Here are the Top Recession Investing Strategies For Beginners

At this point in the Post-Pandemic timeline, we can all clearly see that we’ve been in a Recession since Mid-2022. The best thing for you to do now is to brace for the inevitable soft but bumpy economic landing, as we casually avoid the bottom. In order to keep your sanity and most of your wealth through 2023-2024, consider using recession investing strategies.

We will be covering four of them and the best part is that you can mix and match them, or form them up like Voltron. The main priorities for every household will be to prepare for financial emergencies, engage in asset/wealth protection, boost your dividend income potential, and scale for future growth.

The goal is to outlast your neighbor in this real-life economic hunger game.

A Great Recession Investing Plan Considers Four Key Elements

A healthy investment strategy builds off of four components: being liquid for emergencies, protecting your current assets, repositioning your portfolio to pick up dividends (as needed), and finally to BUY the future at a discount.

Everyone is happy and carefree when the market is soaring, but most become extremely anxious when opportunities are on sale. Why? Most people forget to calibrate when times are great ie bolster savings and work on the fundamentals. Think of it like preparing for tropical storm weather during spring and summer when everyone is partying, or storing provisions for winter in the Fall.

Take life in seasons and you will find that the outcome is easier. And, in this season, there is still much work that can be done.

1. Consider Rebuilding your Emergency fund by increasing your Month-to-Month Cash Flow

Emergencies can range from insignificant pests to something life-threatening. One advantage is knowing that another emergency will happen and that most major emergency hit around every 4 years.

As such, it makes sense to always set aside money for the unexpected future. While I’m not big on having more than 6 months’ worth of savings, $2,500 per adult and $5,000 per child in the household is a quick motivation builder.

At a later point in your financial journey, you can shoot for $25,000 to $50,000. You should even consider putting your money in a High-interest savings account. In partnership with Goldman Sachs, Apple $AAPL is offering 4.15%.

Bolstering your Emergency Plan is also important since it’s not just the money in the corner that helps but the strategy on how to react. Additionally, you need to ensure that the family knows the financial plan. For more context, read this article about TNFG Acid Emergency Planning.

Increasing your month-to-month cash flow is key during this phase. Every household should aim for at least a +$500 to +$1,000 net increase every month. Your Net Cash flow is the difference between the income you bring in and the expenses that drain your wallet. This is the hidden weakness in your armor so fixing it soon will add to your financial security during price increases. You can improve your cash flow by paying off your credit card sooner since it will reduce your monthly interest.

This strategy is really good for beginners, by the way.

2. Keep Building Wealth while Protecting Your Assets with TIPS, Bonds, and Market Allocation based on Risk Profile

When most people think of asset protection, they immediately think of insurance. While having a (term) life insurance is important, you should consider shifting your wealth based on your risk profile and time horizon.

To simplify it, your family’s recession plan should include making corrections to your investment portfolio, This brings into play the 120 rule which states your equity to your bond position should be 120 minus your age. For example, if you are 30, your portfolio should lean closer to 90% equities and 10% bonds. If you are 60, then your portfolio should be 60/40.

This is very important since you want to make these modifications as you near retirement to avoid market turbulence. Most successful investors use Treasury Inflation-Protected Securities (TIPS) or iBonds (which are at 6.89% as of 4.20.23). The latter, Treasury bonds are solid investments for those looking for safety and a fixed rate of interest that’s paid semiannually until the bond’s maturity. The steady and consistent returns from bonds help offset the volatility of equity prices especially during periods of high inflation.

As your life changes, consider a more layered approach to what protections, you need from insurance, will, estate planning, and even market securities. The goal is to be more efficient even when the market isn’t. This is what will separate you from the pack.

3. Bringing in more Dividend Income Along the Way

Now that you nailed down the fundamentals, review your portfolio to see how you can bring in more income passively. I’ve been mulling over a plan to support my in-laws with $25,000 annually. How would that be possible?

Dividends – the more intermediate recession investing strategy but still great for beginners.

Currently, my household is planning to invest up to $250,000 in the next three years in $JEPI, which has a dividend yield of 10%. That’s a robust $25,000 to help the parents cover their monthly expenses.

Check out JEPI’s Dividend History here.

Dividends can be a powerful stopgap during tough economic times. While growth based investments are preferred during an expansion or bull run, there is a lot of potential to keep money in stable passive income creators.

The key is to strike a balance between the level of stock market risk you can live with that aligns with your time horizon, financial situation, and risk tolerance. For me, part of this strategy requires that I think 5-10-20 years ahead. I dislike being blindsided by expenses.

4. Discounted Growth Stock Grabs is a Great Building Block in Your Recession Investing Strategy

The last component of this strategy is to merely BUY low with dollar cost averaging. The next best time to invest is simply right now. Most people buy into the market when all is well. Money flows into companies, earnings are propped up and all seems well.

High inflation rolls in mixed with high prices and you have a perfect storm of angst and losses. When the market turns, most run away. However, that’s when season investors come in. After squirreling away money via savings, they buy into companies while they are low. Q1 2023 saw a resurgence in the NASDAQ positions. Since the market was down 20% in 2022 and Tech stocks down as much as 50%, long-term investors took advantage and rode the wave.

In Q1, big tech gained over $2 Trillion. After a tough year in 2022, the tech sector rebounded amid bank runs, consumer confidence plunges, and layoffs. Big winner included:

• Apple Inc. rising by $502 billion,
• Microsoft Corp. with $327 billion in market-cap gains, benefiting from OpenAI media hysteria,
• Nvidia Corp. adding $317 billion, and with
• Tesla Inc., Meta Platforms Inc., Amazon.com Inc., and Alphabet carrying the bench.

Experts are ancipating a shallow recession for the remainder of 2023. This means prices will remain depressed for a bit before returning to new highs in late 2024. It’s going to be a while but this is the moment where wealth is created. As of now, the US GDP is expected to decline less than 1 percentage through Q3. Either way it goes, this outcome beats the 2001 recession as the softest recession in recent history, since 1960.

Either way it goes, if you have the time horizon, buying quality stocks at discounts can be a beginner level technique that pays huge dividends in the end.

Recessions Create Opportunity and Room to Grow

Using these four techniques has helped my household build wealth quickly.

A balance approach improves your chances of financial success for the long term. As always you should seek a certified financial professional when you can to help you navigate this economy Odyssey. Even if you can’t afford their services now, you are still the captain of your ship. As such, I recommend you employ all the recession investing strategies in your arsenal. The goal is to stay active and engaged versus scared and afraid.

Also, check out one of my favorite financial Youtubers below.

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