The next recession is coming…
Can you feel it?
It’s like in the movie “Jaws”.
It’s a classic – a truly fantastic film. Even if you haven’t seen it, you’ll recognize the musical cues that mean the shart is approaching.
Ta da ta da ta da ta da TA DA TA DA TA DAAAAA.
You know what I’m talking about.
Well, that’s what I want you to have in your head right now, just for dramatic purposes.
Because something is coming…
You can’t see it. You can’t hear it. But you can feel it.
The next recession is coming. It might come tomorrow, in 6 months, or maybe in 5 years. But it’s coming.
There is always a next recession.
Before we get stuck in – if you prefer to consume video than written articles, here’s a video I made on this:
What is a Recession?
You might have heard of the 2008 financial crisis.
It was bad.
A lot of people lost their jobs, life savings, and homes.
People struggled for years.
That was the last recession we’ve experienced.
Before that, there was one in 2001 (dot-com bubble burst) and another one in 1990. Check out the Wikipedia article on recessions throughout modern history. These happened in the US but extended worldwide.
So yeah, recessions are bad. But what are they?
A recession happens when a country’s GDP decreases for two consecutive quarters.
In simpler terms, if a country’s economy shrinks for a little while, that’s considered a recession.
It doesn’t matter how much this shrinkage is – if it’s there for two quarters, it’s a recession.
The economy is receding – just like my hairline… hehehe 😅
So you might now be asking:
“Ok, so when there’s a recession, the stock market crashes, right?”
Well, yes and no.
A significant drop in the stock market is called a bear market.
Is a Bear Market the Same Thing?
Bear markets happen when the stock market as a whole, drops by 20% or more in less than 2 months.
A lot of the time, there’ll be a bear market at the same time as a recession.
It makes sense, really. Unemployment rises, people have less money to spend, so businesses earn less money, which means that stocks are technically worth less and so on…
But they don’t always match.
Check out this graph:
You can see that during the 2008 and 2001 recessions, there were also bear markets. However, during the 1991 recession, there was no bear market! The stock market did drop, but it wasn’t enough to be considered a bear market.
Just something to keep in mind when the media makes it seem like the world is about to end!
Emotions & Mentality
This is the key.
Your emotions will affect everything you do – especially your success as an investor.
We are built this way. We are meant to think rationally and react to immediate dangers around us – like hungry bears running towards us, ready to have lunch.
So when we see our investments drop, we immediately feel fear that the drop will continue and we’ll lose it all!
But it doesn’t work like that.
If you want to be a successful investor and profit from the next recession, you need to adopt a long-term investor’s mentality.
As Warren Buffet famously said:
“Be fearful when others are greedy. Be greedy when others are fearful.”
That is the right mindset – the one which will help you to find great opportunities during the next recession and/or bear market.
How Can I Prepare For The Next Recession?
So what should you do during the next recession?
1. Don’t panic – they’re normal
Bear markets – and their smaller cousins, corrections – are normal. They happen every few years.
On average, they only last 1.4 years, while bull markets normally last 9.1 years. So when we’re deep in the next recession (whether it comes in 2020 or beyond) remember these figures.
Don’t do anything silly and relax – earning dividends helps.
2. Look for great opportunities and by stocks
You can be sure that most people won’t act rationally, so there will be a massive sell-off. People will want to minimize the amount of money they’re losing, so they’ll sell.
This will drive stock prices down… and that’s where you come in.
That’s when you’ll find incredible opportunities for bargain prices.
3. Stick to your plan!
Lastly, you must stick to your plan.
Hopefully, you own a good selection of stocks that pay you dividends and compound your money.
Well, guess what happens to dividends when stocks drop?
They are paid nonetheless. And if you choose the right stocks, they will increase every year, even during recessions.
This is one of the biggest advantages of investing in dividend growth stocks – you know that as long as you’re getting paid, the price of your stocks is secondary. And you also know that they will recover – they always do.
But of course, you need a plan in the first place!
This is where I can help you. I’ve created a guide that will show you everything you need to get started with dividend growth investing: