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How to Make a Profit During the Next Recession

 


How to Make a Profit During the Next Recession


KEY POINTS

  • Throughout history, there have been those who've made money during times of economic hardship.
  • Abandoning your investment strategy during a recession can be a costly mistake.
  • A recession can be a good time to make a big move, like buying a business.

  • Stay the course

  • One of the first things you'll hear as the next recession approaches is how many people have sold off their investments and moved their money somewhere guaranteed to be 100% safe. Emotionally, this move makes sense. Who doesn't want to protect their hard-earned money?

    Unfortunately, the practice is short-sighted. 

    There's a phrase in finance called "dollar-cost averaging." In a nutshell, dollar-cost averaging means investing a fixed dollar amount on a regular basis, no matter what's going on in the market. Let's say a person invests $100 a month in Target. Whether Target stock is selling for $125 per share or $50 a share, they invest the same $100. 

    When Target stock is going for $125 per share, their $100 won't go far. However, when the market is down and the value of Target stock drops, their $100 buys more. Over time, they'll end up with far more than they would have if they'd left the market as values began to drop. Over time, dollar-cost averaging may also lower their average cost per share.

    For you, it's about deciding how much you're going to invest in your future each month, and sticking with that plan no matter what. Sell things other people need

    According to the 2022 Offer Recommence Report, 82% of Americans buy or sell second-hand items. And it's not just clothing. A whopping 76% of the pre-owned goods purchased are from product categories like electronics, home goods, sporting and outdoor equipment, auto parts, furniture, and home improvement. 

    Even people who aren't normally thrifty look for ways to save money during a recession. Take the opportunity to offer anything you no longer need or use for sale. Whether it's a room full of baby equipment, home decor, or auto parts, selling allows you to clean your house and make money you can stash in your savings account.

    Buy a business

    A recession can be a good time to buy a business. Business owners don't always have enough money put aside to stay afloat when sales lag, or they may own several small businesses and are anxious to lighten the load. 

    Naturally, you'll need to take a deep dive into the financial records and daily operations of a business before making an offer. And if you're not an experienced business owner, you'll need the help of a neutral third party who is experienced in business valuation to walk you through the pros and cons of the business. 

    Keep your eye on layoffs

    Finally, keep an eye out for which companies are laying off employees during the next recession. According to research published in Harvard Business Review, the companies that emerged from the Great Recession in the best shape were those that relied less on layoffs to cut company costs. Instead, they focused on operational improvements and innovative ways to retain employees. 

    Those are the companies you may want to invest in. And it's not just because they did right by their employees (which is a huge bonus), but also because leadership was savvy enough to save jobs while strengthening business practices. 

    One thing we all should do, whether we're concerned about a recession or not, is build an emergency savings account with enough money in it to cover three to six months' worth of expenses. That way, we have a financial cushion to fall back on when money gets tight. 

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