Usually, during an economic crisis, a wealth shakeup happens; although generally the rich get richer and the poor get poorer behind this reality, some rich people lose everything, while some average people turn out rich.
Some are more cyclical than others. The industries known to fare better during recessions are generally those that supply the population with essentials we can't live without. They include utilities, healthcare, consumer staples, and, in some pundits' opinions, maybe even technology.
When a recession hits and home values drop, it may be a buying opportunity for investment properties. If you can rent out a property to a reliable tenant, you'll have a steady stream of income while you ride out the recession. Once real estate values start to rise again, you can sell at a profit.
“Holding cash during times of economic uncertainty, like a potential recession, can feel reassuring because it offers liquidity and a sense of control,” said Adam Paoli, the lead financial planner at Coltiva Wealth.
Stocks and bonds have relatively low transaction costs, allow you to diversify more easily and leave your cash more liquid than real estate (although the stock market is typically more volatile than the housing market). Meanwhile, real estate is a hedge against inflation and has tax advantages.
One common question is whether or not millionaires keep money in checking accounts. Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC's Millionaire Survey , that portion was about 24% in 2023.
Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Don't quit your job if you aren't prepared for a long search for a new one. If you own your own business, consider postponing spending on capital improvements and taking on new debt until the recovery has begun.
“The demand for travel and hospitality services typically declines as consumers cut back on discretionary spending,” Sarib Rehman, CEO of Flipcost, said. “To attract customers, airlines, hotels and travel agencies often lower their prices and offer more promotions.”
Typically, in recessions, the demand for houses declines and as a result house prices will fall. This was the case in the last recession back in 2008 when the housing bubble burst and the recession began.
Jaspreet Singh knows a lot about money, but one thing he definitely knows is that more millionaires are made during an economic recession than at any other time.
Recessions force businesses and industries to adapt, evolve, and rethink their strategies. While certain sectors like retail, hospitality, and manufacturing are most affected by a recession, others such as healthcare and discount retail often see opportunities for growth.
By making consistent investments when you are young, it enables you to become wealthy by benefiting from compound interest. This means that the earnings on your investments create future earnings, without having to work for it. This snowball effect amplifies your wealth significantly.
The winners in all recessions are the people who keep their jobs and hours, can work at home, and those with excess cash and wealth to snap up what owners needing cash sell: lower-priced small business, lower-priced stocks and bonds, and perhaps even a lower-priced house or two.
Warren Buffett, business magnate and investor
He purchased $8 million in preferred stock from Goldman Sachs and General Electric combined at 10% interest rates. He also bought convertible preferred shares in Swiss Re and Dow Chemical. By 2011, Buffett had made $10 million from the 2008 financial crisis.
Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal care items are always in demand. Offering these types of items can position your business as a vital resource for consumers during tough times.
Because people have less money to spend, demand falls, taking the prices of many goods and services with it. Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same.
Both residential and commercial cleaning services are often considered to be recession proof businesses because they provide essential services that individuals and companies need regardless of economic conditions.
For workers and households, the picture was less rosy. Unemployment was at 5% at the end of 2007, reached a high of 10% in October 2009, and did not recover to 5% until 2015, nearly eight years after the beginning of the recession. Real median household income did not recover to pre-recession levels until 2016.
Recessions can be great times to buy a home. Sellers are motivated, interest rates may be lower and there may be less competition among buyers. The combination of lower interest rates and potentially lower housing prices can bring homes that were out of reach before the recession within reach.
Keep Some Assets in Cash or Cash Equivalents
Liquidity is crucial in uncertain times. “I've seen people struggle during a recession because their assets were too tied up in investments. This is why I suggest keeping some of your money in cash or in easily liquidated instruments like Treasury bills,” Kovar said.
It has become especially popular because it can potentially be a gateway to millionaire status. The famed wealthy entrepreneur Andrew Carnegie famously said more than a century ago, “Ninety percent of all millionaires become so through owning real estate.
Individuals are insured at banks for up $250,000 in both deposit accounts and another $250,000 for deposits kept in IRAs. This allows individuals to keep up to $500,000 safely under the insurance limit, or $1.5 million for couples.
Several popular banks, like JP Morgan, Bank of America, Wells Fargo, Citi Bank, and Goldman Sachs, offer private banking options that provide millionaires with wealth management advice and services.