How to Invest During Recession: What You Must Know

In this article, I will explain how I invest in times of recession to multiply my money , and what opportunities I think we will have ahead of us and that only a few will know how to take advantage of.

And this past month alone, I have invested €36,200 of my own money in these types of opportunities.

In the event of a possible recession, which has been around for a long time now… or even if there is no recession, this article will prepare you and will be useful!

Investment context

Before going into detail to see how, in which assets and in what percentages I am investing, let's provide a little context:

We have moved on to a fight for liquidity

High interest rates , the most aggressive increase in history and the highest rates since 2007 just before the great financial and real estate crisis.

This is causing the dollar to appreciate significantly against the euro and the pound, which has helped investors in euros not see their investments drop by the 20% that the S&P 500 did in 2022, but by 8/10%, due to the currency effect.

In addition, this rise in interest rates means that the payments on variable-rate mortgages will skyrocket and that new fixed-rate mortgages will become much more expensive, meaning that families have less room to spend.

➡️Employment is still high, inflation is still high.

And the problem is that the Fed has made it clear that its only concern right now is to control inflation by making the dollar worth more. They say they prefer to go too far than to fall short.

That is, they prefer a hard recession to a long period of inflation.

⚠️ The problem is that if we end up entering a severe recession, employment could slow down dramatically and with it the money available in households.

In addition, consumption would stop and defaults would increase, which would lead us to situations similar to those in 2008, when companies saw their income reduced and we experienced many situations of embargoes and defaults.

The challenge for the Fed is therefore clear: how far to squeeze the market by making money more expensive in order to beat inflation without creating a crisis as serious as the one in 2008.

✅ With this in mind and the situation being full of uncertainty, let's see what I am investing in and why I clearly think it is a good idea to do so.

Stock market investment

SP500 : The S&P500 is a stock market index that reflects the performance of the 500 largest companies in the US. It acts as a barometer of the US economy. If it rises, companies are growing.

MSCI World and Emerging : MSCI World tracks companies from developed countries globally. While MSCI Emerging focuses on developing markets, such as China or Brazil. Both indicate economic health.

DCA (Dollar Cost Averaging) : DCA is an investment strategy. It consists of investing a fixed amount periodically, regardless of the asset price. This reduces the risk of bad timing.

➜ The S&P50 0 P/E (Price/Earnings) is a metric that assesses whether the market is overvalued or undervalued. Currently, it is 7% below its historical average. This suggests that the stock is relatively cheaper compared to its past earnings. Therefore, it might not be a bad time to consider buying.

Money & Guides

Real Estate

Rental properties and REITs (real estate investment trusts) are ways to invest in real estate.

➜ If you bought a property for €120,000, sold it for €190,000 and also obtained an annual cash flow of €3,000 from rentals, you have had a significant return.

The adage “in real estate you make money WHEN YOU BUY” highlights the importance of purchasing properties at a good price to maximize profits in the future. It is a reminder that a wise investment at the beginning can lead to great rewards.

Real estate typically lags the stock market by a year or two , so this is probably the area where you need to be most patient. In the US, we have cooling and falling prices depending on the city and state.

The effect of interest rates is delayed because mortgages adjust the instalments of variable mortgages every 6 months or even every year , and defaults and evictions are even slower due to the issue of courts, moratoriums, etc.

Either you have a lot of cash, or you have a very good debt profile. When the big sales come, if they are available, those who take the cake are those who have cash on hand, either their own or from the bank.

I made a mistake in 2015. I bought a home by giving 50% of its value , for two reasons:

I didn't have much of an idea about finances,
I had just started and had no financial strength.

I would have given 10 or 20% maximum and bought 3 or 4 with the same cash. Right now, 0% in my portfolio. Because not being a Spanish tax resident, the tax conditions are terrible.

Cryptocurrencies

Although it is on the rise again at the time of writing, Bitcoin (BTC) and Ethereum (ETH) have recently seen declines, being around 70% below their highs. New cryptocurrency projects are suffering the most in this context.

BTC's performance is not particularly alarming given its known volatility. It did not fall more than established stocks, such as Facebook.

It is also compared to major indices such as the Nasdaq at a time of reduced liquidity in the system. I am bullish on the long-term future of cryptocurrencies.

My possessions

2 BTC
Approximately 14 ETH
Some NFTs acquired out of curiosity and learning.

Percentage in portfolio

Cryptocurrencies represent about 10% of my total investment portfolio.
Since I don't want them to go over that percentage, I'm not buying any more at the moment.

Investment strategy

I think that Dollar Cost Averaging (DCA) could be a good option in the current context.

Watches

The world of watch collecting combines patience, contacts and knowledge. It is crucial to understand the difference between the market price and the retail price. Despite the recent boom, with pieces increasing in value by up to 50%, this pace may not be maintained.

However, beyond the investment, watches offer the pleasure of being worn and can sometimes generate huge returns, especially if they are discontinued or become popular.

It is essential to be alert to opportunities, to be careful of counterfeits and, if you have liquidity, the recession could be a window to approach authorized distributors.

Building that initial relationship can lead to access to more exclusive pieces over time. With more millionaires and limited production, such as Rolex or Patek Philippe , watches represent an interesting investment, taking up 5% of my wealth.

It is a tangible and enjoyable way to beat inflation, being an alternative to gold. Watch out for opportunities!

Cash

Maintaining at least 6 months of expenses in liquidity is crucial. Funds are increasing their cash positions, evidencing a struggle for liquidity. We have moved from QE (quantitative easing) to QT (quantitative tightening ). Currently, they are extracting dollars from the system.

The DCA strategy suggests keeping the majority in cash and releasing it gradually . However, if we see a 40% drop from the highs, I will personally invest everything immediately. These assets represent between 15-25% of my total assets.

Your personal brand and profession or business

If you have a job, strengthen your position . In recessions, the risk of dismissal increases: invest now and you will reap the rewards later . In the business world, it is the perfect opportunity to expand.

When others cut back, moving forward is easier. I am personally reinvesting my income to strengthen both of my businesses . I have hired an excellent editor, whose impact you have already seen in my recent videos, and we have added a new network and content manager.

Investing during Recession: Conclusion

In times of economic uncertainty, it is essential to be as knowledgeable as possible, both personally and business-wise. Investing wisely today, whether in skills or business, can offer significant advantages in the future.

While some are holding back, others see opportunities to grow and stand out in the market. Let's be part of the latter.