When the recession hit in 2007, a multitude of disastrous consequences followed. People had to sell their homes, watch their wealth disappear, and many lost their jobs. There is no doubt that economic downturns are tragedies, but for some investors, they are not all bad. The reason is that these people know how to make money in these dire conditions, and when the economy rises again, they end up with significant gains. The backbone of the strategies these investors use can be summed up in the following quote:
“BE FEARFUL WHEN OTHERS ARE GREEDY AND GREEDY WHEN OTHERS ARE FEARFUL”
What this quote means is that when the public is fearless and aggressive with their investments, you should be wary. Alternatively, when the public is afraid and keeping their money out of the market, there are tremendous deals to be had. Those are the deals that you must capitalize on.
Current Economic Conditions
Right now, we are experiencing one of the most extended bull markets in history. Every asset is seeing capital gains, spending is at an all-time high, and investors are not afraid. You never know precisely when the economy is going to see a downturn, but conditions like these are clues that a correction is coming. That correction could be manageable, or it could be another recession that sends the entire economy into a downward spiral. What exactly will happen and when are impossible to predict, but it is worth understanding what to do with your money in the event of a recession.
Where to Invest During a Recession
If a recession hits, you already have your general strategy in place: Find great deals and invest with confidence. What that philosophy does not tell you is where to put your money. Unfortunately, you can follow the right principles but still see your investments fail if you do not have a sound strategy. In recession conditions, one asset beats the rest in its ability to make you rich. That asset is real estate. In the sections below, we’ll explain why.
If you buy stocks in a recession, you might have to wait years for their value to rise again. That means almost zero cash flow while you hold that asset and no significant profit until you sell it many years later. Alternatively, if you invest in a private real estate fund that specializes in rental properties, this is not the case. In fact, you will start to see income come in right away. No matter how severe a recession is, people need a place to live. They might sell their home and get an apartment, or downsize their existing rental situation, but very few of them will drop out of the market entirely. Meaning that no matter how bad things get, you will have cash flow throughout the recession.
Never Goes to Zero
Another critical risk that comes with investing in stocks in the potential that they go to zero. You might think that you’re getting a great deal on a company in recession conditions, buy a significant amount of stock, and then watch that company go bankrupt. If this happens, your money will disappear. When you choose real estate, you protect yourself from this risk. Real estate prices may fall significantly, but they never bottom out and hit zero. Instead, they always have some amount of value which will rise as the economy improves.
Sometimes, significant inflation accompanies a recession. Additionally, even when the economy is good, inflation eats away at many assets. Real estate is the only asset that is not a victim of inflation. The reason for this is that both the value of a property and the rent charged rise at the rate of inflation. The result is that while cash, stocks, or bonds will lose value during inflationary conditions, your real estate investment will retain its value entirely. Making this extremely valuable in the worst economic conditions, which feature stagnant growth and inflation at the same time.
The primary appeal of stock market investing during a recession is the potential for capital gains, which describes the value of an asset rises. This effect does not make stock investing more tantalizing than real estate though, because real estate sees significant capital gains too. This means that not only will your holdings create rental income, but also that their value will rise just like the stock market.
Nobody wants recessions to happen. They lead to tragedy and heartbreak around the country, and often, the whole world. That being said, the cyclical nature of the economy means that recessions are inevitable. When they come, you will want to know how to invest your money effectively. If you do, you can take those poor conditions and use them to get rich. To do so, you should invest the majority of your money in real estate. Not only does it provide rental income to give you cash flow through the recession and beyond, but it also never goes to zero, provides inflation protection, and sees significant capital gains.
Now that you know how effective real estate investments are, you are fully equipped to get rich off of the next recession.