Friday, November 8, 2019

How to Profit from Recession by Investing in Stocks & Real Estate

According to statistics, the world will face a significant economic recession in the coming year. So are you planning ahead for it? I guess most people answer will be no. Recessions are going to happen; it's apart of the business cycle. You need to face the world and the surprises it brings with the right approach. The tricky part is anticipating the recession. My suggestion is to watch the Fed if the Fed buys bonds and lowers the reserve ratio a recession might be coming and they are crafting a soft landing. This Is How You Prepare for a Recession . Welcome to The Atlantis Report. For most, a recession is a nightmare, but for those with a nose for business, it can be a wholesale dream. A method some have used to make money is to buy a property. That sounds counter-intuitive, spending money during a recession, but its actually a great time to purchase real estate. The reason being owners are not able to pay their bills or need to sell the property for cash in hand. However, would-be buyers are less likely to purchase the property for what it’s worth, so the owner is forced to sell for a much lower cost than the property is worth. That’s where you come in. By negotiating a lower price with the owner of the property, you could purchase a piece of property that may have cost you two to five times more before the recession. This doesn’t just apply to residential homes, but business spaces, hotels, shopping centers, malls, etc. During a bad and lengthy recession, you could buy more property than you could have prior for pennies on the dollar (figuratively). After you’ve purchased a new property you still will not have made any money. That comes later. If you are so inclined you could try to find occupants for your newly purchased buildings during the recession, but consistent payment from occupants might be a bit sketchy due to the financial climate. Its easier to do this with homes since buyers are more likely to find a way to pay to keep their homes rather than businesses. The ideal way to make money from your real estate investment is to sell the properties when the economy picks back up and is no longer in a recession. At this point, buyers will have the money to afford your properties for the original price prior to the recession. You could either sell the building or home for a figure more significant than you paid for or start leasing out space and earn a monthly income. Each method has its pros/cons and truly depends on the property and available buyers at the time. This may sound relatively easy, but there are things to consider. First, traditional ways of buying a home or property may not be available to you. Banks during recessions are very selective of how and who they give loans to, thus failing to secure a loan to then purchase a property. For this strategy to work, you will need a large sum of cash on hand and depend little on banks to help. This is why it's hard for the average joe/jane to purchase property during a recession. This means you should be saving NOW for the next recession so you’ll have money to support yourself and possibly buy a property or two. Example: A home costs $ 100,000. You have $ 35,000. The recession hits, and slowly over a period of time, the home is devalued from $100,000 to $46,500. This scenario, a home losing half its value if not more, is not uncommon. You offer your $35,000, but are $11,000 off and are rejected. More time passes, and the owners are feeling the crunch of the recession as bills mount. They decide to take cash today (your $35k) instead of trying to wait out the recession. You purchase the home. Eventually, the recession ends, and the value of the house starts to climb back to what it’s original value was $100k. You make small improvements, repairs, etc. for $5,000. You’re now into the home for $40,000. You choose to sell the home for $100,000, recoup your $40k and earn a $60k profit minus selling fees, taxes, etc. Another method is to rent out the home and make a monthly income. For commercial properties, you’ll need to scale the money up. In a recession, you can also make money investing in stocks. Timing stock markets is notoriously tricky, but here’s a tip for preparing for a recession and market correction. Borrowing money to invest in stocks is always a bad idea, even if you make money at it. If you are doing it now and have been lucky so far, it might be a perfect time to cut it out and take your winnings. Investing in margins is a risky business. While brokers allow you to borrow up to 50% of the value of the underlying stocks, today might be a good day to get that ratio well below 25%. Even then, if stocks fall 50%, as they so often do, you will get the dread margin call and have no choice about when you sell. If you are under 30 or 35, you haven’t really experienced a recession yet. You may talk a good game, but you really can’t imagine the feeling when you watch your net worth plummet, day after day after day. Be careful. Before the inflation bubble burst and we enter a recession, sell the stocks that are doing well and put the money in bonds. As stocks go down generally, bonds go up. Put your money in FDIC banks, as $250,000 is safe. During the recession don't sell your stocks even though they'll be at an all time low and don't pull a lot of your money out of the banks. That makes a bad situation worse. Most recessions happen because of a drop in demand, and prices are sticky, meaning that it takes time for prices to drop. Prices eventually will get super low, keep consuming as normally as possible. If you still have a job, use that money, if not spend the interest you made in the banks and bonds. If you have some spare cash on bonds, take that money and put it into stocks. Stable companies only do research if you have to. The cash from stocks will go to businesses to build more factories and employ more people. As the stocks go up, bonds go down, sell your bonds into stocks. The economy will go back to normal and reach inflation levels again — repeat the cycle. Don't panic; governments and referral banks will help the economy. Try to remain as healthy as possible. The Great Depression got super shitty because of people panicking pulling too much out of the banks. If you can take out loans from banks as interest rates will be an all-time low, super that money into something that makes you cash. Most bad depressions and recessions like the Great Depression, the recession of 2001, and the Japanese recession of the 90s, happen because most people don't know economics and panic. Stable dividend-paying stocks—especially in sectors like consumer staples, utilities, and defense—are some of the best ways to buoy your portfolio as we head into this recession. At this moment, you can find outstanding value in so-called “sin industries,” which include alcohol, tobacco, gambling. Consumer staples are a great refuge when the economy hits the skids. These businesses sell things like toilet paper, laundry detergent, and dog food—things people buy no matter what’s happening in the economy. Right now, my favorite way to invest in consumer staples is the Vanguard Consumer Staples ETF (VDC). It pays a safe and stable 2.7% dividend yield. Utilities, of course, are about as recession-proof as it gets. People pay their power bills even when the economy tanks. So these businesses are very stable. My top utility pick right now is the Fidelity MSCI Utilities ETF (FUTY). It pays a 2.9% dividend yield. That’s 50% higher than the yield on one-year Treasury bills. Then there’s the defense sector. Regular investors know that US defense spending usually goes up during a recession. The iShares US Aerospace & Defense ETF (ITA), which pays a 1.1% dividend yield, is an excellent way to invest broadly in this sector. In a way, your decision making is more comfortable, because when recessions happen, things tend to become more accurate in terms of risk premia, pricing, and fundamentals. The ability to model fundamentally becomes much more useful in a recession based market. What becomes more difficult is the early part of the recession, because you have to try and use technical indicators and other factors to determine if the asset has actually bottomed out or if it is just a temporary plateau before another dive. This part is much more difficult in my opinion. I personally believe your psychology must be better during recessionary times because it requires you to really believe in your decisions because most of them will be contrarian (since “everything is going down” and your buying). This is probably not an accurate statement, but I find mental fortitude comes from recessionary times versus run ups.

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