guess the bad news, depending on how you look at it: a recession by itself has very little correlation with the stock market. In fact, from 1869 through 2018, there have been a total of 16 recessions that had positive stock market returns. Oftentimes during those positive recessions, the market went up an average of 9.8 percent during a time the GDP declined by three percent.

Basically, in other words, out of 30 recessions, half of them had no correlation with stock values whatsoever. But on the other hand, when the market does go down, we see an average drawdown of 29.2 percent, of which it's pretty obvious that we're on the same trajectory. So how bad could it get? Well, on a broad scale, these are the types of declines that you should be made aware of when it comes to building wealth.

The first is what's known as the stock market correction, which is defined as a minimum 10 percent drop in price. Now, normal volatility throughout the market is extremely common. In fact, since 1920, the S&P 500 has on average seen a five percent pullback three times a year, so random fluctuations happen all the time. This is also somewhat the case with market corrections, which happen on average every 16 months, with a drop of 15.6 percent and an average length of 71.6 days.

So, it's absolutely normal, and it's a sign of every healthy market when you see a pullback as part of a regular business cycle. But after that, we move on to the more serious category, and that would be a bear market, which is defined as a drop of at least 20 percent. This is where we are now. According to the data, this typically happens every seven to ten years, and when it hits, it hits hard. During a bear market, stocks drop an average just over 33 percent, and it falls over a period of 363 days.

But in terms of how bad things could potentially get, after that we have the worst of them all: a stock market collapse. I'd consider this to be a drop of at least 40 percent or more throughout the entire market, and throughout the last 120 years, it's only happened three times. Now, of course, 2020 got very close to that, but the Fed stepped in, and here we are today. That means that an actual stock market collapse is uncommon, but it's not impossible. If Jamie Dimon is correct, it might be closer than we think.

That's why it's important that you're actually able to use this information to make money. In order to do that, you first have to understand which investors will be the biggest losers.

To start, if you want to have the best chances of making the most amount of money possible throughout these next few years, you will need to do your best to stay employed. The fact is, when consumers earn and keep less, they spend less. And when companies see less demand, they begin to scale back, and usually employees are the first to get cut. In fact, just a quick Google search for "mass layoffs" gives you dozens and dozens of companies who are beginning to trim their workforce.

As Bank of America warns, the U.S. economy will soon start losing 175,000 jobs a month. That's why the biggest financial losses will come from those who are unemployed and can't sustain their income to keep investing in the market. So over the next year, keeping your job should be the main priority.

Second, you're more likely to sustain losses if you don't keep a three to six month emergency fund. Having this type of emergency fund means you're not going to have to rely on credit cards to pay your way through an unexpected event. You won't have to sell your stocks or investments during a time where they probably declined in value, and you're not going to have to take on high-interest rate debt if something were to happen.

For me, I've been using a combination of high yield savings accounts that pay between two and a half and three point seven five percent, as well as short-term three to six month treasuries that are paying about four to four point three percent. That way no matter what happens, I'm earning something on my uninvested money and I have something to fall back on.

Finally, third, the investors who statistically do the worst are those who do not continue buying into the markets when it's down. On the most basic level, studies have shown that the average investor just barely manages to outperform inflation, with a 20-year annualized return of just 2.9 percent. Why, you might ask? Well, the vast majority of investors follow the principle of buying high and selling low.

Yeah, I'm not even joking. A perfect example of this is what's known as the Magellan Fund. This is the world's best-known mutual fund, which saw record high growth under the management of Peter Lynch from 1977 to 1990. But even despite their incredible success, having outperformed the market by a long shot for more than 15 years, it was reported that the average investor lost money under Peter Lynch's tenure during a period where the fund returned around 29 percent annually.

The reason? Well, during those years it experienced times of explosive growth and devastating losses. So when investors only bought the excitement and only sold once they had lost money, they locked in their losses and missed out on all the subsequent growth, had they just done nothing.

In health, so now that you know what to avoid, these are the strategies that are statistically proven to make you the most amount of money possible. If you could follow just a few basic steps, you're going to be that much closer to making riches in a recession.

First, when it comes to building wealth, it's important to recognize that there's always going to be a reason not to invest. Like when I first started buying real estate in 2011, the market had already gone down by 50 percent and I was buying properties for 20 percent of their appraised value just a few years prior. But I was told to wait a little bit longer because shadow inventory was about to hit the market. Things were going to get a lot worse. But guess what? That shadow inventory never came, and I'm so glad I didn't listen to the people who told me it would be a bad time to buy.

Even in 2017, when I began making videos here on YouTube talking about buying into the S&P 500, there were plenty of headlines about how the market could be poised for a crash or how the market was overvalued. But I kept dollar-cost averaging on a regular basis, and again, I'm glad I did. Just be aware that as long as you invest, things will never be perfect, and there's always going to be a reason why the market could crash. So, it's usually best just to ignore it and keep investing.

The second: investing is not a game. I hate to say it, but when you really get down to it, investing is boring, and it's not supposed to be fun. I know it sounds weird to say, because for me, investing is an absolute blast. But for most people, it's not supposed to be that way, and it's not a sign of a healthy market when people are trying to gamble their life savings to buy a Tesla Model S less than the next week.

At a certain point, you have to remember that if you're trying to beat the markets, you're either taking a carefully calculated risk or you're gambling. Unfortunately, the line has gotten completely blurred over these last few years because of that.

Number three: overconfidence will destroy your portfolio. From everything that I have witnessed, the moment you think that you've had it all figured out and can beat the market is the moment you've lost. Because of that, it's best to recognize that the less you know, the better you'll probably do because you're not going to overcomplicate everything.

For example, every single study has shown that the best strategy possible is just to dollar-cost average into an index fund and do nothing for 20 years. That's it. But guess what? Almost nobody does it because it's really, really boring.

So, even though you might have friends that make five times what you do in the next few weeks, months, or even years, over 20 years, I guarantee that they'll wish they had followed a basic strategy instead.

Fourth, let's face it: any market drop is probably going to be worse than you expect. Like, you know when you see it drop, so you decide to buy the dip, but then it keeps dipping. So you buy a little more, and it keeps dropping, so you keep buying until eventually you run out of money, and then it drops even further.

Generally, the market bottom will occur at absolute investor capitulation, where they lose faith, think the market is doomed forever, and will never recover. This was the case back in 2020, 2009, and I'm sure also in 2001. Every generation is going to have its "this time is different" moments that come out of nowhere, where you question whether or not it's a good idea to stay invested.

It's important to realize that things can and will get worse than whatever you expect. I think this year has been a really big wake-up call that speculation is not a sign of a healthy market, and the more diversified you are, the better.

And fifth, good financial habits should be practiced in both good and bad markets. Even though now is a pretty good time to work some extra hours, cut back unnecessary spending, hone your skills, and take on a side hustle—ideally you should always be doing this and making the most of your time regardless of how the stock or real estate market performs. In times like this, those habits will save you ten times over.

That's why I've always done my best to live frugally, save diligently, and realize that nothing lasts forever.

Plus, six: it was found that half the S&P 500's strongest days in the last 20 years occurred during a bear market, and another 34 percent of the market's best days took place in the first two months of a bull market before it was clear that a bull market had begun.

This is important because had you just missed out on the top 10 best trading days over the last five years, your return drops from 15 to 3.75 percent, especially when the best days come right after the worst.

So, even with all of that said, on a practical note, there is some good news to look forward to: if history is any indication, by the time the recession is over, the market actually recovers and is posted an average profit of 1.7 percent, with an average gain of 15.3 percent the following one year.

That means that investing during a recession is one of the most profitable times to invest. Not to mention, in the following three years after every single recession we have ever had, the market was one hundred percent in the green.

Not to mention, if you invest in the S&P 500 since 1950, we've only ever had 16 times where the market closed lower by the end of the year, meaning you have a 79 percent chance of making money if you just dump everything into the S&P 500 at the beginning of the year and then wait.

The same also applies to real estate, too. Even though short-term prices could fluctuate depending on interest rates, supply, and demand, long-term values generally trend higher, and drawdowns usually last only a few years before recovering.

That's why it's so important to stay employed, keep making money, don't panic sell, don't speculate on stupid investments, buy a wide range of assets, and always, no matter what, subscribe if you haven't done that already.

So, with that said, you guys, thank you so much for watching. As always, feel free to add me on Instagram, and don't forget that our sponsor, Republic.com, has an offer for you down below in the description. Enjoy, thank you so much, and until next time.