Author Topic: How to prepare for a recession, before a recession?  (Read 5168 times)

fjk19

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How to prepare for a recession, before a recession?
« on: April 15, 2018, 10:10:44 AM »
I'm interested in learning about how to mentally prepare myself for the first inevitable recession in my investing career.

I've been investing for only the past couple years, so as a result I've never experienced a market downturn. In general, I'm pretty relaxed about never checking how my investments are doing (since it's for retirement) but I can't help but assume I'm overconfident in how I THINK I'll be able to calmly respond when my first recession actually happens in the next few years.

I'm curious to hear people share their experiences with a recession wiping out 50%+ of their wealth immediately and what it was like. Also if you think there's any possible way to prepare psychologically for something like this, other than knowing in theory it will happen sometime and in theory knowing to hold steady.

DreamFIRE

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Re: How to prepare for a recession, before a recession?
« Reply #1 on: April 15, 2018, 11:29:00 AM »
For me personally, the last recession hit, I figured I had 20 years left to retire, so it didn't bother me that much.  As it turns out, I'm on track to retire much sooner, but I didn't know it at the time.

Now that I know I'm close to FIRE, I simply adjust my AA to include a lower stock % for risk aversion.

Gin1984

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Re: How to prepare for a recession, before a recession?
« Reply #2 on: April 15, 2018, 11:37:25 AM »
I lost about 40% but was lucky not to lose my job.  I think my reaction would have been different if I needed money and the stock market crashed.  That is one reason I keep trying to build a decent EF and live as close to one income as we can.

brooklynmoney

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Re: How to prepare for a recession, before a recession?
« Reply #3 on: April 15, 2018, 11:44:24 AM »
I think itís hard to predict how you will react. I remember last time going out to drinks with friends including one who invests most of her money in vintage designers clothes and shoes and thinking who is the idiot now? She can still sell that stuff and make money! Haha.

Mr. Green

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Re: How to prepare for a recession, before a recession?
« Reply #4 on: April 15, 2018, 01:50:52 PM »
The recession we experienced in 2008-09 was so severe and painful it seems many young people automatically associate the term "recession" with losing half of your money. This is unfortunate, as it's untrue. A recession is defined as a 20% drop from the last market peak. Unless you're over 100, you've only experienced one recession in your investing lifetime that has resulted in a 50% drop, and it just happened 10 years ago. That ought to tell you something about just how rare that is.
« Last Edit: April 15, 2018, 01:52:28 PM by Mr. Green »
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Missy B

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Re: How to prepare for a recession, before a recession?
« Reply #5 on: April 15, 2018, 02:04:15 PM »
The recession we experienced in 2008-09 was so severe and painful it seems many young people automatically associate the term "recession" with losing half of your money. This is unfortunate, as it's untrue. A recession is defined as a 20% drop from the last market peak. Unless you're over 100, you've only experienced one recession in your investing lifetime that has resulted in a 50% drop, and it just happened 10 years ago. That ought to tell you something about just how rare that is.

Yeah... it was no garden variety recession. I do think that because the amount of leveraging and debt globally has increased  that we are at much greater risk for more Great Recessions than in the past, though, and it it's good to have that on the landscape while you're planning.


Zaga

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Re: How to prepare for a recession, before a recession?
« Reply #6 on: April 15, 2018, 02:10:01 PM »
I don't really know how I'll react, the last recession we only had $20K invested, so when it dropped to $12K it was hard.  But now we have nearly $400K, a similar drop would take us to $240K, which would be a lot more painful.

Hopefully you and I both will weather whatever is coming well!

starguru

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Re: How to prepare for a recession, before a recession?
« Reply #7 on: April 15, 2018, 02:16:47 PM »
The recession we experienced in 2008-09 was so severe and painful it seems many young people automatically associate the term "recession" with losing half of your money. This is unfortunate, as it's untrue. A recession is defined as a 20% drop from the last market peak. Unless you're over 100, you've only experienced one recession in your investing lifetime that has resulted in a 50% drop, and it just happened 10 years ago. That ought to tell you something about just how rare that is.
Yeah no.  A recession is two consecutive quarters of negative GDP growth.  A bear market is a drop of 20%.


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GU

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Re: How to prepare for a recession, before a recession?
« Reply #8 on: April 15, 2018, 02:24:48 PM »
The recession we experienced in 2008-09 was so severe and painful it seems many young people automatically associate the term "recession" with losing half of your money. This is unfortunate, as it's untrue. A recession is defined as a 20% drop from the last market peak. Unless you're over 100, you've only experienced one recession in your investing lifetime that has resulted in a 50% drop, and it just happened 10 years ago. That ought to tell you something about just how rare that is.

Yeah... it was no garden variety recession. I do think that because the amount of leveraging and debt globally has increased  that we are at much greater risk for more Great Recessions than in the past, though, and it it's good to have that on the landscape while you're planning.

This is an important point. I don't see a fundamental change between the Great Recession and now; on the whole, individuals, businesses, and government are yet again way overleveraged. Asset "securitization" is still happening as well. Since the banks are "too big to fail" and know they'll get bailed out, since executives can golden parachute out of any mess they make, and with interest rates at record lows for about 20 years now, what's the incentive to change?

The new tax reform will in fact decrease incentives for businesses to take on debt, so hopefully that helps. But the general public is being exposed to massive downside risks by the nation's managerial class. Due to the concentrated benefits but diffuse costs ŗ la Mancur Olson, in addition to good old-fashioned corruption, there's nothing you can really do about it.

ender

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Re: How to prepare for a recession, before a recession?
« Reply #9 on: April 15, 2018, 03:01:42 PM »
Don't look at your net worth often and/or ever.

Apparently the market dropped 10% earlier this year, I didn't even notice until reading a thread here.

SwordGuy

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Re: How to prepare for a recession, before a recession?
« Reply #10 on: April 15, 2018, 03:12:45 PM »
Don't look at your net worth often and/or ever.

Apparently the market dropped 10% earlier this year, I didn't even notice until reading a thread here.

That's one good way to handle it.

I worked up our FIRE plan based upon 0% growth in our investments.   In other words, I assumed that our stock/bond investments would make nothing.   That way, if I did check our balance over the last few years I was always pretty happy.   And since I was pretending it didn't make anything, there was no particular reason to check it.   Silly, I know, but it worked for me.


ender

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Re: How to prepare for a recession, before a recession?
« Reply #11 on: April 15, 2018, 04:01:33 PM »
Don't look at your net worth often and/or ever.

Apparently the market dropped 10% earlier this year, I didn't even notice until reading a thread here.

That's one good way to handle it.

I worked up our FIRE plan based upon 0% growth in our investments.   In other words, I assumed that our stock/bond investments would make nothing.   That way, if I did check our balance over the last few years I was always pretty happy.   And since I was pretending it didn't make anything, there was no particular reason to check it.   Silly, I know, but it worked for me.

You can look at an interval too. For some people that might be every year. Others every month.

But what it comes down to is if you look often enough that you worry about this question, you should look less.

I track our net worth every month so I look but honestly I don't really notice fairly large swings. Maybe that'd change if our investments dropped 20% in one month? Maybe?

Cranky

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Re: How to prepare for a recession, before a recession?
« Reply #12 on: April 15, 2018, 04:42:35 PM »
Iíve been through a bunch of recessions. 2008 was hard on investments, as was 2001, but the early 80s were a lot grimmer in a lot of ways.

Itís why I am pretty diversified and happy to have my house paid off.

Mr. Green

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Re: How to prepare for a recession, before a recession?
« Reply #13 on: April 15, 2018, 06:28:02 PM »
The recession we experienced in 2008-09 was so severe and painful it seems many young people automatically associate the term "recession" with losing half of your money. This is unfortunate, as it's untrue. A recession is defined as a 20% drop from the last market peak. Unless you're over 100, you've only experienced one recession in your investing lifetime that has resulted in a 50% drop, and it just happened 10 years ago. That ought to tell you something about just how rare that is.
Yeah no.  A recession is two consecutive quarters of negative GDP growth.  A bear market is a drop of 20%.


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You're totally right. I had a brain fart and confused two different terms. Hah! With that exception, what I said is accurate.
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TheWifeHalf

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Re: How to prepare for a recession, before a recession?
« Reply #14 on: April 15, 2018, 06:43:50 PM »
2008-9? Hardly blinked.
1980-1?  Got married, lived on love. Mortgage was 12%, President couldn't say the word AIDS, TheHusbandHalf lost his job, kids kept popping out!

This last recession?  What recession? TheHusbandHalf kept working, kids' mortgage rate was 2.0-3.0%

COEE

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Re: How to prepare for a recession, before a recession?
« Reply #15 on: April 15, 2018, 08:06:26 PM »
1980-1?  Got married, lived on love. Mortgage was 12%

My dad always reminds me of interest rates in the 80's scary shit!  Tax brackets were also scary shit!  In 1980 I would have been in the 49% tax bracket!  Yikers!

2008 crash I was just starting my investing... I distinctly remember telling my dad that I would be better off stuffing my money in my mattress.  I'm so glad I didn't follow through on that.  It sucked.  I also keep track of how much I've 'made' in the market.  Thanks to compounding growth about half of my retirement funds are growth.  If the stock market would crash tomorrow 50% I like to think that I'd realize I've only lost the house money AND I still own the equity in the companies I have purchased.

dustinst22

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Re: How to prepare for a recession, before a recession?
« Reply #16 on: April 15, 2018, 10:18:36 PM »
Best thing you can do is to build a professional network (linkedin) in your career while things are good.  Always be networking and even potentially prospecting for opportunities.  This was the absolute key to me surviving the recession and even thriving during it.

mathlete

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Re: How to prepare for a recession, before a recession?
« Reply #17 on: April 15, 2018, 10:48:41 PM »
Make sure your expenses are lean. Hopefully you should have some margin in case things get tight, or so that you can shovel cash into the down market. Passively cultivate opportunities and keep your resume fresh, even if you have no interest in looking for a job right now.

As far as being mentally prepared for the numbers to start dropping, remember a this: Recent history has shown that the United States Federal government serves equity holders of United States companies above absolutely all else, and so the smart money is almost always on US equity. In the last recession, the housing market, job market, and stock markets all crashed and the government rushed to rescue the stock market above all, and to tremendous success. By contrast, consider what they did for the housing market, a tax credit to gin up demand. A credit that had to be paid back mind you. (The bailouts had to be paid back as well, of course, but corporations have also had access to virtually free capital courtesy of the central bank for nearly a decade)

Look at 2017. It took some last minute circus theatrics to defeat a bill that would have stripped healthcare from millions of working Americans. By contrast, a tax bill was much easier to pass. One that paid a few hundred bucks to laboring Americans in exchange for massive cut in corporate taxes, a vast majority of which is being used for share buybacks, thus returning even more to the equity holders. Doing this will send the deficit over a trillion again, despite the current congress being "very concerned" with deficits.

When you realize this, the idea of selling your equity at a steep discount is a complete non starter.

Fishindude

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Re: How to prepare for a recession, before a recession?
« Reply #18 on: April 16, 2018, 07:28:44 AM »
The best recommendation I would have is to try to be debt free.  Also doesn't hurt to have a chunk of your investments in safe, low paying stuff such as CD's.
A recession doesn't sting near as bad if you are quite a few years away from retirement, as you have time to make it back up.

Samuel

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Re: How to prepare for a recession, before a recession?
« Reply #19 on: April 16, 2018, 09:51:35 AM »
Keep your skills up and have a side hustle or two. For those of us who aren't close to FI the biggest danger of a recession is not the value of your portfolio tanking, it's losing your income because of economic forces outside your control and then having to compete with the other unluckies in a terrible hiring market.

This goes along with avoiding debt, keeping some emergency money accessible, and keeping expenses low (or at least be able to easily downshift your lifestyle). It's a double whammy if you have to pull from investments when they're temporarily down.

jlcnuke

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Re: How to prepare for a recession, before a recession?
« Reply #20 on: April 16, 2018, 10:10:20 AM »
Having a fully funded ER is step #1. Step #2 is having marketable skills. Step #3 is remembering that to walk the path to FI you must put one foot in front of the other whether the road is going up or down at the time.
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RedmondStash

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Re: How to prepare for a recession, before a recession?
« Reply #21 on: April 16, 2018, 10:24:21 AM »
We didn't really blink during the 2008 recession, partly because a) we were both working, and b) we were using a financial planner at the time and had only the haziest notion of investments. I don't recommend using a financial planner -- we have since fired her -- but she sure was handy for letting us just ignore our investments. We probably lost 1/3 of our investment value, but it all came back within a couple of years.

It's easier when you're still accumulating, so you're living off money you earn and not investments. I'd say ignore the investments where possible, so you're not tempted to fiddle around with them.

Partly because of the 2008 recession, I now am most comfortable keeping a sizable emergency fund, and a good chunk in bonds. That way, when the market vacillates, I am confident I don't need to sell anything for a good long time, so I can watch and be amused instead of panicking.

I guess I also have strong optimism that the market will recover, every time. I think of ups and downs as being like weather: Just because it's been sunny all summer doesn't mean the rains aren't coming. And just because it's raining doesn't mean the sun will never shine again. You need both; both are normal. It helps to look at downturns as normal, natural, and necessary things, rather than evidence that the sky is falling.

letired

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Re: How to prepare for a recession, before a recession?
« Reply #22 on: April 16, 2018, 11:27:36 AM »
* 6 months of expenses in a fdic insured savings account(s)
* low ongoing expenses
* robust career/in-demand skillset/extensive professional network
* veggie garden (50/50 stress-relief and food production)

NoraLenderbee

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Re: How to prepare for a recession, before a recession?
« Reply #23 on: April 16, 2018, 11:53:42 AM »
Buy antacids. Remember your mantra (whatever it is--"don't sell at the bottom" or "stocks are on sale" or "stay the course"). Trust your plan. Focus on what you can control. Know that it is normal to feel anxious and even scared when it seems like the bottom is falling out.

In practical terms,  make sure you have enough of an emergency fund or accessible cash to weather a job loss. Then tune out the financial news as much as you can.  Keep investing according to your plan. If you can stomach it, invest more--if you can't stomach it, that's OK; just stick to your plan.

Eric

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Re: How to prepare for a recession, before a recession?
« Reply #24 on: April 16, 2018, 12:22:19 PM »
I don't think there's a great way to know how you'll react to market turmoil without experiencing it first hand.  Even if you're fully prepared, it's still scary.  You have to force yourself to recognize that fear, overcome it, and stay the course.  That said, education nearly always helps.  Maybe read (or re-read) the Four Pillars of Investing or A Random Walk Down Wallstreet?
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Imma

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Re: How to prepare for a recession, before a recession?
« Reply #25 on: April 16, 2018, 02:12:08 PM »
My main concern during the Great Recession (which was a triple dip where I live) wasn't my investments, but finding and keeping a job. As long as you have a job that pays all of your bills, you aren't forced to sell your investments and you can just wait it out. It's also important to keep your monthly costs low, in case you need to take a pay cut. I know some people on here advocate taking advantage of very low interest loans, and it make sense from a mathematical sense, but I sleep well at night knowing I could still pay my mortgage on minimum wage. During an economic downturn it might be difficult to sell valuable assets like homes and cars, so it might not be easy to pay off debts by selling those.

I also don't think it's extremely unlikely that we end up in such a massive recession again. There have been few structural changes in our economic system. While cheap credit was a bit harder to get for a while, loans are now cheaper than ever. This will cause problems when the interest rates go up again. The problems are less visible now because we're not in a recession, but as soon as we're in recession again (which is bound to happen) the same problems will appear again and we're out of economic trics now.

jengod

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Re: How to prepare for a recession, before a recession?
« Reply #26 on: April 16, 2018, 03:55:06 PM »
1. Get out of debt, everything except possibly the mortgage on your personal residence.

2. Have a six-month cash reserve, aka "the emergency fund."

3. Learn how to cook some basic foods now, because if you have to cut back expense by cooking at home, it's easier if you have a foundation.

4. If you own a home, plant fruit and nut trees now. It takes several years for them to begin bearing fruit in any meaningful quantity.

5. Develop a transportation "wardrobe" besides your private cars. How can you and your family grocery shop, visit friends and commute without use of cars? Do you need a transit pass? Do you all have working bicycles? Cargo bikes?

6. Begin building community ties to support goods and services barter if cash becomes hard to come by, for you and others.

7. Stockpile tools and skills in times of abundance, before there is a run on thrift-store sewing machines, crockpots and circular saws, et al.

8. Invest in reusable/durable goods so that disposables can be easily eliminated to cut expenses. Reusable coffee filters, handkerchiefs, cloth diapers, cloth napkins, thermoses, ice packs for taking home-prepared lunches to work and on short trips, et al.

9. Is there space in your backyard to install a clothesline? Do you have a manual lawn mower in case you need to lay off your gardener to cut expenses?

10. How many of your systems can you unplug or take off-grid so you can dramatically reduce your energy expenses if need be?
« Last Edit: April 16, 2018, 04:19:05 PM by jengod »
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netskyblue

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Re: How to prepare for a recession, before a recession?
« Reply #27 on: April 16, 2018, 04:33:44 PM »
If you're not looking to retire in the short term (and aren't already retired) just look at it as you still own X# of shares of whatever you were invested in, same as you did before.  It's just worth less today, because fewer other people want to buy it right now.  What you *OWN* hasn't changed.  (In fact, you can buy more at a discount).  When more people want to buy it, and they will, it will be worth more again.

You weren't *using* it, per se, so it doesn't matter right now how much it's worth.  What matters is how much it is worth when you go to use it.

mstache67

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Re: How to prepare for a recession, before a recession?
« Reply #28 on: April 18, 2018, 10:07:02 AM »
I think when things are going fairly smoothly but likely late cycle is a good time to "play defense" in areas you can control, like examining expenses. Like you I have never been through a severe recession in my investing life, and when the market started heaving last month I made myself feel better by shopping around for lower auto insurance rates lol. Focus on things you control. The best time to tighten up on the income side or the expenses side is when things are still going well.

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tralfamadorian

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Re: How to prepare for a recession, before a recession?
« Reply #29 on: April 18, 2018, 12:59:45 PM »
Everyone's responses have been really interesting and so very different from what immediately came to my mind. Offense vs. defense.

To prepare for a recession, I would want to make sure to have dry powder. Easily accessible capital via untapped LOCs/HLOCs, high interest savings accounts, etc to take advantage of highly discounted assets that have a tendency to come up for sale during times of economic stress.
« Last Edit: April 18, 2018, 04:12:45 PM by tralfamadorian »

eddie

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Re: How to prepare for a recession, before a recession?
« Reply #30 on: April 18, 2018, 03:35:14 PM »
I'll echo a lot of the previous comments.

1. Have a solid 3-6 month emergency fund.  Err towards 6 months expenses.
2. Keep your expenses relatively low.
3. When the stock market goes down, stocks are on sale.  You get more shares for less money.  The further you are from retirement, the easier it is to think like that. 
4. Get out of debt.  I fully understand the math of borrowing at 3-5%, investing in the stock market and pocketing the spread, but I've lived enough life to know that I sleep better owing less people.  If you're more debt averse you tend to spend less money on big things like cars and houses.

Heading into retirement I plan to have 3-5 year's expenses in low risk accounts like a money market and then keep the rest fully invested in mutual funds.   The thinking being that although there are often down years, there is rarely a down period that lasts for more than a few years. That strategy is theory for me at this point.  Currently I'm 100% invested in mutual funds other than property like our house and cars. But we have no debt of any kind except a small mortgage.

I had a rocky early decade to investing.  I started an IRA when I was 18 in early 2001, rode that market down and then back up til 2007.  Then down again in 2008.  So I knew nothing but blah returns for a decade.  I didn't make much $ in my 20s so I think I maybe had $60k invested before the 2008 crash.  This past 10 years has been awesome. 

I think we lost about $30k of value in this January's dip.  It probably took me 5 years to save up that much in retirement and now it's an amount that I shrug off knowing the market will eventually go back up.

jengod

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Re: How to prepare for a recession, before a recession?
« Reply #31 on: April 18, 2018, 06:33:28 PM »
Agree about cash stockpile. There's nothing like cash in a recession. Buyer's market and all that.
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dustinst22

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Re: How to prepare for a recession, before a recession?
« Reply #32 on: April 18, 2018, 07:10:52 PM »
Problem is no one can predict when a recession will hit, and its not wise to have a "cash pile" when in the accumulation phase.  That can cause significant opportunity loss.

Sure, keeping an "emergency fund" is wise (not just for emergencies, but for various reasons), but I wouldn't want this to get too large unless you're approaching FI.

The best thing you can do to keep yourself prepped for a recession is to have a low living cost along with a large network in case of job loss.  Keep your skills valuable and up to date should you need to find a new job.  The best networking you can do is when you're already employed and times are good.  I can't stress this enough -- it also happens to be the best way to increase your income drastically.   
« Last Edit: April 18, 2018, 07:14:19 PM by dustinst22 »

DreamFIRE

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Re: How to prepare for a recession, before a recession?
« Reply #33 on: April 18, 2018, 07:19:56 PM »
Problem is no one can predict when a recession will hit,

Nor how far it will fall, or if it will start going  up and fall again, etc.  It's just more market timing.

Maenad

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Re: How to prepare for a recession, before a recession?
« Reply #34 on: April 22, 2018, 04:26:44 PM »
I just saw a comment on an unrelated topic in the FI subreddit that applies here:

[paraphrased] "In all seriousness, buy some crypto. You'll learn very quickly what you'll do when the market goes down."

It's... not a bad point. Is there an amount you can put in crypto that would cause you enough pain to help you determine your risk tolerance but wouldn't be enough to seriously derail your RE plans? It's using a smaller drop to train you to handle the larger ones - sort of inoculating yourself. It would likely result in losing some money, but losing a smaller amount now may prevent a larger loss later.


KTG

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Re: How to prepare for a recession, before a recession?
« Reply #35 on: April 24, 2018, 07:11:05 AM »
Lots of great advice on here, but I also want to add in that during times of crisis, cash is king. I read of people only having a small amount of cash at any time, and I just think that is short-sighted. I have no intention of just riding out a recession with most of money tied up in investments that would cost me a lot to unload. I happened to be lucky at the start of the last recession to be disconnected from the market and not own a home. I was still scared about employment, but I could see the things people were giving up because they did not have the cash to pay for them.

SugarMountain

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Re: How to prepare for a recession, before a recession?
« Reply #36 on: April 24, 2018, 11:00:44 PM »
As others have pointed out, there is a difference between a recession and a bear market. To prep for a recession where you might lose your job, keep your skills and resume current, network, etc. Make sure you've got some cash available, 3-6 months worth.

To prepare for a bear market while in your earning years do...nothing. Just keep saving and investing and don't worry about it. Be glad stocks are on sale when it happens.

nath

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Re: How to prepare for a recession, before a recession?
« Reply #37 on: April 25, 2018, 05:38:32 AM »
Having FU money/ emergency funds is the main problem solver.
But there is a few other ones worth considering.
Never be fully leveraged. That is, always have more credit available than you need.
Such as a home equity line of credit, or even simple credit cards that just sit around in your bedside table never used.
A $10k fresh empty credit card could be a life saver if things went really bad.
Also keep fixed expenses lower than you can afford.
Never live in the most expensive house, or drive the most expensive car you can afford based on your income.
Ideally you would want to be in a situation where if you had to take a job for half your current salary you would be completely fine.

use2betrix

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Re: How to prepare for a recession, before a recession?
« Reply #38 on: April 25, 2018, 05:51:24 AM »
I just saw a comment on an unrelated topic in the FI subreddit that applies here:

[paraphrased] "In all seriousness, buy some crypto. You'll learn very quickly what you'll do when the market goes down."

It's... not a bad point. Is there an amount you can put in crypto that would cause you enough pain to help you determine your risk tolerance but wouldn't be enough to seriously derail your RE plans? It's using a smaller drop to train you to handle the larger ones - sort of inoculating yourself. It would likely result in losing some money, but losing a smaller amount now may prevent a larger loss later.

If you have to throw money away to learn self control, thereís much larger underlying problems that need to be dealt with.

Rural

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Re: How to prepare for a recession, before a recession?
« Reply #39 on: April 25, 2018, 06:29:34 AM »
The first thing that came to my mind on seeing the thread was "be sure you have a pantry and a stable way to grow food." My mind immediately went to 1973; food prices spiked and just kept rising week over week (because of the increased cost of/impossibility of transporting) and getting to somewhere to buy food in the first place was much more difficult. Now? Electric vehicles would ease a similar situation somewhat, but until mass shipping uses something other than oil, we may be more vulnerable than we were in the early 70s - food (and other goods) is much less local than it was then.


So for me, it's still all about food stability. The market, and my investments, will bounce back given time and no inputs. But I personally require caloric inputs to be around to see the bounce back...

Rubic

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Re: How to prepare for a recession, before a recession?
« Reply #40 on: April 25, 2018, 07:41:11 AM »
I just saw a comment on an unrelated topic in the FI subreddit that applies here:

[paraphrased] "In all seriousness, buy some crypto. You'll learn very quickly what you'll do when the market goes down."

It's... not a bad point. Is there an amount you can put in crypto that would cause you enough pain to help you determine your risk tolerance but wouldn't be enough to seriously derail your RE plans? It's using a smaller drop to train you to handle the larger ones - sort of inoculating yourself. It would likely result in losing some money, but losing a smaller amount now may prevent a larger loss later.

If you have to throw money away to learn self control, thereís much larger underlying problems that need to be dealt with.


"Selling a soybean contract short is worth two years at the Harvard Business School."

-Robert Stovall

GuitarStv

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Re: How to prepare for a recession, before a recession?
« Reply #41 on: April 25, 2018, 07:52:36 AM »
You shouldn't really need to do any special preparation for a recession.  This is already factored in to your plans.  You just re-balance your funds and continue doing what you're doing.  If you're 100% in stocks, then you learn if your risk tolerance is really as high as you thought it was.
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SuperSecretName

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Re: How to prepare for a recession, before a recession?
« Reply #42 on: April 25, 2018, 08:39:13 AM »
Everyone's responses have been really interesting and so very different from what immediately came to my mind. Offense vs. defense.

To prepare for a recession, I would want to make sure to have dry powder. Easily accessible capital via untapped LOCs/HLOCs, high interest savings accounts, etc to take advantage of highly discounted assets that have a tendency to come up for sale during times of economic stress.
this.

Last year, I took out a 10 year home equity loan at 3.75% before rates started rising.

SuperSecretName

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Re: How to prepare for a recession, before a recession?
« Reply #43 on: April 25, 2018, 08:43:09 AM »
I just saw a comment on an unrelated topic in the FI subreddit that applies here:

[paraphrased] "In all seriousness, buy some crypto. You'll learn very quickly what you'll do when the market goes down."

It's... not a bad point. Is there an amount you can put in crypto that would cause you enough pain to help you determine your risk tolerance but wouldn't be enough to seriously derail your RE plans? It's using a smaller drop to train you to handle the larger ones - sort of inoculating yourself. It would likely result in losing some money, but losing a smaller amount now may prevent a larger loss later.

If you have to throw money away to learn self control, thereís much larger underlying problems that need to be dealt with.
It's actually is good advice.  Nebulous concepts become concrete very quickly when money is involved.

nereo

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Re: How to prepare for a recession, before a recession?
« Reply #44 on: April 25, 2018, 09:00:42 AM »
Interesting responses so far.  Here's mine

1) have an investor policy statement and stick to it.
2) get in the habit of NOT checking your accounts more than a couple times/year
3) when you do, track # of shares (instead of or in-addition to total worth). As prices go down your periodic investments buy more shares (#1). You just need faith that share prices will go back to where they were (index funds - not nec. individual companies).
4) live well below your means now.

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Telecaster

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Re: How to prepare for a recession, before a recession?
« Reply #45 on: April 25, 2018, 09:53:27 AM »
I just saw a comment on an unrelated topic in the FI subreddit that applies here:

[paraphrased] "In all seriousness, buy some crypto. You'll learn very quickly what you'll do when the market goes down."

It's... not a bad point. Is there an amount you can put in crypto that would cause you enough pain to help you determine your risk tolerance but wouldn't be enough to seriously derail your RE plans? It's using a smaller drop to train you to handle the larger ones - sort of inoculating yourself. It would likely result in losing some money, but losing a smaller amount now may prevent a larger loss later.

Unlikely.  First of all, buying crypto is stupid, and in the back of your mind you know it will go to zero anyway, so you won't be shocked when that happens.    But secondly, it is one thing to see an individual stock drop that only composes a small percentage of your portfolio.   It is a bummer, but it isn't panic inducing.   It is a whole other thing completely to see your whole portfolio drop by a large percentage, perhaps seeing years of gains evaporate.  It is when the second thing happens that people panic and sell.  Taking a blow torch to your money by buying crypto in order to fool yourself is unlikely to help with that.  You'll just be sadder but no wiser.

Here is the thing to do (IMHO, of course):  Embrace the drop.  If you are pre-FIRE, that's exactly what you want to have happen.   You want those corrections.  I'm about 3.5 years from FIRE.   In my ideal world, we'd have a 2008-style event right now.   So I'd be buying stocks at a discount for 3.5 years, retire, and ride out an amazing bull run.