Can a bear market be your friend and help you grow your wealth? It sure can if you know how to thrive during a downturn. A stock market drop of 30% or more often leads to a recession.
Many people will continue to live as normal and suffer long-term consequences. Others will panic and be worse than ordinary people.
To thrive during a recession, you must keep your wits about you. Surviving is about reducing expenses to a minimum, finding investment deals, and preparing for the unknown. Doing these together will give you maximum flexibility and success rates.
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Reduce expenses. Perhaps the essential part of getting through a bear market and recession is reducing your expenses.
You will fail if you try to live the same as during a bull market or boom cycle. No one knows how long or deep the recession will cut, so managing your recession budget is vital to survival.
One of the best ways to reduce costs is not driving as much. Gas prices are through the roof, so any time you can stay home or close to home, I would advise it.
It’s never been a better time to go to the local park or start playing board games with family. I usually don’t advocate playing video games too much, but 1-2 hours a day can save you some cash.
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On a bigger note, do you genuinely need that $700/month car payment? I had to buy a third car because of my move to San Diego. However, I kept my payment as long as possible.
Are you carrying credit card debt into the recession? If so, make an effort to pay it down quickly. You will be hurt as rates rise if you have a variable interest rate credit card.
This is not the time to use your credit card for points, rewards, or miles. If an emergency happens, you may have to carry a balance at a high-interest rate. Use cash and debit cards for as many purchases as possible.
Finding investment deals. Savvy investors can set themselves up for their lifetimes during a recession. There are deals everywhere waiting for you to find and exploit them.
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The first place to look for deals is the stock market. A bear market means the overall stock market dropped over 20%—most times even more.
As stock prices fall, dividend yields increase. You can also use your speculation budget to buy growth stocks that the market destroyed. For example, I am using this time to buy SOFI Technologies (SOFI) stocks for $5/each.
The bond markets are also a place to find good yields. As interest rates rise, the prices of your current bond holdings fall. That sucks, but only if you sell.
It is better to partake in buying these new bonds, yielding over 4%. A 4% bond doesn’t sound like much, but it’s the highest rate over 13 years.
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If interest rates fall below 2%, your 4% bonds will increase in price. I am not a bond trader, but it may be an excellent time to learn this skill.
When the market is range bound (flat), it is an excellent time to sell covered calls on your holdings. I traded my first covered call this week and made $3.
It’s not a lot, but making $3 every week equals $156/year plus the $108 in dividends I get for holding 100 shares of AT&T (T) shares.
The real estate market may offer deals a little later in the recession. Now is an excellent time to save for a down payment and wait for the other shoe to drop.
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We don’t know if rents will drop or increase because people will stay in their homes. With mortgage rates at 7% and housing prices still elevated, we are in uncharted territory. That means it is time to “rack up (save money)” for the unknown.
Prepare for the unknown. Speaking of the unknown, everyone should prepare for the distant future. We have no idea about the side effects of rising interest rates, falling home prices, elevated gas contracts, and far-off wars.
The best way to prepare for the unknown is with a massive emergency fund. We should always reserve a portion of our cash flow for our emergency fund, even if it is already hefty.
The job market usually dissipates during a recession, so that’s something to monitor. Your company may not lay you off, but you might have to take on additional duties and hours.
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A lot of people quit their jobs, and they may be thinking twice about that decision. That means the job market could start heating up as people re-enter the workforce and others get terminated.
Now is not the time to start quiet quitting either. If the company cuts 50% of its staff, you will want to be on the top half of the list. You can easily keep your job by putting forth maximum effort because most people don’t even do that.
Creating content and starting a business. You are making all the right moves, but it’s time to challenge yourself. You need to become an insider in your life, meaning you need to control the outcome.
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The best way to become an insider is by creating content or starting a business. It doesn’t have to be a massive undertaking—maybe your goal is $1,000/month of income.
The sooner you start creating and building, the faster you’ll get good at adding value. Value is something that the recession cannot diminish.
If you can find a way to help others during a recession, you can keep pace with interest rates, inflation, and job losses.
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Conclusion. A bear market is your friend because it makes you hyper-aware of your surroundings. Your environment is changing, and you’ll need to monitor the job, stock, bond, real estate, and commodity markets.
The more serious you take this recession, the better you come out on the other end. The book “Early Retirement Extreme” gives you a practical way to reduce maintenance costs, repair your own stuff, and build wealth in a low-income environment.
Don’t be like most people and try to live your best life during a recession. This is the time to hibernate in the cave along with the bear.
Once the sun comes out, you will have survived the winter intact. Nobody is coming to save you—you only have you. Once you take responsibility for your actions, you’ll see the bear as your friend. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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