April 1st, 2008
Many banks have suffered tremendous losses as a result of the subprime lending mess. Some are saying that the worst is over. Can that really be true already?
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February 21st, 2008
A recession economy doesn't have to destroy your financial security. In fact, sometimes a recession can help grow your financial security.
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February 17th, 2008
If you don't know what a recession is and how the very definition of one affects you, read here.
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February 16th, 2008
A short guide on what to think about the upcoming recession and how to keep your sanity intact until it is over.
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February 21st, 2008
Recession is supposed to be a terrible thing. The economy slows or stops growing. People lose jobs, houses, or their retirement funds. At least, that's what people want you to think. However, could it be possible that instead of the recession ruining your financial, that it actually improves your financial situation?
In fact, yes it is entirely possible that you can increase your financial security during or even because of a recession. There are two factors that will help you do this: panic and market losses. Panic is simply a reaction to the overblown political and financial news that permeates the whole system of modern life. Market losses in general are just the natural outcome of large-scale panic. So, when people start losing money, they panic and sell, that causes more market losses and more sales, and so on. It's a vicious cycle that tends to drive down prices market-wide when the recession has a market mindset.
Ok, recession leads to panic and market losses, so how do you make money from those? First, let's start with panic. We say it often here, but it bears repeating. Don't panic. When everybody is cashing out before taking huge losses, don't panic. By keeping a steady mindset and sticking to the basics of investing, you can find some great buys. This goes beyond the limited opportunities of Wall St. The same idea holds true in real estate, entrepreneuership, and any other form of investment you choose. Where there is panic, there will be opportunites to find underpriced investments. Follow the panic.
Now let's talk market losses. Market losses are a direct result the panic that comes with a recession. People are not likely to react completely rationally in the event of a recession, thus they sell prematurely, or they can't wait to let the market sort itself out and they take losses as a result. Mass selloffs drive down market prices. Lower market prices means better buys for you.
For example, Look at Apple Inc. In December, the stock was valued at $200 a share. Now, two months later, the stock is worth $120. The stock price has been cut nearly in half. However, have sales of iPod's and iMac's dropped in half? Not by a long shot. If anything, Apple is stronger now than it has ever been. Yet, right now the market price is $80 per share less than it was 2 months ago. Why? Well, panic of course.
Does this mean you should go out and buy shares of Apple Inc.? Not at all. That was just an example to illustrate to you that in a recession economy, you can get great deals when you are investing, if you know how to invest intelligently and patiently. The key thing to focus on is to take things slow and don't make rash financial decsisions. Look at how your investments will be in three to five years. What was a good investement a few months ago in 5 years might still be a good investment if you are patient and hold on to it.
The bottom line in all of this is if you want to build your financial security, you need to be patient and cautious during a recession economy. It won't stay a recession forever. In a few years, things will likely improve dramatically and if you plan ahead, you will find yourself in a much better financial position.
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