Three Tips to Survive a Recession
August 11, 2008 – by Richard Band
Having experienced the classic definition of a “bear market,” it’s understandable that your portfolio has felt the hurt.
However, sooner or later, our financial system will work through the problems that triggered the market stumble, and stocks will rebound in a big way. In fact, seeing the Dow recently close up over 300 in one day is evidence the tides have already begun to change. It is indeed possible to survive a recession.
It would be foolish, however, for us to pin our hopes on a recovery without learning a few things from the “school of hard knocks” we’ve just been put through. While no two periods of market history are exactly alike, certain patterns do recur.
By taking to heart the lessons of the past, I’ve been able to help my Profitable Investing subscribers deal with similar challenges as they arise. Because of this, during some of the hardest market times, their portfolios have been able to rise to the challenge (see also, “How to Play the Transition From Bear to Bull“).
Taking into account the horrible market activity we’ve all been going through these past few months, I’d like to share with you some of the best advice I can possibly give you on how to survive recession and prosper going forward.
Advice Part 1: Embrace Cash
When the stock market is booming, investors are generally loath to hold much cash. Who wants to earn 3% or 4% in a bank account or money market fund when you could be pulling down double digits, and it all seems so easy?
Yet, as we found out last summer and autumn, the capital markets can tumble into a ferocious tailspin with very little warning. Moreover, the ultimate depth of the plunge is often impossible to estimate accurately in the early stages.
There’s only one true insurance policy against such “blizzard in July” events. Hold enough interest-bearing cash to tide you over. For added safety… your deposits in any single bank shouldn’t exceed the FDIC insurance limit ($100,000 per depositor; $200,000 for joint accounts). If necessary, open accounts with multiple banks. Thanks to the Internet, you can set up and maintain accounts all over the country with the click of a mouse. (For additional recession-proof investing tips, you’ll want to read, “You Still Need Stocks, Just Not the Headaches!“).
Advice Part 2: Envision Radical Change
One of the clearest messages the markets have sent recently is that the world is changing fast, and in far-reaching ways.
Never, since the years of the Depression, have housing prices registered a double-digit decline on a national scale. With this decline, we’ve witnessed a tidal wave of losses for mortgage lenders, forcing even some of the largest, most established players to the brink of insolvency–or beyond.
It’s too late to envision that change; it has already happened. But we can start thinking ahead to other convulsive changes that may arrive in the next few years. For example, I believe that today’s sky-high petroleum prices will prompt a major shift toward electricity as an energy source.
Astute investors will, no doubt, strike it rich on certain alternative energy generating technologies. Already, I’m advising my Profitable Investing subscribers to prepare for this upcoming trend. Their portfolios are already reaping the benefits of being ahead of the curve. What’s even better is it’s not too late (or too early) to begin investing in alternative energy stocks (see also, “Big Surge for Solar Energy and LEDs“). If you’re the type of smart investor who likes to jump into a sector right as its beginning to heat up, then I’d be happy to help you discover exactly which stocks are best for you.
Advice Part 3: Zig When Mr. Market Zags
My final lesson is that Mr. Market is an unstable guy who makes a lot of capricious, emotional decisions. When he lurches too far in one direction, you want to lean the other way. The trick is following the markets movements with a watchful eye that can discern when a movement is coming and just what you can do to counteract it.
Throughout the past year Richard Band has helped his Profitable Investing subscribers profit in every market. Through his monthly newsletter, frequent blog posts and Flash Alerts, his subscribers were told exactly when to sell their financials, jump on alternative energy buys and even when to appropriately hedge funds. For the sake of his Profitable Investing subscribers he simply isn’t an emotional advisor; instead he watches the market and takes in the facts. From there he helps portfolios soar, even in the toughest of markets. Be among them, and join Profitable Investing, Risk-Free today!</p>