How To Prepare For A Recession | Canada 2022

What if I told you the next recession is just around the corner? Would your finances and investments be safe? In today's video, you will learn how to prepare for a recession. So if you want to get through one and even capitalize on the opportunity, make sure you watch this video till the end. What is a recession? A recession is a period of negative GDP lasting for two consecutive quarters. In more simple terms, a recession is when people are spending significantly less on In a recession, there is a slowdown in economic activity which causes the economy to struggle. The biggest consequences are job loss and increased unemployment. Companies and small businesses struggle to keep operating and there is an increase in bankruptcies. The real estate market cools off and the stock market tends to go in bear market territory and may even crash. But there is a few benefits of a recession, exposing weak companies, better deals on housing and stocks, and it cures inflation, which is something we need badly. When everyone is spending less, the demand for goods and services will go down and the supply will catch up. This will cause prices on goods and services to decline. Typically, when in a recession, the Fed will lower interest rates and print more money to stimulate growth in the economy to get out of the recession. But this is the biggest reason why we have so much inflation in the first place. So the government needs to increase the interest rates and stop printing money and cause a recession to control inflation. Another term that is possible is stagflation. This is when we have a recession but also have high inflation. If there is a supply shock, shortage of natural resources and commodities, or a war, it's possible that inflation will continue to increase while there is a slowdown in GDP. So what can we do to prepare for a recession? Well let's first take a look at your employment. Since there is high unemployment in a recession, you'll need to take a hard look at your job. Is your job recession proof? Is your position the first to go if there are cutbacks? How valuable are you to your employer? Or if you are a small business owner, will your business be affected by a recession? Can you handle a recession financially? Let's first take a look at the worst jobs in a recession. This will be your construction and trades, automotive and equipment dealerships, vacation and travel, real estate, leisure, hospitality, retail, truck drivers, and even jobs in the corporate industry like management, tech, marketing, and entry-level workers. And if you just graduated and you are new to the workforce, you'll be at higher risk of losing your job. So what jobs will be safe in a recession? The most resilient jobs are your medical and healthcare workers, law enforcement, firefighters, teachers, social workers, utility workers, grocery store workers, funeral services, public transportation, auto mechanics, and even most government jobs. If your job is demanded no matter what the economy looks like, you may have less to worry about. But recession or not, no job is 100% guaranteed. So what can you do to prepare for job loss? Expand your skill set. If you're only a one-trick pony, you'll have less options if you lose your job. Although specializing can give you more pay, more skills will give you more options. You can increase your skill set by going back to school or taking online courses. You may even ask your employer for company training or find yourself a mentor and a new skill set. As for a business owner, there are a few things you can do to prepare for a recession. Expand your offering, invest in cost-efficient automated solutions, reduce debts, increase cash positions, cut the fat, and run lean. Another way to prepare for a recession is to get another source of income. Now you can get yourself another job, but that's something that's not sustainable for the long term. You need to think about starting a side hustle business or creating passive income sources. Starting a small business won't be easy to do, but the extra income coming in can eventually grow to replace your full-time job. And if you lose your job, you'll have another source of income to fall back on. Passive income is the ultimate source of income. It's money that's coming in that doesn't require all of your time. Examples would be dividend-paying stocks, rental income, royalties, capital gains on stocks, crypto staking, and renting out equipment or machinery. I've already made two videos on passive income sources, so if you're interested in learning more about passive income, check out the link up here or look for the links in the video description below. The next way to prepare for a recession is to save money. Cash is usually trash, but in a recession, cash is king. The best way to save is to make a budget and pay yourself first. A budget doesn't need to be restricting. It's just a spending plan for your money. It's easier to save when you know where all your money goes. And the most important part of a budget is the money you save first. Set up an automatic transfer to savings when you first get paid, then spend the rest according to your budget. There's always unnecessary expenses that should be eliminated, like a gym membership or app you don't use, or even paying annual and monthly fees for credit cards and check-in accounts. And there's thousands of ways to save money on everyday purchases. Some of the best ways to save is buying a used car instead of buying a new one, downsizing your housing, or cooking your own food instead of getting takeout. But if you don't know these tips, how are you supposed to save? Once again, I have a video for that. Check out the link up here or the video description for my video on how to save money on all expenses. And recession or not, making a budget and learning how to save will truly benefit your finances. The next thing you want to do to prepare for a recession is make sure your investment portfolio is recession-proof. While I shouldn't say recession-proof, just make sure your portfolio is balanced accordingly and properly diversified. The reason why you don't want to completely recession-proof your portfolio is because you never know when a recession can happen. It could be tomorrow or it could be in five years. If your portfolio is only companies like Pepsi, Walmart, Procter & Gamble, or NextEra Energy, you may be missing out on potential gains on growth stocks and smaller cap companies. And especially if you're a long-term investor, short-term market volatility from a recession won't matter in the long run. The main thing is that you properly diversify and balance your portfolio according to your risk tolerance, time horizon, and your performance goals. You want to diversify in different industry sectors, market caps, international markets, and other asset classes like bonds, crypto, real estate, and precious metals. You want to find the right asset allocation for your portfolio and rebalance it at least once a quarter. This means if one of your stocks is 5% of your portfolio and does amazing and grows to 20% of your portfolio, now your portfolio is heavily weighted in that one stock, which will increase your risk. So take your profits and rebalance. Don't try to time the market. Yes, the market will likely go down in a recession, but timing the bottom and timing when to get back in is not an easy thing to do. So it's better to stay invested in a properly built investment portfolio and always think long-term. And if all this portfolio diversification and rebalancing is too much for you, then consider a robo-advisor like Wealthsimple Invests, where they do all the work for you and all you got to do is contribute to your portfolio. If you're interested in signing up for Wealthsimple Invests, earn yourself a $50 bonus when you use my link and make a deposit of at least $500. Link in the video description below. But what if you're mainly a real estate investor? There are also ways to recession-proof your real estate investments, like diversifying in different types of real estate, different price ranges, and different geographies. You may also want to have higher cash reserves, less debt, and diversify in different asset classes. And plan ahead. When investing in real estate, how well will this property do in a recession? Does it have a strong enough cash flow? Real estate investing is more risky in a recession mainly because of having high leverage and high unemployment, which may mean you're not finding tenants for your properties and you're stuck paying for the mortgages. Now what do you do with the extra funds? I told you to save your money, but for what? The first thing you want to save for is an emergency fund. These are the funds you can use for an emergency. And when a recession hits, one of the biggest emergencies is losing your job. So it's great to have three to six months of living expenses in case of job loss. The size of your emergency fund will depend on many factors, like will your job be secure in a recession? How hard will it be to find another job? How many dependents do you have, etc. Your three to six months of living expenses may need to be even more. But this isn't your average living expenses. This is your bare bones budget, meaning since you're out of work, you need to reduce your wants to zero if you can. Even consider reducing things that you think you need. Like yes, you need a mode of transportation, but does it need to be a $50,000 truck or brand new BMW? An emergency fund should be as liquid as possible, meaning in the form of cash and easy access to. That's why your funds should be in a high-interest savings account. And the best high-interest savings account is EQBank's Savings Plus account. Currently, with this account, you'll earn 1.5% interest. And with the Bank of Canada raising their interest rates, you'll likely see EQBank's interest rate go up even more. The next thing you want to do with extra funds is to pay off high-interest debts, so mainly unsecured personal loans and credit cards. But this can also be car loans and line of credits. If you're paying a 6% interest rate or higher, it's a high-interest debt and you should consider paying it off to prepare for a recession. Why 6%? Well, the average stock market return is 10%. After average inflation, it's 7-8%. During a recession and high inflation, this number can be a lot lower. But if you pay off a debt with a 6% interest rate, it's actually like a guaranteed 6% return. This is why it's always recommended to pay off high-interest debt before investing. And another benefit of paying off your debt is increasing your credit worthiness. Okay, let's say you got your emergency fund fully funded and taken care of all high-interest debt, and you still have extra funds. Now you patiently wait for stocks to go on sale. While you're waiting, do some research and create yourself a watchlist. Now these won't be recession-proof stocks. Recession-proof stocks should be bought before or at the beginning of a recession. That will help you minimize your losses. But if you want to capitalize on a recession, it's best to have some cash on the sidelines to purchase stocks that have been beaten up during the recession. So when the recession is over, these stocks will bounce back and reach new all-time highs. These will likely be growth stocks in the tech sector. So create a watchlist and a game plan of when to buy and what to buy. And if you're well positioned, a recession is a good time to get deals on real estate. There's more foreclosures and less buyers in the market, which means cheaper real estate prices. And if you time it right, you may even get lower interest rates. But you don't know how long a recession can last, so investing in real estate during a recession can be a lot more risky. So extra due diligence is required. Predicting when a recession will start and end is hard to do. And if we can predict it, every recession will be different. But whatever the case is, it's better to prepare it 5 years too early than 5 seconds too late. And if for some miracle we don't see a recession in the near future, these tips will still be helpful for improving your portfolio and personal finances. And if we do see a recession, we will be prepared, come out stronger, and maybe actually profit from it. Now if you want to continue learning, check out one of the videos on the right of the screen. If you have any questions or comments, let us know in the comment section below. Thanks for watching. Until next time, keep making money moves. Peace!