Saturday, March 23, 2024

How To Invest In A Depression

What Makes An Economic Depression

How to Get Rich During a Depression (My 5 Step Plan)

An economic depression is defined as a serious downturn in economic activity that lasts three years or more and results in at least a 10% decline in GDP, which measures the total retail value of all the goods and services produced inside the country within a given year.

Economies are expected to grow steadily over time, and a decline in economic activity often means that the country has either spent tax revenue irresponsibly, an asset bubble has burst, or that technology has outpaced consumer demand for products and services, resulting in mass unemployment, an abundance of goods, and declining retail prices.

A depression is much more severe than a recession, which is considered a normal part of the business cycle. A recession may only last a few months or a year, while a depression lasts much longer. A depression can have a dramatic and lasting effect on the average persons standard of living. It may also take years for the economy to recover and return to earlier GDP levels.

Not all economists agree on the exact definition of an economic depression. Some say it only lasts as long as GDP growth is negative, but others say it lasts until the countrys economy returns to a normal level.

Can You Share Some Good News About The Current Economic Situation

We can. Yes, it looks bleak as we are just at the beginning of the economic pain of a potentially long recession or even depression. But its vital to take a long-term perspective and realize that markets have always rebounded after a recession.

In fact, lets look at what happened after the recent Great Recession. Although it took a protracted five years, in March 2013 the Federal Reserve announced a 91 percent recovery from market losses suffered, and by the jobs gap also appeared to have closed. The economy just kept chugging until March 2020 when employment and the markets were both at all-time highs.

Although that type of recovery cant come fast enough, its important to remember that every downturn in history has ended in an upturn. And every recession and depression have led to a recovery as well.

Cathie Ericson is a freelance writer who covers personal finance, real estate and small business, among other topics.

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Ways To Invest In Psychedelics: Early Stage Opportunities In Canada

As with the fast growth of the cannabis industry over the last half decade or so, the Canadian capital markets have welcomed the opportunity attached to psychedelics.

The Canadian space has already seen a significant number of public listings related to the market for psychedelics stocks, as well as existing public businesses trying to get a piece of the pie.

The Canadian Securities Exchange has long established itself as a hotbed for up-and-coming companies in growth-stage areas. It has been no different with psychedelics, and it didn’t take long before the exchange was offering a collection of stocks for investors to examine.

During an online video conversation, Richard Carleton, CEO of the CSE, said hes held discussions with both companies and investors that are keenly interested in investment opportunities in the space.

The exchange executive stressed that investors need to keep an eye on the disclosures offered by companies operating businesses that may not be universally legal.

This is something that the CSE got experience doing during the cannabis boom the exchange began asking marijuana companies to fill out detailed forms indicating the risks associated with their businesses.

A 2022 outlook report from business law firm McMillan shows that in 2021, 34 psychedelics companies were listed on the CSE, TSXV or the NEO Exchange in Canada, compared to just 16 in 2020.

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How Long Do Depressions Last

Depressions can last three years or more. The depression may end when the countrys GDP starts to rise, and the economy starts to grow after years of declining activity, or when the countrys GDP returns to where it was before the depression.

The worst depression in U.S. history occurred in 1929. The Great Depression lasted more than ten years, with the highest unemployment rates on record, reaching a peak of 25% in 1933. It was largely caused by poor financial policy. The stock market crashed suddenly after a major sell-off.

President Franklin D. Roosevelts New Deal, which helped millions of Americans earn a living and rejoin the economy, eventually ended the depression in the early 1940s as the country entered WWII. Unemployment dropped substantially to 9.66% in 1941.

Economists agree that another Great Depression is unlikely to happen in the U.S. Financial regulators and banks can respond to changes in consumer spending much more quickly. The government has also created several agencies to help regulate the stock markets and greater interconnected financial system, including the Federal Deposit Insurance Corporation , which protects depositors accounts, and the Securities and Exchange Commission , which is designed to prevent risky investments and illegal trading practices.

Cash Is King During A Recession

How To Invest During Great Depression

In economic downturns, cash is king, says Michelle Griffith, wealth advisor at Citi Global Wealth. As companies cut back and job losses mount, its better to be safe than sorry and beef up cash reserves during times of high employment.

However, selling investments to get cash in anticipation of a recession is risky. You might sell prematurely and get trapped in cash as markets rise. A better strategy is to shift into investments that are well-positioned to weather a recession.

This is why keeping a certain part of your portfolio in cash or highly liquid securities, like a money market mutual fund, is always wise.

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What Causes A Recession

A recession can be caused by any number of factors, including an inflation/deflation cycle the bursting of an asset bubble, such as real estate or stocks a slowdown in manufacturing and/or a loss of consumer confidence. They can be triggered by a stock market crash, high interest rates or, as we now know, a pandemic.

The current recession can be attributed to the effects of the coronavirus pandemic, as tens of thousands of businesses were closed almost overnight, leading to a quick but devastating spike in unemployment. Without paychecks, consumers have trouble covering their bills, which leads to and the effects ripple throughout the economy. Until people can resume work and daily life, the economic conditions are expected to worsen. Since we dont have a clear trajectory to that return, many experts agree we are headed toward a depression.

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What You Can Do

The implications of these heightened but uncertain risks are straightforward.

Making sure you can pay your bills and have enough cash for emergencies is crucial. Keep your cash in a safe place, and, preferably, in one that provides some small return. Reasonable options include high-yielding bank accounts, money market funds, Treasury bills and I bonds.

After that, if you are starting as an investor and have decades ahead, take the long view. Put your money in low-cost, diversified index funds including workplace target-date funds that track the entire stock market. Add diversified bond index funds as you age.

For people with shorter horizons, the situation is trickier. You may need to make some trade-offs.

If the economy were to fall into a prolonged and deep recession, the stock market might plunge further and not recover for some time. Preparing for that eventuality may mean reducing your stock allocation even now, after the market has fallen if you will need to use the money soon.

Although bonds have not performed well lately and lag stocks over the long term, high-quality bonds are generally safer than stocks. Thats why they are appropriate for ratcheting down risk.

Find the mix of diversified stock and bond funds that works for you, depending on where you are in life. The economic news may be terrible, but with a little luck and a lot of planning, you can ride it out.

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Jim Rickards on how to invest during the new great depression

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Investing When Youre Scared Master Your Emotions

Weve discussed a lot of technical things. But managing your emotions might be the most important point of all. Especially now.

Its okay to feel fear its okay to feel pain. Theres absolutely nothing wrong with retreating so you can fight another day. And a good rule for life is to acknowledge your feelings, instead of hiding from them.

But I know some of you reading this are in good financial positions. Youve budgeted, saved and invested wisely so far. Youve got those all-important emergency savings and discipline.

To you I say: This is your time. This is your time to move boldly while others shrink in fear. Youve prepared for this, so keep investing. There will still be ups and downs, and youll have to deal with huge uncertainty. But find courage and stay true to the path and the gains when things rebound one day will be deservedly yours.

Fortunes were made by the brave in the previous financial crisis. I hope youll grow yours tremendously in the next one.

A gem cannot be polished without friction, nor a man perfected without trials.

Seneca

Theres two sides of extremism I often see: one is doing nothing when something goes wrong. The other is doing too much when all you need is patience. Wisdom is knowing where to stand on the spectrum.

Although I cant prescribe you a step-by-step plan for your situation, I hope this article has given you useful perspectives about investing in difficult times.

Ill see you on the other side.

Buy Quality Assets During A Recession

Investors should seek out quality across asset classes to protect a portfolio during a downturn, Katz says. Low beta, high return on investments and low leverage are hallmarks of quality investments.

He calls such companies all-weather businesses that do not depend on economic growth to thrive or survive. Companies with high recurring revenue, such as subscription-based sales models, are less sensitive to economic downturns.

He says you want to avoid companies with high debt loads as they could have trouble servicing their debt if revenues and cash flows decline. They could also have trouble refinancing debt at maturity if credit conditions and lending standards tighten.

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Reasons To Invest Moreor Not

The sharp declines in stock prices that occur during a crisis or recession may present good opportunities to invest. Some companies may be undervalued by the market. Others may have a business model that makes them more resilient to an economic downturn.

On the other hand, there may be reasons to back off.

Financial markets tend to be cyclical with repeated patterns of expansion, peak, recession, trough, and recovery. Every recession so far has been followed by a recovery, but the recovery hasn’t always been big or arrived soon.

Moreover, companies don’t all perform the same at various stages of the cycle. Some may not recover from a recession for years. Others may not recover at all. If you invest, you may experience gains or losses. If you don’t invest, losses will be off the table, but you may miss the early stages of a recovery, or inflation may erode the purchasing power of your cash over time.

Invest For The Long Term

Invest in Positive Change

How long? Most industry professionals say you need at least 3-5 years of time when investing.

But I like to think further than that. If this is really the mother of all depressions like the 1930s, it might take decades to recover. I suggest you get comfortable investing for your retirement, not to aim to cash out in 5 years.

What if you need the money sooner? Say, youre keeping money for your upcoming wedding in 3 years, or youre really planning to retire in 10.

Park it in lower-risk funds instead. Youll likely earn less, but the value should hold steadier. Again, its super easy to do this via robo-advisors. Just select a lower-risk portfolio and let the investing magic happen.

If youre willing to get rich slowly, time is your friend

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Take Advantage Of Cheap Stocks

Amid a gloomy economic outlook, the stock price of investments may remain depressed. This means there could be a good opportunity to buy stocks at a bargain price.

Some fund managers specialise in looking for undervalued companies that will prosper in the future. These include quality companies in sectors that have been hit by lockdown but can weather the storm.

Find out how to choose investment funds

What Investments Do Well In A Recession

Now that weve gone over some tips for how to invest during a recession, lets talk about what investments actually do well in a downturn. After all, not all assets are created equal some will perform better than others when the economy takes a turn for the worse.

So, what should you invest in during a recession? Here are a few ideas:

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Find The Silver Tax Lining

If you are not able to directly shield your investments from a collapse there are still ways you can take the sting out of your losses.

Tax-loss harvesting is one option for losses sustained in taxable accounts. You simply sell all of your losing positions and buy them back at least 31 days later. . Repurchasing the stocks prior to this time would be deemed a “wash sale” by the IRS, and the ability to claim the loss would be disallowed.)

Then you can write all of your losses off against any gains that you have realized in those accounts. You can carry forward any excess losses to a future year and also write off up to $3,000 of losses each year against your ordinary income.

What The Feds Rate Increases Mean For You

How to Invest During This New Great Depression? | Jim Rickards

A toll on borrowers.The Federal Reserve has been raising the federal funds rate, its key interest rate, as it tries to rein in inflation. By raising the rate, which is what banks charge one another for overnight loans, the Fed sets off a ripple effect. Whether directly or indirectly, a number of borrowing costs for consumers go up.

Consumer loans.Changes in credit card rates will closely track the Feds moves, so consumers can expect to pay more on any revolving debt. Car loan rates are expected to rise, too. Private student loan borrowers should also expect to pay more.

Mortgages.Mortgage rates dont move in lock step with the federal funds rate, but track the yield on the 10-year Treasury bond, which is influenced by inflation and how investors expect the Fed to react to rising prices. Rates on 30-year fixed-rate mortgages have climbed above 6 percent for the first time since 2008, according to Freddie Mac.

Banks.An increase in the Fed benchmark rate often means banks will pay more interest on deposits. Larger banks are less likely to pay consumers more, and online banks have already started raising some of their rates.

The stock, bond and commodity markets are opaque, too. While stocks and bonds have taken a beating this year, commodities like oil, wheat and copper have risen in value yet the exceptions to that statement are glaring.

Stocks havent fallen much lately, bond prices have recently risen and the price of oil has come off its recent peaks.

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