Certain politicians have rejected the idea that the US is currently in a recession. But if you look up the textbook definition, it seems like we can’t avoid the word “R” anymore.
A recession is defined as two consecutive quarters of contraction in real GDP. And US real GDP fell 1.6% year-on-year in the first quarter, followed by a 0.9% decline in the second quarter.
Recessions are prolonged downturns in economic activity, usually associated with falling retail sales, lower industrial production, falling wages and higher unemployment.
The good news? Setbacks also provide plenty of opportunities for ordinary people to build wealth.
Do not miss it
Every investor wants to buy low and sell high. A downturn in the stock market during a recession can be an opportune time for bargain hunters.
Although the GDP contraction in the first and second quarters was not too severe, inventories have already fallen sharply.
The S&P 500 is down about 20% in the first six months of 2022, making it its worst first half performance since 1970.
Investors looking to buy stocks cheaply may want to exercise caution and focus on companies that can thrive during a recession.
Warren Buffett, for example, loaded up on shares of food giant Kraft Foods (which later merged with Heinz to create Kraft Heinz) and electric utility NRG Energy (NRG) during the Great Recession of 2008.
According to Hartford Funds, the S&P 500 has risen an average of 3.7% during the 13 recessions since 1945.
You don’t need a lot of money to start investing. Some investment apps even allow you to buy fractional shares of stock with as much money as you’re willing to spend.
Real estate offers another potentially lucrative opportunity during a recession.
A recession does not necessarily mean that we will see a decline in real estate prices. But one specific factor could deter the upward momentum in the real estate market: interest rates.
At the moment, the Fed is aggressively raising its benchmark interest rates to contain rising inflation. Higher interest rates are bad news for real estate.
When the cost of borrowing is high, it makes people think twice about getting a loan to buy a home or investment property.
Real estate mogul Sam Zell – aka the “Grave Dancer” – made a fortune buying real estate when no one else wanted to.
In 1973, when the economy entered a recession, the real estate market collapsed due to many loan defaults. In that environment, Zell was able to acquire a portfolio of high-value properties at a significant discount.
If you’ve been looking at real estate investments in recent years, a recession-induced price drop could be a good entry point.
Today, new services make it easy for you to get into the real estate game, no matter how big (or small) your budget is.
Start your own business
Not everyone wants to start their own business. But according to The Economist, 47% of millionaires are entrepreneurs.
Being an entrepreneur isn’t easy, and the idea of building a business in a recession — when other businesses may have to close — can seem daunting. But going against the herd has its perks.
“Now is the time to take advantage of an open field. Your competitors are pulling back and spending less on marketing and advertising,” said Charles Gaudet, CEO of business consultant and coaching firm Predictable Profits. “Some started firing workers. Others are content to stay put and hope for the best.”
If there is less competition, you have a greater chance of gaining a foothold in the market.
Of course, if you’re not ready to quit your job and go all in on a business idea, think about starting a side hustle first.
There is no magic formula for getting rich quick. Whether it’s investing in stocks, real estate, or starting your own business, it’s important to do your own research first and evaluate your financial situation.
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This article provides information only and should not be construed as advice. It comes without any kind of warranty.