What do you wish you had known about recession?

[poetdereves]

My family (DW and an infant son) are at the beginning stages of FIRE. We still have ten or so years of work left, frugal habits, and invest a large chunk of our income. We are still young enough that we have not invested or had to provide for ourselves through a recession since we were both just starting college back in 2008. Many veterans of this lifestyle are on this forum and have gone through multiple downturns in the market and changes in the world that we have yet to see as adults.

What do you wish someone had told you about recession when you were newer in your career, investing, and working toward FIRE?

I am not saying that I think the top is in, or that a recession is even right around the corner. No one really knows, but I do know that sometime in the next ten years of my working career it will be something we need to be prepared for before it comes. I also don't care to hear about your political affiliations or who you blame for all this or the earth is flat or whatever. I am just hoping to get a practical list of advice for the youngins that want to someday be free.

[Vashy]

Honestly, that recessions are part of a normal economic cycle, which got momentarily distorted by massive state intervention and money printing and QE. The fundamentals of the economy (supply and demand) remain intact, so basically "keep calm and carry on". And, I know it's hard, but dollar-cost average and only look at the total portfolio value every now and then, and much more rarely when the market it down, just to void suffering/feeling depressed.

[ATtiny85]

One thing that I enjoy knowing is how much wealth has been generated in my portfolio by the GFC and dot-com pullbacks. The Covid hiccup and the 2018 Christmas blip were too short to make of an impact. But the thousands of dollars I put into equities all the way down and all the way up have really grown nicely. The dollars from last year? Not so much. The dollars throughout whatever we are in? Oh yeah they will look nice when needed. (So will last year’s dollars for that matter…)

[Cranky]

I’ve been through quite a few recessions.

Unless you lose your job, it’s not a big deal - losing your job is the major danger of any recession.

Nothing stockpiles like cash, so this is the time for a good emergency fund.

[poetdereves]

Good stuff so far!

-Don't lose your job
-Have a stacked emergency fund
-Keep dollar cost averaging
-Don't look at the market all the time

Keep the good ideas coming!

[bacchi]

Vacations and home repairs are cheaper during a recession.

[swashbucklinstache]

Remember that friends and family will lose their jobs and will miss out on the recovery, or worse. Don't dance.

Remember this next time you encourage someone to hold a specific allocation or even job. Low paying government work in a recession might mean a 40% savings rate instead of a -75% one. "Hogs get fat, pigs get slaughtered."

Work harder so you don't get fired. Life is not a meritocracy, but it partially is, and how much of an ass you are to work with is in the "is" part not the "is not" part.

On the last point, counterintuitively as long as you don't lose the house or etc., even though the swings might be much more painful when the numbers are bigger the actual real life impact is much less the later you are in your journey. Going from 50k saved to 25k and losing your job might put you into insolvency, while 1mm to 500k probably changed nothing day to day. Don't turn a low impact layoff into a divorce through stress or something.

If you lose your job it might be a good time for traditional -> Roth conversions, but preferably only if the market volatility is low.

Don't be too conservative before or after. I'd rather lose 20% of 1mm than 10% of 800k. "More money is lost preparing for a recession than in one"

Consider social safety nets in your immediate community, formal ones and informal like ways to make non-negligible petty cash. {Gulp} consider what social safety net programs you might want to support one way or another in good times and in bad. {no politics discussion, this might be voting or it might be tithing}

[Villanelle]

That once you address job security, it does not matter.  At all. 

This ignores the stress and suffering of those around you, and I don't mean to dismiss that, as it is a real thing and can be difficult to watch, especially in those who make bad decision after bad decision and in doing so, put themselves in a bad position.  BIL and SIL who did a negative amortization home loan on a large, fancy single-family home that was far more than they needed, and ended up short-selling--I'm looking at you! So the stress and pain around you is real, but generally something well outside your circle of influence.

But beyond that, if you have a very secure job and/or multiple streams of income, then the balances in your various investment accounts do not matter at all.  In fact, it presents some solid buying opportunities (again, as long as you are confident--and with solid reasoning--in your job and have sufficient savings).  I'm talking about buying equities, but also things like replacing a vehicle, buying a home, or even buying items off or Marketplace and other used sites, or doing home repairs and improvements. 

If you want to really pad savings, it can be a great time for things like getting a roommate, too.  Lots of people looking, so you can be choosy about who you bring in to your home, and you can remind yourself it is only short-term.  If you are early in your savings journey (or not), one year of $500-$800 (or whatever the going rate is in your area) in monthly rent can make a meaningful difference.

You don't want to appear to be a vulture feasting off the misfortune of others, but that misfortune does create some opportunities, and taking advantage of them actually helps both parties.  That roommate needs a home; that guy selling his barely used car or his fancy bike needs the cash. 

[Bateaux]

Recessions are Mustacian wet dreams.  That's where you buy cheap and make bank in the recovery.

[ChpBstrd]

During a recession, corporate earnings fall dramatically, which affects the PE ratio of stocks and dozens of other metrics. This means that in practice, stocks keep looking more and more expensive even as they get cheaper and cheaper. That's why in early 2009 the S&P500 had a PE ratio over 70. Would you buy or hold stocks with a PE ratio over 70 when unemployment is skyrocketing, banks are collapsing, and sovereign defaults are on the table? You should have.

Do not assume that if, in a recession GDP could be expected to fall to negative one percent, then earnings will also fall by only a few percent. Profits are the tiny difference between revenues and expenses, and this tiny, volatile number can easily flip by negative hundreds of percent. Blue chip former cash cows will suddenly start hemorrhaging money, and this will startle some investors. Corporations also tend to write off the value of their investments during recessions, so that makes earnings look even worse.

Also do not assume you can pick stocks or sectors that will be immune to recession. I learned this the hard way holding WalMart through the 2000 tech bust. I foresaw that tech stocks were overpriced and risky, but lacked the concept of contagion and PE contraction in my analysis!

The least risky time to be in the market is the time when it seems most risky. Look at equity valuation earnings from the year before the recession, and expect earnings to return to these levels in 2-3 years. When unprepared investors start talking about their dividends being cut and asking "what is safe?" that's a good time to take a breath and relax, because returns are gonna be awesome from there.

[PDXTabs]

Recessions are Mustacian wet dreams.  That's where you buy cheap and make bank in the recovery.

Unless you lose your job early in your career and it permanently impacts you lifetime earnings. This is what economists call economic scarring. We saw quite a bit of that during the GFC. I saw it up close and personal when my Fortune 500 company laid off college hires who had only been there for a matter of months.

But most people don't lose their job in a recession so for most people it is a huge buying opportunity for cheap stonks. I kept my job (lost my house - via divorce and foreclosure) and only regret not pouring more money into equities markets.

[Bateaux]

Recessions are Mustacian wet dreams.  That's where you buy cheap and make bank in the recovery.

Unless you lose your job early in your career and it permanently impacts you lifetime earnings. This is what economists call economic scarring. We saw quite a bit of that during the GFC. I saw it up close and personal when my Fortune 500 company laid off college hires who had only been there for a matter of months.

But most people don't lose their job in a recession so for most people it is a huge buying opportunity for cheap stonks. I kept my job (lost my house - via divorce and foreclosure) and only regret not pouring more money into equities markets.

There is the potential of job losses.  The last recession had a peak of 9.5 percent.  So there was a 90 percent chance of employment.  Maybe not in your dream job, but employment.  My wife couldn't work for 18 months during that time.  Being frugal before, during and after a downturn helps your odds.

[Villanelle]

One thing to add to my earlier post:  Just don't look.  I had/have no idea how much value I lost in 2008 (Spouse and I been investing since about 200o, so I had a not-insubstantial amount.) I knew markets were down and there had been a crash because that news was unavoidable, but had no idea how the specifics applied to me.  It didn't matter because I knew I had decades before withdraws.  I had set up monthly auto-investments, and those just kept going.  Spouse's job was about as secure as they come (military) and we could have easily lived without my income, though through pure luck, I was working at a place that not only didn't cut any jobs or lay anyone off, but that seemed to be about the only place around that was having trouble filling positions.  (It was a central staff for a university's non-profit and research foundation.  As long as there were still federal grants coming in, we still had jobs.)  The only stress I had during that time was for friends and family who weren't as well set, either through bad choices or bad luck.  And I attribute nearly all of that lack of stress to just not looking. 

So truly, look as little as possible. 

I now have a spreadsheet where, when I update holdings in each fund, it calculates the % based on my target AA (which is more complex than some as I have 2 categories of domestic, 2 of international, and bonds).  So I don't even have to look at bottom line dollar amounts.  If a %  is off more than 5%, I make changes, but I can do all of that without ever looking at the bottom line if I want to.  Highly recommend this.

(I was, regrettably, investing via an awful commission-based firm.  I'm sure I'd have much more money in my account had I been doing the boring, DIY index thing, but I didn't start educating myself until about 2009.  But the upside to that was that I wasn't rebalancing or checking on my AA, so I truly didn't need to ever look at anything.)

[Dee_the_third]

Vacations and home repairs are cheaper during a recession.

Hey, that prompted me to go look at the price of lumber - looks like it's down from that insane peak. Maybe time to build that deck I've been thinking about.

[myrrh]

In a recession unemployment is up and there are a lot of people competing for fewer jobs. So it may not be as easy to find that part-time or low wage job to tide you over during the crash as you thought. Another reason for a multi-tier emergency fund.

[JupiterGreen]

Vacations and home repairs are cheaper during a recession.

Hey, that prompted me to go look at the price of lumber - looks like it's down from that insane peak. Maybe time to build that deck I've been thinking about.

Thanks for this thread. My appliances and car are all over 20 years old. They all keep plugging along so I've seen no reason to replace. With that said, I'm going to start watching the prices and try to buy low if I see a significant dip (or they breakdown whatever comes first).

[Villanelle]

Vacations and home repairs are cheaper during a recession.

Hey, that prompted me to go look at the price of lumber - looks like it's down from that insane peak. Maybe time to build that deck I've been thinking about.

Thanks for this thread. My appliances and car are all over 20 years old. They all keep plugging along so I've seen no reason to replace. With that said, I'm going to start watching the prices and try to buy low if I see a significant dip (or they breakdown whatever comes first).

For appliances, check Marketplace and even your local Buy Nothing group.  I fairly regularly see perfectly good major appliances (range, fridge, etc.) posted by people who are redoing their kitchens. 

[Michael in ABQ]

Recessions are uneven. Some industries or businesses may see zero change or actually an increase. Others may drop 50% when the overall economy is down 3%.

As long as you've got a job or income coming in, it's not a big deal.

I remember being straight out of college at my first job when Lehman Brothers collapsed. I was working in commercial real estate and still remember someone walking through the office announcing the Dow had dropped over 700 points (back when it was around 12,000 - so about 6%). I had minimal investments (though I was concentrated in finance which got slaughtered). Looking back though, my meager retirement savings in my 401k in 2008-2010 or so were super cheap and went up massively in the following years. I was probably the last new hire for a while and I saw a few people around me get laid off - or in the case of some brokers on 100% commission go as long as 18 months without any income. Albeit they had just come off a year making low- to mid-6 figures, so they survived alright.

[NorthernIkigai]

In addition to the obvious (be frugal, keep investing, do your best to avoid job loss and divorce), make sure to keep up your employability: You may not be able to avoid job loss altogether in a recession, but keep up your skills and networks, and think about different sectors you could work in, and you’ll minimise your risk of significant unemployment.

[Dicey]

Lots of good suggestions so far. A few more thoughts:

-  "Oh, I wish I didn't have a big, fat emergency fund" said no one, ever.

- The ability to keep making mortgage payments no matter what happens is far more valuable than prepaying a mortgage.

- Dang, I wish I'd counted my mortgage as part of my bond allocation and put a higher percentage into equities.

- Related: If you have a mortgage, and a big, fat EF, put all new monies saved 100% into equities.

- Best advice ever and so good it bears shouting: DONT LOOK!

[nereo]

One more to add:

Every recession I’ve experienced the financial news is dominated by bears who give long meaningful explanations about why this recession is going to get much worse before it gets better, long after what turns out to be “the bottom”.  You can’t know how bad a recession will be, but fear and negativity rule (and that cycle actually drives recessions too).

At the same time the general public will think we are still in a recession long after the recovery has officially happened (which ironically can slow the recovery).

[2sk22]

One more to add:

Every recession I’ve experienced the financial news is dominated by bears who give long meaningful explanations about why this recession is going to get much worse before it gets better, long after what turns out to be “the bottom”.  You can’t know how bad a recession will be, but fear and negativity rule (and that cycle actually drives recessions too).

At the same time the general public will think we are still in a recession long after the recovery has officially happened (which ironically can slow the recovery).

This sounds very familiar indeed :-) From about 2006 until 2010, I spent way too much time reading all of the pronouncements of perma-bears like Nouriel Roubini although thankfully, I did not act on this information. We did not stop any of our automated investments and, in fact, increased them but I wish I had increased the amounts more aggressively.

[Bateaux]

One more to add:

Every recession I’ve experienced the financial news is dominated by bears who give long meaningful explanations about why this recession is going to get much worse before it gets better, long after what turns out to be “the bottom”.  You can’t know how bad a recession will be, but fear and negativity rule (and that cycle actually drives recessions too).

At the same time the general public will think we are still in a recession long after the recovery has officially happened (which ironically can slow the recovery).

This sounds very familiar indeed :-) From about 2006 until 2010, I spent way too much time reading all of the pronouncements of perma-bears like Nouriel Roubini although thankfully, I did not act on this information. We did not stop any of our automated investments and, in fact, increased them but I wish I had increased the amounts more aggressively.

If the news is good, invest.   If the news is bad, invest harder.

[RedmondStash]

Keep your head. Some people around you will panic. Some pundits will want you to panic. Your panic serves no useful purpose.

Don't look. Don't look at your investments, and don't look at articles opining about what's going to happen next. Most of them are wrong, and you won't know which ones are right until afterward. Don't fall for clickbait headlines. Nobody really knows anything; they just want your eyes so they can profit. Nobody in the financial world is held to account afterward for being wrong. (This is so weird to me but it's true.)

When you do look (because human nature), use it as a chance to test out your asset allocation. Are you still sleeping at night? Are you too anxious? Downturns give you valuable information about yourself that rising markets don't.

Especially evaluate the size of your emergency fund or cash position. I sleep at night best when I know I have cash to cover 2 years' expenses. Boy howdy am I glad I have that cash now, inflation losses be damned.

If you decide to adjust your AA, sleep on it for a week. Then make a plan to make the changes slowly, over a course of weeks or months, with DCA. There's no rush. This is about how you sleep at night, not about the actual investments, which are probably fine in the long term.

Remember that you still own the same pieces of the same companies even in a market drop. Ultimately it's the value of those companies that will help the market recover.

Most of all: Remember that recessions are temporary and inevitable. Embrace them. Prepare for them. Refuse to be cowed. After the market recovers, you'll realize the recession didn't matter.

[Cranky]

But also - recession is a social stressor. Even though you personally sail through it, millions of people struggle, and that’s not great for society as a whole.

A while lot of our current political woes can be traced back to the Great Recession. When banks get bailed out and people who lose their houses don’t, there’s a lot of lingering bitterness.

[GuitarStv]

I'm always curious if the price of high quality vintage musical instruments will change during a recession.  This definitely happened during 2008 where there was a significant drop.

[former player]

Every recession so far has come to an end, so your aim will always be to survive economicaly until it does.

To survive a recession economically speaking -

1.  Don't overextend your borrowing in the good times.  It's the people who have fixed loan payments that are large relative to their income who lose it all when the income goes down below their capacity to service those loan payments.  If the recession goes on long enough (and some of them last a long time or have lasting effects on some individuals) even a big fat emergency fund is going to run out before the need to make the payments runs out.  Those overpriced houses, expensive car leases and maxed out credit cards are never a good idea but are disastrous when the bad times roll.

2.  Have more than one source of income.  Your main employment and/or a side hustle and/or rental income and/or pension or annuity and/or index funds: the more different sources of income you have the less likely that a single disaster will sink you.

3. Cut your cloth according to your means.  Your aim, as far as possible, is to live within your means, and if your income has reduced then your expenses need to reduce to fit your new income.  It is surprising how little money you can survive on if you put your whole mind to it.  It helps a lot if you start with a well-maintained home in a self-sufficient location.  Well-maintained because then you won't need to spend expensively to keep it in sound condition (shabby and out of date are irrelevant to survival and can be remedied later) and your heating/cooling/cooking costs should be reasonable and any discomfort from turning luxuries off will be manageable.  A self-sufficient location means not having to spend large amounts on travel (as many as possible of walking, cycling, and public transport for essential trips) and having outside space to be able to hang washing out to dry and garden for herbs and fresh vegetables and maybe keep chickens.

4.  Build your social support systems in the good times and they will be there for you in the bad times.  Be a part of your community, not detached from it.  Be the person that friends and family can call on in times of need, and do what you can to ensure that they are the people that you too can call on in times of need.

Brought to you by someone whose parents survived several recessions, a depression, food rationing and two world wars.

[Loren Ver]

Recessions are times where you reap what you sow.  You get to determine much of what that is before the recession ever hits. 

For working, you might not be able to save your job, but you can build a network and be known for being a good worker who does good work.  Or be a jerk at work, treat those around you poorly and/or do crummy work.  One of those things can help you keep your job or land new and better jobs.  When my department when from ~70 down to ~20, they kept me even though I had a lesser degree and was never one of the high rated employees (always in the middle bucket for performance).  Why?  Because I was super easy to work with and always got stuff done efficiently and correctly.  All the squeaky wheels and climbers got let go.  PhDs, top in their fields or not.   

Lifestyle, you can pick and choose your debt load, savings rate, liquid funds, etc.  This will determine the amount of panic you need to feel if/when things go sideways.  Not just for a recession but if anything major shadows your door.  The less flexibility you build in, the more things have to stay the same or you start to sink.  You get to pick a lot of these factors.  DH and I did this by living on the lesser of our two incomes.  That way we always knew we could afford our lifestyle even if job losses happened.    You don't have to start low so there is no where to tumble like we did, you can also start higher, just know what you can jettison if you need to so you don't get stuck. 

Now it doesn't mean everything will be sunshine, rainbows, and lollipops, but you are putting as many factors in your favor as possible every day so that no matter what badness comes your way (in this case a recession) you have the most solid footing possible to weather the storm, or start rebuilding as needed. 

I'm also going to second that recession are a great time to buy.  They aren't something you can control, so put yourself in a position to win as much as possible.  Be cognizant that others might not be doing as well, but don't let that stop you from succeeding.  2008/2009 landed us our house and some repairs we couldn't do ourselves.  The slow recovery some vacations I wouldn't have taken otherwise. 

[Villanelle]

I'm always curious if the price of high quality vintage musical instruments will change during a recession.  This definitely happened during 2008 where there was a significant drop.

Oh God.  I hope my spouse doesn't see this.  Three guitars is enough.  (Plus a couple unplayed trumpets, an unplayed soprano, and a keyboard.) 

[nereo]

I'm always curious if the price of high quality vintage musical instruments will change during a recession.  This definitely happened during 2008 where there was a significant drop.

Oh God.  I hope my spouse doesn't see this.  Three guitars is enough.  (Plus a couple unplayed trumpets, an unplayed soprano, and a keyboard.)

I've yet to meet someone who owns at least two guitars who doesn't daydream about owning at least three more.

[ministashy]

Everyone has given some really great advice, so I only have a couple of additional suggestions:

Evaluate the stability/security of your job.  Be brutally honest.  Are you in a field where mass layoffs are likely to happen during a recession (service industry, retail, construction, etc), or is your field pretty bombproof (security, gov't work, essential services like nursing, accounting, etc.)?  If it's the former, then make sure your ER fund is well padded and any social networking/side hustles/etc are all well established to help carry you through a few lean years.

Talk to your spouse BEFORE the recession happens, and make plans.  Treat it like any other emergency planning:  go over scenarios from most likely to least likely, and make sure you're both on the same page in terms of what's most important, and what can be cut back, and when.  One person's luxury is another person's necessity, after all.  Bad economic times can be very stressful, even for the prepared, and knowing that you're both on the same page and pulling together to get your family through it is likely to save you a lot of marital strife and mental distress.

[Must_ache]

The last recession had a peak of 9.5 percent.  So there was a 90 percent chance of employment. 

It means that if one out of every 10 people trying to work wasn't working.  Not that there was a 90% chance of a job.  People are generally either 0% or 100% employed.
It's not like a roulette wheel.  Suppose there are 96 jobs for 100 people, then 6 of those jobs disappear.  Now there are 90 jobs for 100 people, and 10% unemployment.   10 people are competing for that job opening rather than 4, it might be 2.5x harder to get the job if you are in competition with everyone else.

This may be a terrible analogy.  I admit I might not have a clue what I'm saying.  But "90% chance of employment" sounded too rosy.  If you were competing with 4 people and now you're competing with 10 people, I think your chance of employment just went from 25% to 10%.

[Bateaux]

Wow!  Look at all them words.

If we had 90 percent employment and I was part of the 10 percent more than a week...holy crap my parents, grandparents and later inlaws would have beat me with a stick.

[mistymoney]

Wow!  Look at all them words.

If we had 90 percent employment and I was part of the 10 percent more than a week...holy crap my parents, grandparents and later inlaws would have beat me with a stick.

wow, look at all this arrogance.

[ATtiny85]

I'm always curious if the price of high quality vintage musical instruments will change during a recession.  This definitely happened during 2008 where there was a significant drop.

Oh God.  I hope my spouse doesn't see this.  Three guitars is enough.  (Plus a couple unplayed trumpets, an unplayed soprano, and a keyboard.)

I've yet to meet someone who owns at least two guitars who doesn't daydream about owning at least three more.

Constant state of “more than I need, not as many as I want”

[deborah]

In recessions certain types of people have a more difficult time. You can’t necessarily predict whether you’re one of them. It’s fairly easy to get a job when there’s 4% unemployment, but, if the unemployment rate for young people is 20%, and you’re a young person, it’s difficult. And it’s worse when your parents and family are in the 4% not the 20% that you’re in.

I remember the recession when many middle managers were “let go”, and my father was unemployed, off and on for two years (he got a couple of jobs, but neither of them lasted for more than a couple of months). During a recession, you may find that an employer needs someone to get something done, but parts ways with them as soon as that small task is done.

Government jobs get frozen during a recession. Contractors get their contracts terminated early, of can only get short term contacts.

[ChickenStash]

Going through the GFC, I guess I learned to do the things that the FIRE community already teaches - although I didn't know about FIRE back then. Don't over-extend the finances, have a good emergency fund, and be flexible. Also, don't panic - they can smell fear.

It hit home for me when the dark angel of HR reaped the guy I shared an office with one afternoon. We had mostly the same role, but I probably survived due to seniority. I was pretty early in my career at that point and hadn't built up much savings so I was quaking in my boots throughout the whole period.

From that point, I worked on cleaning up consumer debt to get a good e-fund, keeping up my job networking skills in case I had to start looking, and adding to my skillset in case I had to try pivoting to another role if mine went away.

[Bateaux]

Wow!  Look at all them words.

If we had 90 percent employment and I was part of the 10 percent more than a week...holy crap my parents, grandparents and later inlaws would have beat me with a stick.

wow, look at all this arrogance.

I'm just a relic from the past.   

[PDXTabs]

The last recession had a peak of 9.5 percent.  So there was a 90 percent chance of employment. 

It means that if one out of every 10 people trying to work wasn't working.  Not that there was a 90% chance of a job.  People are generally either 0% or 100% employed.
It's not like a roulette wheel.  Suppose there are 96 jobs for 100 people, then 6 of those jobs disappear.  Now there are 90 jobs for 100 people, and 10% unemployment.   10 people are competing for that job opening rather than 4, it might be 2.5x harder to get the job if you are in competition with everyone else.

This may be a terrible analogy.  I admit I might not have a clue what I'm saying.  But "90% chance of employment" sounded too rosy.  If you were competing with 4 people and now you're competing with 10 people, I think your chance of employment just went from 25% to 10%.

I think that it is actually rosier than that, iff you have a job going into the recession. In that example 6 out of 96 people lost their job. In a recession the vast majority of people keep their jobs.

[roomtempmayo]

Life is not a meritocracy, but it partially is, and how much of an ass you are to work with is in the "is" part not the "is not" part.

There's lots of good info above.

I'll build on @swashbucklinstache here for a minute.

Somewhere around 2008, I remember reading Naomi Klein's book Shock Doctrine.  What I took away from it is that any economic shock has two important phases.

Phase 1: Direct economic consequences.  Some businesses go bust, and people lose jobs.  Some business can't make payroll, and they downsize.  People lose jobs.  And on and on.

Phase 2: Austerity cuts.  A great deal of the cuts in any recession are optional.  Recessions are good cover to cut both unproductive people/units, and also people/units who are disfavored (because they're jerks/old/overpaid/not at the cutting edge/not team players/stagnant/etcetera).  This is the time you get rid of all the toxic people and deadweight.

Defenses:

1) The defense against direct economic consequences is to not work for a volatile company or organization.  You get paid a premium in the good times for the risk, but in a recession you earn that premium through the risk of layoff.

2) The defense against austerity is to be a nice person; have lots of personal relationships in the org; and earn your keep.  To the last point, recessions create an eat what you kill dynamic in many sectors.  Make sure that in any given month or quarter your direct actions (and not through some set of supporting roles - dollars with your name on them) bring in multiples of your compensation.  Do not become some midlevel person whose $$$ contribution is unclear.

Last, and this is a bit of a longterm comment, is that your risk tolerance should be based on your age and marketability.  If you're young, mobile, and marketable, go ahead and work for a risky business.  You'll land on your feet one way or the other, and you have lots of time to recover.  But as you age, you eventually want to think about stability and security because layoffs can be devastating.  Getting laid off at 35 and 55 are different worlds.  A 35 year old is marketable, but a 55 year old is going to face an uphill climb.  Make sure you don't have a late career layoff by moving to a stable employer as your marketability declines.

[Dicey]

I'm always curious if the price of high quality vintage musical instruments will change during a recession.  This definitely happened during 2008 where there was a significant drop.

Oh God.  I hope my spouse doesn't see this.  Three guitars is enough.  (Plus a couple unplayed trumpets, an unplayed soprano, and a keyboard.)

I've yet to meet someone who owns at least two guitars who doesn't daydream about owning at least three more.

Same if you substitute "bicycles" for "guitars".

[nereo]

If we had 90 percent employment and I was part of the 10 percent more than a week...holy crap my parents, grandparents and later inlaws would have beat me with a stick.

I think it’s a bit misleading to suggest that all one needs to remain employed during a recession is to be in the top 90%. Yes, the reality is that most people remain employed (though far, far less than the 90% the headline number suggests), but high unemployment coupled with a recession drastically alters the employment landscape in ways that can make it increasingly difficult to find gainful employement.

First, it’s driven by fewer jobs, not more people (at least not in developed economies) and these can be incredibly uneven between sector. Which means there are just less jobs to apply for, and more people looking. Critically, this means that instead of the usual 2 -3 qualified applicants competing per job there may be 20 or 30. Many of those will be overqualified and/or have years of experience and deep connections within the industry (see below).

Second, it high unemployment during a recession radically shifts the power dynamic away from employees.  Companies are awash in applicants who will work for less money. Cash-flow tends to be negative so there’s pressure to lay off anyone they possibly can. Contract employees and higher-paid middle management tend to be in the first roun of layoffs, flooding the market with highly-qualified personnel eager to take whatever job there is, even if it comes with a paycut, poor hours and few benefits.  Some companies will fold entirely, laying off everyone. Which becomes creates a negative feedback loop.

Finally, the longer you remain unemployed the harder it is to re-enter the labor market.  Like it or not there’s a huge prejudice against workers who haven’t had a job in several months, and employers can be very choosy.

In other words, during a recession with high unemployment it’s not a matter of being in the top 90% to have a job.  For many careers you can be in the top 25% of your peers and still get laid off. The real challenge is that you are now unemployed, competing with dozens of other highly-qualified applicants for each position who are all in a race to the bottom.

[maizefolk]

I would add that bad things can happen to your source of income other than being laid off.

I was in California during much of a great recession. State employees were being furloughed 2 or 3 days a month which is equal to a 10%-15% pay cut. Something most mustachians could absorb if needed but can be a crisis for people living paycheck to paycheck.

There was also the risk your paycheck got replaced with a "state warrant" (essentially an IOU).

Oh and the time that a "payroll software bug" meant none of us got paid for a month, but the HR office offered to write a letter to our landlords explaining we did have a job and would ultimately get paid so we could catch up on rent.

[nereo]

I was in California during much of a great recession. State employees were being furloughed 2 or 3 days a month which is equal to a 10%-15% pay cut. Something most mustachians could absorb if needed but can be a crisis for people living paycheck to paycheck.

This hit me pretty hard.  I, too, was in California during the furlough, and our director tried to put it in the best positive light, saying "on weeks you are furloughed it's a 20% reduction in your pay, but a 50% increase in your weekend".  Might sound like corporate BS but coming from him - a leader who routinely transferred his own funds to help those impacted the most - it was a great mindset.  He passed away suddenly yesterday.

[darknight]

So many good responses- I'll just add that in years of studying MMM and reading forums, this website has been more prophetic than most religions.. "the sky is falling", "sell your stocks now!", "Buy a new car while things are uncertain but rates are low", "food shortages" were common in my family/friend discussions. I've learned and try to live with more of a "proactive" vs "reactive" mentality on the market. If you aren't carrying debt, look for deals (cheap stocks, necessary work/car equipment etc) and maximize the downturn. Always remembering "in times of change, learners inherit the Earth".

I do wish I had bought a cheap prius before this year.. Where I live people mostly hate on prius's (priuii?) but I see more and more on the road with $5-$6 fuel.

[Dicey]

I was in California during much of a great recession. State employees were being furloughed 2 or 3 days a month which is equal to a 10%-15% pay cut. Something most mustachians could absorb if needed but can be a crisis for people living paycheck to paycheck.

This hit me pretty hard.  I, too, was in California during the furlough, and our director tried to put it in the best positive light, saying "on weeks you are furloughed it's a 20% reduction in your pay, but a 50% increase in your weekend".  Might sound like corporate BS but coming from him - a leader who routinely transferred his own funds to help those impacted the most - it was a great mindset.  He passed away suddenly yesterday.

OMG, I'm sorry to hear that. Someone as considerate as that was probably as generous in all aspects of their life and their absence will be sorely felt.

[maizefolk]

I was in California during much of a great recession. State employees were being furloughed 2 or 3 days a month which is equal to a 10%-15% pay cut. Something most mustachians could absorb if needed but can be a crisis for people living paycheck to paycheck.

This hit me pretty hard.  I, too, was in California during the furlough, and our director tried to put it in the best positive light, saying "on weeks you are furloughed it's a 20% reduction in your pay, but a 50% increase in your weekend".  Might sound like corporate BS but coming from him - a leader who routinely transferred his own funds to help those impacted the most - it was a great mindset.  He passed away suddenly yesterday.

I'm sorry to hear your former director passed nereo. Sounds like he was a really good guy.

The way the furloughs ended up playing out was crazy. I knew a guy who was an RAP paid entirely on soft money -- in other words he'd been awarded a grant for a fixed amount of dollars from the federal government, which he used to pay both his own salary and the other costs of his project. He was trying to support a family of three on what was already a quite low salary in one of the most expensive parts of the USA to live.

The university still made him take furlough days and cut his pay, even though the university and the state didn't save any money since the federal government had given him X dollars that had to be spent on his project. He just ended up with more money in the account he could use for research but not to pay himself.

[lutorm]

The way the furloughs ended up playing out was crazy. I knew a guy who was an RAP paid entirely on soft money -- in other words he'd been awarded a grant for a fixed amount of dollars from the federal government, which he used to pay both his own salary and the other costs of his project. He was trying to support a family of three on what was already a quite low salary in one of the most expensive parts of the USA to live.

The university still made him take furlough days and cut his pay, even though the university and the state didn't save any money since the federal government had given him X dollars that had to be spent on his project. He just ended up with more money in the account he could use for research but not to pay himself.

I worked at the Smithsonian for a while. The Smithsonian is a funny organization that's partly funded by the federal government and partly by non-federal sources. Employees are classified as "federal" or "trust fund" depending on where the funding for your position comes from (entirely semi-random, the same jobs can be either depending on how budgets have been allocated) and when the federal government was furloughing people only federally funded people were affected. I think they acknowledged at the time that this was unfair, but they weren't going to hit people who didn't have to be hit just so everyone was equally miserable.

[Villanelle]

The way the furloughs ended up playing out was crazy. I knew a guy who was an RAP paid entirely on soft money -- in other words he'd been awarded a grant for a fixed amount of dollars from the federal government, which he used to pay both his own salary and the other costs of his project. He was trying to support a family of three on what was already a quite low salary in one of the most expensive parts of the USA to live.

The university still made him take furlough days and cut his pay, even though the university and the state didn't save any money since the federal government had given him X dollars that had to be spent on his project. He just ended up with more money in the account he could use for research but not to pay himself.

I worked at the Smithsonian for a while. The Smithsonian is a funny organization that's partly funded by the federal government and partly by non-federal sources. Employees are classified as "federal" or "trust fund" depending on where the funding for your position comes from (entirely semi-random, the same jobs can be either depending on how budgets have been allocated) and when the federal government was furloughing people only federally funded people were affected. I think they acknowledged at the time that this was unfair, but they weren't going to hit people who didn't have to be hit just so everyone was equally miserable.

When I worked for a university research foundation, we couldn't get raises, even though the Foundation had plenty of money, because we needed to appear to be in solidarity with the actual university staff, who were not getting raises and in fact were dealing with furloughs.  And, okay, fine, maybe that's understandable.  Except a few years prior, when the foundation's budget was tight, the university employees got raises when the Foundation couldn't afford them.  So that solidarity only went one way.  People were pissed, and even in 2008-10 when things were very rough, we were hemorrhaging people. I don't think we were anywhere near fully staffed during the entire 2 years I worked there, and this was in a time of significant unemployment.  We had no really problem attracting people.  But they'd hire 2 and a week later 2-3 more would quit.  A big part of that was that pay was so low, in part because we forwent raises during 2 cycles when most other's only did without during 1 of those cycles.

[10SNE1]

I'm always curious if the price of high quality vintage musical instruments will change during a recession.  This definitely happened during 2008 where there was a significant drop.

Oh God.  I hope my spouse doesn't see this.  Three guitars is enough.  (Plus a couple unplayed trumpets, an unplayed soprano, and a keyboard.)

I've yet to meet someone who owns at least two guitars who doesn't daydream about owning at least three more.

Constant state of “more than I need, not as many as I want”

I feel better knowing that my spouse isn't the only one constantly desiring more guitars!