How To Use The 2023 Recession To Get Rich

What's up guys? It's Grammy here! So, this is potentially going to be a once-in-a-generation opportunity to build wealth. Because now, it could be one of the easiest times to increase your net worth dramatically if you know what you're doing. After all, there's a popular saying that riches are made in recessions, and it doesn't take much to realize that we're already beginning to move towards that point.

Just take a look at the headlines today: more than 9 out of 10 CEOs are bracing for a recession. 97% of CFOs are cutting costs by 10%, and JP Morgan warns the stock market could fall by another easy 20% from current levels. Now, even though this sounds negative, the fact is, recessions happen on a regular basis, and if used correctly, it's possible to set yourself up for the rest of your life through some incredible opportunities and discounts. With even Warren Buffett being quoted as saying bad news is an investor's best friend.

So, let's talk about exactly what's expected to happen throughout these next 12 to 24 months, the best benefits that you would be able to take advantage of today, and precisely what you can do to make sure you're in the best position to make as much money as possible. On today's episode, if you subscribe in the next 15.39 seconds, I'll show you this really cute picture of a kitten. So, thank you guys so much! And now, with that said, let's begin.

Alright, so before we talk about the best upcoming opportunities, you first need to understand what you're going to be up against. And to start, we need to talk about a recession. Generally, recessions are accompanied by a significant rise in unemployment, a drop in wages, a loss in consumer confidence, and a decline in values across everything from stocks, food, energy, and services, with sometimes long-lasting effects throughout the entire world.

But second, along with the recession, usually comes a decline in earnings. See, every quarter companies report their revenue and give guidance on their future outlook. But lately, they've been cutting forecasts, bracing for slow or even negative growth, inciting recession risks at the highest pace in 10 years. That leads us to third: layoffs. When consumers earn less, they spend less, and when companies see less demand, they begin to scale back on their expenses, with usually employees being the first to get let go. In fact, just a quick Google search for mass layoffs shows you dozens upon dozens of companies who are all trimming their workforce. As Bank of America explains, the U.S. economy will soon start losing 175,000 jobs per month.

So, in terms of what this means for you and your investments, as well as how you could use this information to make you money, let's start here with number one: stocks. As of now, all three major indexes are down between 20% and 30%, with analysts like JP Morgan believing that we have another 20% to go from current levels. However, if we take a look throughout history, since 1946, the average bear market drop was close to 30%, with the most severe having been in 2009 when the S&P 500 fell 57% from the peak.

Now, once you combine the average with the recession, bear markets tend to do even worse, with an average drop of 34.8%. Just for reference, right now, we're down about 25%. All of that is to say that, generally, the absolute bottom occurs when we see capitulation across investors. Usually, that's a time of the start of the recovery, and things begin to bounce back. Now, I'll cover exactly how much you can make from this in the next few minutes, but first, we have to talk about number two: real estate.

Even though every area is different and some locations might continue to flourish, housing declines on a national level are actually incredibly rare. In fact, as you can see throughout the last 60 years, there have only ever been a few times where prices meaningfully fell more than 10%. But now, the general Wall Street consensus is that national housing prices are going to decline 7%, with a worst-case decline of 10% to 15% should interest rates continue to increase. Of course, every market is going to be different, and according to Moody's Analytics, the most vulnerable markets could see upwards of a 25% decline from the peak, including parts of Florida, Arizona, Idaho, and Southern California, with the decline lasting another 12 to 18 months before bottoming out.

Now, in the big picture, it's probably not going to make that big of a difference for anybody with a fixed-rate mortgage who intends to stay in their property for another five to ten years. But for anyone looking to invest or buy a house, we may begin to see some deals starting to come on the market, which we'll cover shortly. Because we have to also talk about third: cash. Clearly, up until now, there's been this mindset that cash is wasting away to inflation. But when every other asset is falling in price, sometimes cash could be the safest place to store your wealth.

And you know that's significant when someone like the billionaire Ray Dalio admits that cash is no longer trash. The truth is, many people forget that as recent as 2018, cash was the best-performing asset, and had you just been saving your money in a high-yield savings account, you would have far outpaced the market. Cash is now becoming such a significant part of the portfolio that even fund managers are holding on to the highest amount of cash since 2001, and Citigroup said that cash is the only asset that investors could use as a recession hedge.

But as far as what you could do about this to make money and why so many people never take advantage of what's about to come, here's what you need to know. Alright, so in terms of why this next recession could be a once-in-a-generation opportunity, just consider this: first, everything becomes less expensive. The way I see it, even though one person might think this is a bad time to invest, everything is falling 30%. A wealthy person would see this as an opportunity to be able to buy those exact same companies for a 30% discount. Warren Buffett really had the perfect analogy for this. He said, "When hamburger prices go down in price, we sing; when hamburgers go up in price, we weep." For most people, it's the same thing with everything in life that they're buying, except for stocks. When stocks go down, and you can get more for your money, people don't like them anymore.

So first, reframe your belief because a falling market could work to your advantage. The second, there's less competition. The fact is, when times are difficult, companies scale back, they fold, they conserve cash, and they play it safe. But this opens the door for smaller, more aggressive companies to stand out and take their place. For example, one study across sixteen thousand companies found that those who continue to advertise increased their value and got more bang for the buck with positive growth years after the recession ended.

The third: there's way more opportunity. In a way, a recession is the market's method of weeding out the weak. Patrick Bet-David made a fantastic comparison a few months ago: the peak of the market cycle is exactly like a forest. This means that only the largest, most established trees, or companies, get access to all the resources, or in this case, sunlight. Everything at the bottom has a difficult time being able to compete, and it's hard to grow. But just like natural forest fires, our economy has a way of repeatedly clearing out and bankrupting the companies who are no longer able to sustain themselves, giving opportunities for newer, smaller businesses to continue to develop.

And fourth, after every bear market comes a bull market. As Yahoo Finance points out, historically, the S&P 500 has fallen an average of 29% around a recession, with a median drop of 24%. But once stocks have found their low, their average return the following year is 40%, and within two years, the market has increased an average of 58%. This means that investing on the way down is much more profitable than pulling out of the market and waiting. And long term, the market has always recovered in every single example so far throughout history.

And finally, fifth, you have to act before anyone else knows about it. I know it sounds easy to think, "Oh perfect, I'll just invest during a recession," but the truth is, recessions are never confirmed until much, much later. For example, the Great Recession that began in December of 2007 was not officially announced until December of 2008, only a few months before it officially ended. The recession before that began in March of 2001, but they didn't call it a recession until November later that year. This continues with about a six to twelve month delay until we actually know we are in a confirmed recession.

But in terms of what you could do about this to profit: number one, scale back your expenses. This means that you track your market, cut back on unnecessary spending, and operate lean while you continue reinvesting as much as possible back into the market. This should also include a plan on what you would do if your income were to drop 20% to 50%, how you would make up the difference, and if you could take preventative measures ahead of time to protect yourself from that happening.

Two: hold on to some cash. Now, I'm a firm believer that even though statistically your money is best off invested as soon as possible, there is something to be said about the peace of mind of having cash on the sidelines, just in case, something to fall back on. For me, cash makes up anywhere between 15% and 20% of my portfolio, depending on the time of the year. But generally, this has given me so many opportunities to jump on good deals when I find them, and it lets me sleep at night knowing that no matter what happens, I have something to fall back on.

Three: protect your career. This, at the end of the day, is going to be your best hedge against whatever happens. Because financially, your worst-case scenario is not the market going down, but instead, it's the market going down at the same time that you lose your job, and have to sell off your investments at the bottom before they have time to recover. So now is the best time to improve yourself, learn new skills, and double down on whatever you're currently doing.

After that, four: invest long term. The best course of action when it comes to investing is to simply carry on as usual and pretend like nothing's happening. It's shown that dollar-cost averaging, or the practice of buying into the markets on a regular basis, is the most profitable strategy. So, stay in the market and continue buying in.

And five: diversify your investments. Now, if you can't personally handle a 20% drop without panicking, it's probably a sign that you're invested too aggressively. For instance, if you're completely in U.S. tech stocks, then it's probably a good idea to add large caps and international stocks to the mix too, or potentially look into investing in real estate or buying REITs, as rents tend to be a little bit more stable. The more legs your portfolio has to stand on, the less likely it's going to collapse should one or two of them fall out.

Although, in terms of my own plan throughout the next 12 to 24 months, this reminds me of when I first began my career in real estate at the very peak of the market in 2008, right before Lehman Brothers collapsed, prior to the credit market freeze, into the very, very beginning of a 50% stock market decline. From the outside looking in, I probably picked one of the worst possible times to start a career in an industry that was about to see one of its worst drops in history.

But I gotta say, it was an eye-opening experience to begin working and almost immediately see co-workers in the same office leave their jobs because business dried up overnight. However, if it wasn't for that, I might not be here today because I was one of the few remaining agents in my office who was willing to take on the lowest, worst deals possible, just for the sake of gaining any experience I could.

And today, I see businesses who want to take the risks that the more established companies can't. For me, I see a lot of value continuing to buy in as usual, holding a bit of a cash position on the side, potentially starting a new business, and buying real estate once the market is flattened. This is also a great time to double down on your work, take on a side hustle, and learn as much as you can, because whatever you do today is going to be rewarded many times over by the time the market recovers.

It's definitely not going to be easy, but rest assured it will be rewarding for those who stick it out. And subscribe and hit the like button if you haven't done that already! So with that said guys, thank you so much for watching! Also, feel free to add me on Instagram. Thank you so much for watching, and until next time!