Recessions are a time of anxiety for people. During recessions, your portfolios are down, your job is no longer secure, and it appears that the world is about to end. It happens to everyone, including those who have a sound financial plan that will get them through a recession.
You postpone your vacations or at least be mindful of spending too much on leisure activities.
Your friends are losing their jobs or struggling to make their house and loan payments.
Everyone hates recessions, and for good reason. Are there any positives about a recession?
Stock Buying Opportunities
Great wealth is generated coming out of a recession. Recessions can be a perfect opportunity to buy stocks.
Major market indexes go down 20% or more during a recession. These are great opportunities to purchase stocks at a discount. Good companies get sold just like bad ones, and if you can buy stocks in a recession and hold them for the long term, you are going to make a ton of money.
Similarly, if you invest every month and dollar cost average into stocks or mutual funds, you will be able to buy more shares for the same amount. This will be true if you are reinvesting dividends.
Market timing is difficult, but as long as you plan to hold stocks for the long term, recessions are a good time to buy stocks. I usually wait for a very bad year, and then buy blue-chip companies that have been around for a long time. I can pick up a 6% dividend yield on a good company easily during recessions.
Great Deals
Businesses struggle during recessions. So airlines, hotels, and other businesses provide great deals to attract customers.
If you have been wanting to go on your dream vacation for a while, you may be able to do that at a discount.
Buy A Home or Refinance Mortgage
The Federal reserve decreases the Fed funds rate during recessions, which causes mortgage rates to drop. So recessions are a good time to buy a house.
If you already own a home and have a mortgage, it’s a good time to refinance your mortgage at a lower rate. Refinancing will reduce your mortgage payments and put extra money in your pocket.
Use Government Stimulus To Your Advantage
The government typically implements policies in a recession to get the economy working again. These can include tax cuts, income tax credits and incentives to increase consumer spending.
This puts more money in your pocket. Use the money wisely to invest in your future.
Trim your budget
When times are good, we sign up for things we don’t need. Recessions are a good time to review your budget and get rid of services and subscriptions you don’t need.
Could you mow your lawn instead of hiring a landscaping company? Do you still need a subscription to a magazine you haven’t read in 6 months?
Recessions are good for the economy in the long run
Companies get bloated during good times. Recessions help companies watch their finances closely, and get back in shape.
Excesses in certain sectors of the economy get corrected during recessions. While it may be unpleasant at the time, these adjustments are good for the economy in the long run.
Bottom Line
Recessions can be frightening. It’s a time of uncertainty for most people. But recessions are also opportunities to build great wealth. During recessions, stocks are on sale, and distressed companies offer great deals on products and services. It’s a great time to buy or refinance a home, too.
In the long run, recessions are good for the economy and good for you. Use these times of volatility to build wealth in the long term.
