Ask HN: What tips do you have for weathering a recession?
Joe Kennedy famously survived the Great Depression by selling out of the stock market once the shoe-shines started giving him advice. I'm not sure if it's just I'm in an industry where people are more aware or not, but I'm starting to get worried about an economic downturn in the next couple of years. Either way, I figure what helps in a recession would be good to do anyway.
What advice have you guys heard/followed for protecting against another recession? And I don't mean the generic "cut spending, have an emergency fund" stuff. I mean the stuff that I won't find at the top of a google search or on WikiHow.
Edit: to be clear, I specified against the generic advice because it's already easy to find and simple to follow. I'm looking for advice and tips that can supplement it. Thank you to those who pointed out why the generic advice is still a good idea.
106 comments
[ 3.8 ms ] story [ 195 ms ] threadI know some people who grew up in very low income situations, in and out of jail, but took an HVAC or plumbing course and are now making $150-200K at age 25-30
Of course this is definitely not recession proof but I was super surprised to learn this
As far as later in life activity we just utilized a local older guy who does minor home renovations work to keep busy. $80/hr, could charge more, turns down work all day long.
According to this website, in Ontario, Canada, it seems becoming a licensed electrician requires five years of apprenticeship. Talk about a barrier!!
I think other trades are similar :(
Of course, reality sets in and people/business/government's incomes stop their crazy growth (or even go down), and they start cancelling projects. Slowly that six month waiting list goes to three, then one, then you're cold calling everyone you've quoted in the past year, offering discounts just to get your guys some work. Your guys got use to all that OT pay and they have $50k truck notes due next week. They are desperate.
A solid indicator of an imminent recession is cold-calls from tradesman you got quotes from six+ months ago.
What does he bring to the table that's special?
I think for people with skills and few assets, saving cash is the most important thing to do. When shit hits the fan, you will be mobile to move to where the jobs are.
I agree with what you say. But 'go and hour and a half' is very short-sighted. In an economic downturn, you lose your job, you can go anywhere. Kansas City. Des Moines. A hundred places where property is easy to own.
But beyond that:
1. Get to know people outside your small industry niche and outside your local geography.
2. Don't define yourself by a single technology or set of skills. Get good at learning new things on your own.
Which is kind of obvious, but I had to stop myself from investing too much or even all of my nest egg multiple times. If it pays a dividend it's likely not an emergency fund.
Source: My emergency fund was in a money market fund that was temporarily insolvent during the 2008 global financial crisis.
Sorry this wasn't a sexy answer. Being fiscally secure is boring.
Second, diversification. You can't count on any one thing to weather a recession, but if you have some of your assets in ETFs, some in bonds, some in real estate, it's less likely that everything will take a hit at the same time.
Lastly, at least a good portion of your assets should be liquid. Some people like to put everything into real estate, which is great and all, until the real estate market crashes or interest rates skyrocket and nobody is buying. Now, if you want to sell, you're going to take a hit on the already reduced value. At least with stocks, etfs, etc, you can liquidate easily and cheaply if you need money, for example, for food.
People lose jobs during a recession. People without income don't usually have easy access to credit and lending standards tighten (or even temporarily halt) during a recession.
If the housing crash causes you to become underwater or close to it on your mortgage you aren't going to get approved for a home equity line of credit. Any lines of credit you did have will be cancelled.
HELOCs were cancelled en mass during the last crash.
Lending standards are tightened and new laws are passed during crashes, just because you can get a no income HELOC ("liar loan") now doesn't mean you always will be always able to in the future.
If you just keep pulling money willy-nilly, you're very likely to lose that house.
Like any other tool, be aware of the way it can help or hurt you.
They also usually come with closing costs and fees.
I don't have a HELOC because I have a savings account instead. Pulling equity out of your house like it's a checking account as a matter of course is a good way to lose your house. Putting 100% of your money into your primary residence and relying on being able to borrow against it (with interest!) when you need cash is really, really irresponsible and stupid risky. They can have their place, but not as a substitute for a savings account.
It's one more source of 'income' for diversification.
But recently, it feels more like Bitcoin is just another investment product, with its price being ballooned by big time investors and a concentration of 96% of existent bitcoin in the hands of just 4% of the holders.
So if a recession does hit, what would stop investors from dumping their bitcoins to hold on to the cash (cash being an even more valuable asset in times of crisis)?
The smaller the chunk of your income you need to live a happy life, the more resilient you'll be.
At least a programmer can write not-useless things to potentially make money. A plumber can't wish work into existence.
Step 2: Research people's attitude during that time (every recession creates a change in behaviour and personality) and find a personality trait that will match it so you can gain their trust or affection (not in the partner sense), especially higher ups that can give you employment or any other sort of resource (recession is not a time to be thinking of money as the only resource).
Step 3: Meet people, force yourself to do it and apply those traits. Don't become an asshole in the process.
Step 4: Repeat with other resources that may be handy during that specific recession. Diversify.
Right now, money is comparatively cheap and easy to come by. Salaries are high, the markets are doing well, and investment capital flows freely. During these times, most people spend money as freely as they earn it, which is a mistake. Your money will go farther during a downturn when liquid cash is rarer. So hoard now while others spend, and be willing to spend later when others are hoarding cash and it’s difficult to earn.
This is the personal finance equivalent of the poker maxim to play loose when the table is tight, and play tight when the table is loose. And it works for largely the same reason.
2. Lower your monthly costs as much as possible
3. Save money
4. Although we don't know how cryptocurrencies will fare in a recession (I think it could go either way, if people cash out, for instance, to buy their daily needs), I think it could be safer to hold some money in solid/proven cryptocurrency compared to say a bank. Modern banks, especially U.S. ones are built on quick-sand with their 100-500x leverage for their assets. If something goes wrong for them it will go wrong quickly. And if things are bad enough, the government will even ban people from withdrawing their money from banks.
if most people are investing in crypto as a safe haven asset like gold, maybe your advice is good. If people are mostly investing in it to get rich, the advice is probably bad as high risk high return assets will probably get hit the hardest in a recession
What's higher: the risk of a run on a bank in the US or the risk of crypto declining 50%+?
Trusting cryptocurrency over the FDIC is naive in the extreme.
Since tech was my field, I first saw project managers who were non-technical (couldn't code or add other value) getting let go. Tech leads were handed PM responsibility. Sysadmins, DBAs, and some QA were also let go when there were devs who could pick up the slack. Companies might not need dedicated resources there, so contractors might be a more efficient solution.
Try to expand your skillset and have the ability to contribute in a few areas. Companies may be more likely to get rid of someone who is only good at one thing.
Developers are perceived as mere technicians, who can be cheaply replaced, if not directly hired as contractor.
I worked in other countries were the power balance was like the one you described, and it definitely felt more rational.
My point is: it is incredible how much variety you can find among the various countries/cultures. What is true in the US can be false somewhere else.
2. Don't speculate in markets. You're very likely to get burned.
3. Be the best you can possibly be in your field of work. If you're in school, start working on your assignments as soon as they're assigned. Leave no question as to your competence by being extremely prepared and reasonable.
4. If you see your field of work probably being replaced by automation in the coming decades, start training for another field of work that won't be replaced. A UBI (or negative tax) is likely necessary in the future, but aim to be someone that doesn't need a UBI to survive. You don't want to bet your own survival on a UBI being politically possible.
5. Be kind, support your friends and family as much as they need, and always ask for help if you need it.
Eg if I have a house worth 100k, and there's a recession that values it at 50k, assuming I can stay employed is there a difference to me? If I wanted to upgrade to a house worth 150k, assuming that house is now worth 75k in recession times so if anything I actually have more buying power in that scenario than I would in the pre-recession scenario.
I'll admit that I'm lucky in that I have job security, so that probably changes my options significantly.
As far as mobility goes though, I figure networking / "who you know" is always the easiest way to get a job - during or outside of recession. Point being, I don't think for most established folks it's worth relocating geographically, so we're talking about moving to somewhere nearby, at a cheaper monthly cost... Which is significantly harder if you owe more on your mortgage than your house is now worth, I guess.
Moral of the story for me here seems to be "don't buy a house that you can only barely afford", instead of "never buy a house". I'm happy living in a house at half the monthly rate I can afford, at the cost of not living in a mansion during the good times.
You can sell now, get 100k. Buy during recession for 50k. You now have 50k profit.
This is assuming that you put your profit into something that doesn't lose 50% of its value like your house will. The stock market might crash just as badly, or your property value might rise even higher and sitting on (otherwise secure) cash equivalents will lower your real wealth.
So we don't really know, right? I think the only takeaway here is to invest large sums into a single asset class (real estate, or stocks, or cash) if you're playing to win, or diversify among dissimilar asset classes (with your house only being one of several types of investments) if you're playing not to lose.
So if you mean to imply that the rapid inflation will be followed by a rapid contraction, then that's speculating in my eyes.
Spend less than you make and have a budget, even if it's an informal budget. This is the most important. Ideally you should end up saving at least 20% of your income. This means you may not be able to afford the things you may like to have, be at peace with that. [1]
Have an sizable CASH emergency fund. The amount depends on your life situation. If you have plenty of cashflow and can easily cut expenses during a loss of income then you need much less than if you can barely make the bills.[2]
Get out of debt. If your debt is high interest (>~6%) then prioritize paying off your high interest debt BEFORE building your emergency fund.
Once you are out of debt stay out of debt (besides a mortgage). That means saving for big expenses.
Diversify your investments. Certainly don't put all your wealth into your house.
Don't put money in the stock market if you plan to spend it in the next ~5 years.
Work on increasing income (or lowering expenses) until at least the above is easy peasy.
This has nothing to do with weathering a storm but part of being financially healthy: purchase term life insurance but only if the loss of your income would severely negatively affect your heirs.
During a recession, don't panic, you have prepared for this. If you can keep saving and investing.
Bonus advice: If you buy a house you almost certainly will be offered a larger loan that you can realistically afford (while still following the above advice). Budget for your house beforehand, don't let loan officers tell you what you can afford.
You can absolutely weather almost any storm using this advice. If Joe Kennedy had followed this advice he would have had survived the crash even if he didn't liquidate his stocks beforehand.
[1] This has the added benefit of giving you a massive amount of flexibility.
[2] You have no idea how truly amazing this is for your sanity. We had a surprise >$4,000 expense a few months ago. Because we had already had saved that money in an emergency fund it was absolutely no problem, no worry, nothing, it was a complete non-issue. I had considered that money already spent. Most of the people without an emergency fund would be absolutely devastated by this. Now we are adding a few hundred a month to our fund to replenish it.
Calling a low is almost as impossible as calling a high. Though there are methodologies like Graham's which provide decent net-nets to invest in. A study on the Graham stocks since 1990: http://www.netnethunter.com/benjamin-graham-is-this-where-mo...
So, it really depends on the methods used to find the bargain which matters.
The economy will recover, and you'll have bought a lot of value for a good discount.
Some things to keep in mind beyond the obvious "save some money when times are good" advice.
(1) they pass. slowly, for sure, but they do pass.
(2) you need something to do if you're thrown out of work. It's not for nothing that graduate school enrollment climbs when unemployment is high. For hackers, it's a good opportunity for an open source project.
(3) downtimes are great times to start new things.
(4) remember everybody struggles in a recession. There's no harm in asking landlords for temporary discounts, especially if their alternative is an empty apartment.
(5) try to make the subscriptions you have cancellable or downsizable. Let your phone contracts run out and keep your phones longer. Avoid the old "two year commitment up front in return for a tiny temporary discount" trick from vendors.
(6) if you really get in trouble, DO NOT IGNORE YOUR POSTAL MAIL. If you get summoned to court for an unpaid bill, SHOW UP! Often you can get a case dismissed by saying to the judge, "please show me the evidence." Bill collectors count on getting default judgements.
If you really want to get aggressive you can get short exposure to risky stocks, but this is an incredibly risky strategy that rarely makes money and requires considerable expertise, research, and luck to make it work
Overall your best bet is to not try to time the market, but if you are worried about a recession and have an investment portfolio with risky assets, maybe take some of that risk of the table understanding that you may sacrifice real financial gain
Like you say, timing the market is a bad idea, and that is what you are doing if you try to move to "safer" assets when you "think" the market will go bad.
If you keep your assets in riskier stocks (which have higher long-term returns) for more than a decade, you may take a huge hit during a recession, but you'll come out the other end way ahead than if you try to time the market.
There's a subtle difference between market timing and adjusting your portfolio as risk / reward changes. As an example, suppose you invest in a stock thinking it will give you a 40% return in one year. The stock does just that, and in a year it has risen 40%. At that higher price, the risk / reward is no longer the same as it was, and you will need to re-evaluate that investment. However, many people just hold on to these stocks because they made money without rationally re-evaluating their investment vs other options
probably didnt make that as clear in the above
in any event, investing strategy is based on personal goals. if your personal goal is to protect yourself more against a recession, selling risky assets is a good way to do so
Surviving being poor requires a lot more hustle than being rich. One of the things I like about being a comfortably well paid programmer is that I can go to work, get paid, and not care too hard about the details. The money will work out, I don't have to be constantly looking out for ways to make a few bucks or cheap deals on essentials.
When the economy is good, trying to become comfortably well paid is a reasonable plan. You can look for a job.
If things go to shit, you need to always be on the lookout for jobs -- someone needs a few hours of help per week here, a couple of days on a one-off job there, a man with a van to haul a load cross-town. You've got to piece together an income from a dozen opportunities you don't even notice casually walking down the street on your way to your 9-to-5. You're not going to find any one job that will give you much income for very long, so you've got to be looking always for new opportunities.