Take advantage of the next economic downturn by following this simple piece of advice many people don’t think about.

When we think about a recession, we think about the worst for the economy. We think unemployment, high interest rates, and we think stock market crashes. What if we turned stock market crashes into something good for us? The last recession came during the pandemic, even though it was a rather short one. It was a time of stock prices dropping to lows investors hadn’t seen in a while. More likely than not, the next recession will have similar consequences. The next time this happens, we need to pounce on our opportunity to invest what we can.

Ignore Wall Street & Invest in Stocks

If you’re lucky enough to still have a job during the next recession, make sure you invest money in stocks! This is especially true if you’re single and don’t have to worry about maintaining an entire family. Even if you put your money towards one stock, you’ll be making a nice return in a few years more likely than not.

Many people, including Wall Street, are scared to invest their money on the stock market during a recession. They think they could potentially lose all their money if the companies they invested in struggle to cope. To a certain extent, they do have a lot to lose, considering the tall mountain companies have to climb after a recession. For the average person, putting some money into a stock isn’t necessarily the biggest of all risks. There is the benefit of achieving historically significant returns.

Stock Market Thrives Eventually

The stock market has been proven to provide annual returns averaging 10%. In other words, we can assume that if we held a stock for five years, we’d get a return of about 50%. At the start of the Covid recession, Apple had a stock price of ~$57. As of August 16, 2024, the stock price was $226. If someone would’ve invested in Apple back then, they’d have achieved a 296% return. That’s almost tripling their money. The same goes for the majority of stocks out there back then. Compared to the 40% return expected in four years, Apple gave a 296% return. That’s all because the panicking during the recession led to lower stock prices. The market presented a golden opportunity outside of normal logic.

Recession Effect

Companies are supposed to be priced at their valuation. Meaning, Wall Street analysts take into consideration many factors such as earnings and growth. Recessions aren’t necessarily part of the valuation equation. Some companies are, however, more susceptible to recessions than others. It depends on their beta, or volatility to the economy. Companies with a beta of 1.0 are in line with the overall market volatility. A beta higher than 1.0 is more volatile and will experience dramatic changes in price if something impactful were to occur to the economy. Betas of less than 1.0 are less risky and won’t be too affected by events such as recessions. If you pick a stock with a slightly higher beta than 1.0 during a recession, you’re sure to make a nice return. Once news of the recession fades, the stock price will spike and give you good returns.

Invest Confidently

Recessions aren’t meant to be celebrated, but they present opportunities. The most immediate benefit is stock prices going down. If there’s money available to invest, a recession is a good time to do so. Every stock is different and will cope through a recession differently, but eventually their prices will go back up.

The biggest companies will cope with a recession the best, and their stock prices will go down as well at the beginning. A recession opens a window to buy stocks at lower prices than usual, even for the more popular companies. Invest in powerhouse names confidently (Apple, Starbucks, etc.) because their price will spike up eventually. It is a great opportunity to let money accumulate wealth on its own for a few years.