Ask HN: How are you preparing yourself for a recession?
We know the recession is going to happen sooner or later. Are you concerned about this effecting your profession. How are you preparing yourself personally, professionally and financially.
I believe you can't time the market so 'preparing for a recession' is a moot point. Instead set financial goals that align with your risk tolerance and that make you comfortable.
That being said, the advice that I would give is just standard stuff. I think some sources do a much better job at explaining those so I'll let others answer. Big strokes is just the usual stuff: prepare a emergency fund, contribute up to your employer match (or more), set up a budget, etc.
One important point is, if you invest in the market, just keep investing, no matter what others do.
For those of you like me, who like spreadsheets but don't know exactly where to start, I can recommend Tiller Money: https://tillerhq.com. Sometimes the best place to start is just "knowing where you stand". But there's lots of great tools for personal finance. Pick one and hop to it.
But there's no secret magic there, and I'm not even sure I'm doing anything different now that I shouldn't have already been doing 2 years ago. I may not have spent so much money... but that's a me problem not the "result of a recession" problem.
Looks interesting. Appears to be sign in with Google only, which is a shame.
I was initially using Mint for a bit, but got turned off due to their sketchy login authentication and business model (selling data).
Also all of these work outside of America, which is usually not the case for the proprietary solutions (at least the ones I'm aware of).
Beyond that, I tend to live by this maxim: "When times are good prepare for them to be bad. When times are bad prepare for them to be good."
So the question to ask soon is how will you prepare for the post-recession recovery? Asking this will keep you from despairing. Yes, this recession could last a while and be quite nasty, but it won't last forever.
If your money had been in the market, it would have gone up and then down. You might end up with more money in the end than if you had never invested.
I never said otherwise and you should retract your accusation of dishonesty.
> You might end up with more money in the end than if you had never invested.
My reading of your comment was perhaps too harsh, but your statement implied to my initial reading as if the parent said they never invested. Which is not at all what they said, but rather that they kept cash in the bank and a separate amount invested. The cash is to avoid the risks of market timing (you can't do it, basically). People are getting lucky that right now they're still ahead on their investments. But there's no guarantee that will remain true over the next month or two when the money is actually needed.
And if you look at the S&P and Dow, the past 2 years are basically all lost if you had to sell right now. There was a dip in early 2019, but most of the past two years were above today's prices for both indexes. So you can plan on being lucky, or you can set aside a relatively small amount and actually plan.
I say this because it's been over 10 years now since the last recession and a lot of folks under 30 haven't experienced one since they've been out on their own. They haven't experienced a prolonged bear market. Folks over 40 can remember the tech wreck (2001-2003ish) the housing bubble implosion (2008-2012ish). Folks over about 55 can recall how bad the late 70s, early 80s were.
And then there's just stuff that's not related to the economy. Life happens. Emergency appendectomies. A family member gets diagnosed with cancer. You burn out on your profession. The longer you live the more of this kind of stuff you've experienced.
Something like the golden butterfly with a cash component, would allow you to spend the cash first. Then you could choose if you want to deplete an asset that hasn't plummeted, or withdraw from each category equally.
https://portfoliocharts.com/portfolio/golden-butterfly/
You could also use something like a Line of Credit against your stock. Both Schwab and M1 offer it. That way you can spend in an emergency, and hopefully your growth rate offsets the interest rate.
https://www.schwab.com/public/schwab/banking_lending/pledged...
https://www.m1finance.com/articles-1/portfolio-line-of-credi...
"With M1 Borrow, you can borrow up to 35% of your invested portfolio at a 3.50% interest rate instantly (2.75% if you are using M1 Plus). There's never been such a low cost, convenient, and flexible way to borrow money."
As for volatility of the market I accommodate for that by having well over twice as much as I need in investments that I can liquidate.
The end result if I project using historical data is that I'm much wealthier.
If the market crashes to the point people aren't buying S&P500 index funds I highly doubt people with money in the bank are going to be in any better of a position than myself.
If it continues on trend, I'll stand to do better than them though.
The actual ways to use cash are to find high-yield savings accounts (over the past few years some online accounts have hit 2.5-3%, though that's not common), CDs (which again you've had to go with online-only accounts to get decent returns), or some forms of bonds. These offer guaranteed returns (or at least guaranteed not to lose you anything) which is exactly what you want for your e-fund.
Absolutely invest the rest and reap the rewards (or losses, but over a couple decades should be rewards). But it's a good idea to leave the e-fund in a more stable form. Don't be like my colleague in 2008/2009 who went from being worth almost a million to being worth 200k and needing the money. He couldn't let it sit and recoup value, he just lost. His retirement was pushed out years as a result.
Admittedly, his retirement still would've been pushed 1-3 years anyways due to the financial need at the time. But he used almost half his investment's value at that point ($100k), which in a few years would've been back to $500k or so in value. If he'd even had $50k in cash (less than his annual net income), he would've only lost a quarter of his investments instead of half.
It's an emergency fund - likely not much. Maybe a few grand at most in that amount of time?
> and needing the money.
Unless the market cuts in half over-night I'll have the money. That's why I have twice as much as I need in that bucket.
I've not really heard any compelling reason why I should move to a savings account. Yeah I might make more if the market takes an unprecedented long term decline, but realistically I'll make well over twice as much returns as I would that savings account.
This bears repeating.*
If you're asking "how are you preparing for a recession," (1) it's too late, and (2) you don't—either your system is well designed and accommodates this, or it doesn't (echoing what others have said).
*no pun intended, but probably should have been
this is bad market-timing.
S&P 500 lost 20% in the past month, but it up compared to a year ago, up 50% since 5 years ago. You lost a bundle compared to being in the stock market and selling it all now after a sudden 20% loss.
I’ve missed out on some money by not having that in the market, but during this time I’ve also been working and investing my income so like... I’ve still made money?
Why the greed, man? I can keep a bulk of money for retirement, long term planning, et al. in the market _AND_ keep a small amount of funds wholly liquid in case shit hits the fan without seriously impacting my quality of life.
To be perfectly honest, I think there's a high enough chance that this will happen (although still a low chance) that I have to take it into account in my emergency plans.
When you say cash it's money in the bank or bills under the mattress ? (I'm not an American)
I have decided to put every penny that I don't need for another 10 years into a handful of accumulating ETFs (and 3 stocks I personally believe in), every single week, for at least the next 12 months and, if possible (i.e., for as long as I have surplus money), for the whole next 10 years.
If this time is anything like 2000 or 2008 was, then I will be buying relatively cheap for the first part of these 10 years, and will see a solid return in the second part. How long the first part and the second part will be, this I don't know.
My bet is that after 10 years, this won't have mattered that much.
Would love to hear what HN thinks about this.
Many people think this approach is not exciting, but you can see what the past week has brought for people who think like that.
Some more details. This is my most risky investment approach, by design. I only put in money that I'm sure I won't need for at least another ten years. Not that it wouldn't really badly suck, at least psychologically, if I'd loose all that money (I'm not rich or anything), but I don't need it to "survive".
"Don't need" means that it is the money that remains after all my expenses, and after keeping my emergency fund in good shape (which is currently good for at least 6 months of emergency).
Also, this is not my retirement portfolio. It's a bet to multiply money I can risk.
For actual "at least I'm not going to end up poor" retirement stuff, I'm paying into the German state pension, "Riester" and other non-state pension products, and by holding real estate.
ETFs are tracking MSCI World, DAX Performance, EURO STOXX 50, MSCI USA, STOXX Europe 600 Personal & Household Goods, FTSE China 50, Healthcare Innovation.
A small part goes into Gas & Oil ETFs and FTSE MIB.
1) carry no "real" debt, build cash reserves.
2) focus on profitability over growth. Typically driving growth means hiring sales/marketing in advance of the growth and spending profit to do it. Adding new services staff requires carrying about 90 days of the employee costs due to non billing the first month, and the 60-90 days until we receive cash from their first billings. Focusing on profit means raising prices, shedding overhead, getting long term contracts, driving efficiencies.
3) Focus on recession resistant industries.
4) Focus on acquiring more local businesses to reduce travel overhead required to clients.
5) no long term purchasing contracts
6) maximize credit line. Renew in advance of recession. During recessions banks kill lines of credit. As we start to get into a recession we will max out our line and then move the cash to another bank.
Personally
1) Shed leveraged real estate assets, they are very hard to liquidate during a recession
2) Reduce debt usage
3) increase lines of credit
4) build 2 years of cash reserves (min of 6 months during normal times). Lots of money is made during recessions, you need ready cash to take advantage.
5) reduce spending now
How have you approached identifying these?
Self-help => be better, be productive, learn fast
Self-help => religion
Self-help => make money online, from home
Self-help => investing in "tough time".
Electricity? Pretty recession proof most likely.
Toilet paper and nappies? Going to need those any time regardless of what's going on in the economy.
Going to the movies? Can always say no and entertain yourself otherwise.
Got into a car accident and need repairs? Going to happen regardless of whether it's a recession or not. I might only choose to do the minimum and not splurge but I'm still going to have to spend the money.
Etc.
I have a very stable job, I have about 3 months reserve. I want more, but that's what I feel I need. It's more to cover things like emergency expenses for medical or other causes than job loss. Other money is invested and that's what I would touch if I ever needed to, but hope not to.
I have a friend who spent years in the video game industry, he has generally kept close to a year in reserve. He got laid off a lot over the years as game projects wound down and they didn't need the staff. That gave him the ability to continue living without any real fear or discomfort.
If you're particularly risk averse but in a stable spot, you may want to push towards that higher number too.
Financially, I don't have that much savings because I use the money to help family members. But again, I'm not concerned about myself. I'm more concerned about them.
Eating out less, cooking at home with family instead
Sitting on almost a year's salary in cash
pay off major debt, but I finished that a couple years back. If you have a mortgage, it's about to be a great time to refinance the way bond yields are looking.
The big one though, trying to work up the resolve to put to bed either my netflix subscription or my hulu subscription. Probably hulu. Haven't pulled the trigger yet.
For instance, skipping three restaurant meals can be exchanged for an amazing home cooked meal, with top of the line ingredients and drinks, while being less than the cost of a single restaurant meal. Have a friend over as well, we don't have to cut off access to whole world.
Don't trade the restaurant meal and hulu for a package of top ramen and 4chan. No one benefits.
I spend $1.50 a month on AWS. I made everything I had fit one of those two patterns.
I don't want others to suffer; who really does? But no one willfully gives up power.
We're so very close to being technically capable in terms of eliminating poverty or feeding all people. Hopefully, the upcoming recession will push over the edge towards total solidarity.
And they don't want to work hard to pay for others that don't work, either. If feeding the people is the goal, we can already do that. Trivially in first world countries, but also world wide. It's getting everybody a high living standard that's expensive and hard.
Sharing what I posted in another thread: my look into the 2008 Great Recession was very helpful with my pattern matching. 98 out of 100 stocks lost money during that recession, but most of them did super well during the longest recovery period in U.S. history. Even AIG made people a bunch of money.
Here's the full dataset of 1363 mid cap + stocks that traded during the 2008 recession, and their performances: https://shan.io/writing/learnings-from-the-2008-great-recess...
I haven’t experienced it myself but from what I have observed it’s a bad time to graduate from school once a recession hits. You won’t find a decent job and when things get better companies will hire shiny new grads and the grads from the years before will be left behind.
I'm a foreigner on a work permit. I'll be fine _financially_ in a recession but if I get laid off suddenly my legal residency is threatened, and I need to have an emergency fund to deal with any fallout from that
a) don't retire
b) if big corps are your thing, B2B big corps fare way better than consumer oriented ones so if you need to decide between two job offers, pick the one with the least chance of layoffs. There are no guarantees.
c) have cash standby. You should have this regardless of the state of the market. If you need cash and a recession is coming, it becomes a self-fulfilling prophecy. I learned to have at least one year of expenses in my checking account after witnessing the layoffs in 2008-2009 and then the trigger happy RIFs which followed well through the 2010's.
d) learn or be willing to learn or pivot your skills
For instance, my dad used to be a mechanical engineer designing large construction equipment. Maybe 10% of equipment was replaced a year, so if there was a demand for 10% more equipment one year then they'd have 2x sales. But if there was a 10% decline in demand, then they'd have 0 sales, the broken equipment was acceptable attrition.
So... that industry really sucked. But if the businesses have to pay for your services just to keep running, then it won't be too bad. So server sales might go up and down a lot, but AWS demand will be much smoother.
Personally, a long time ago I realized that stuff happens, and you have to both deal with an unpredictable world and change. You can't really prepare except in general terms, so you mostly make the best of the situation you're in. Keep an eye on where you want to go with your life, and do your best to make it happen, but accept that it may not and there may not be anything you can do about that.
Professionally, my skills will be in demand one way or another no matter what happens. Whether I'm cheaper to hire than the competition will depend on what I'm willing to do to earn a paycheck at various levels. I've always wanted to optimize that so I can spend more time living and less working, so I'm planning to cut my costs long term and live cheaper if I can.
Financially... there's not much I can start doing now that will insulate me against a recession other than the above. I don't have long term investments except in myself and my skills, and I don't expect to ever be able to retire. I will probably change careers at some point, however. In a recession economy I will still be able to find a job, just maybe not at the pay level I'd like or in an area I want to work in, but I'll survive.
If your hope is that you can prepare and thus insulate yourself from the effects of a bad economy... it's only partly true.
To be honest, with Brexit looming and uncertainty around a possible election, I've spent the last year preparing myself for a recession. Over the last few years I've noticed a few businesses in Bristol contract their operations back to the capital, and salaries for software engineers overall have dropped, so I've largely been preparing for what I thought was the worst-case scenario:
1. A bad Brexit, lots of uncertainty, job losses, etc.
2. Increase in price of essential goods. We have a cupboard full of long-life essentials to last a few weeks, so we definitely won't starve. We're lucky enough to have enough room to store things in bulk, so we don't need to panic buy - and quite frankly I don't see a point in buying a ton of stuff I might not need when there are loads of people that will definitely need it.
3. A quick access fund with enough money to last me and my wife a few months, if needed.
4. In the long-term, increasing my skills in case I need to find a new job in short notice.
Many of these steps will help for Coronavirus, but a concern of ours is what our "worst-case scenario" looks like with a Pandemic AND Brexit.
It's just good habits constantly.
I often half regretted not going with indexes but having 5 years of time before settling down wasn't enough time to risk it.
If I lose my job I'll start eating into my savings and get a smaller house / delay the stable house plan. The good side of being laid off, would be spending more time with my sons.
The US is aggressively deficit spending in the boom times and in order to keep up this unsustainable spending in the bust times, the gov't will have no choice but to juice inflation.
Really the only other option is a deflationary bust and nobody’s political career will survive that.
However, there will be countries that will lose contact to the state of art in some areas. As a consequence, I am sorting my belongings to be able to move freely should that happen to my niche.
In the still not so unlikely event of a recession, I hope that I can use that opportunity to start something new when rent and wages are cheap and governments try to stimulate the market.
Advertising will still be hot - companies will need money, so FB, Google will still do well. Anything that saves money will do well. Anything that raises efficiency and doing more with less manpower will do well.
My wife sells cheap lasagna and her business is absolutely booming now, especially since things like KFC has become a luxury.
It's also a good time to hold on to cash, gold, and possibly crypto if you expect deflation.
Obviously we're entering a season where that's to be avoided. So I'll probably start redirecting my surplus income to my regular savings account for a while just to give myself an extra buffer. Not withdrawing from the market, mind you, just taking a break from depositing into it.
For me, this means deferring big purchases etc. until this is built up again.
Note, this is in addition to your retirement, which you DO NOT WANT TO SPEND during the recession, since the stock market will have crashed then and you will be spending premium dollars there that you want invested for the recovery.
Buying poor shares expected to bounce back. That's about it, I guess.
Companies were still hiring contractors during the last recession, but they could be more picky and you had to be able to hit the ground running.
As far as benefits, my wife works for the state education department doing an “essential service”. We can switch to her insurance if necessary.
But I'm not. I'm at the tail end of my school 'career' and I'm praying I graduate. I'm continually coming to terms with the fact that I'm not nearly as smart as some of the kids I'm in classes with. Maybe it has to do with habits?
You will graduate. Just focus on what you need to do and once it's all over you will be just like the rest of us.
Good social skills, especially being able to build and maintain a healthy professional network, will advance one’s career much more than purely being smart. Ideally, a given person will have both, but the social skills seem to reap much larger dividends than pure intelligence in my experience.
To accomplish the commanded view, the companys will stop given quarterly reports to the share market and start to give half-yearly reports... yearly... telling us: "We do this for your customer satisfaction" ?!
- Sold vested Co shares - not at the top of the market but 25% ago - before crash - and bought place in NV with much lower cost of living - moving out of CA soon.
- Some cash saved that with frugal living could keep us going for a year or so with no issues.
Everything in cash/treasuries before the market crumbled.
This was eminently predictable from a payoff perspective. The market lagged the info coming out of China for a long time.
Recessions are inevitable. I hope I'm ready, I feel like I am.
(jk tho, everything is good at home and I'm #teamvirus.)
Financial prudence
A good stock of bare essentials
Ensure my car and house is well maintained (no costly surprises)
Make sure I am demonstrating and showing value in my place of work.
I've got broad market puts (SPY) as well as puts on Square which are literally printing me money right now. If puts are consistently making money, than you're likely to be laid off in the next few months. I consider market shorts to be a form of insurance for this reason. If I lose my investment, than it means I keep my job. If my investment moons, than I'm about to lose my job.
Ended up printing me money today though :)
TLDR:
- If you make buying decisions (e.g. running a company or a department): think about how you can turn fixed cost into variable cost. If you were kinda half remote anyway, maybe go full remote or swap the office for a coworking space subscription. Hire contractors instead of full-time. Buy SaaS services instead of build internally. Focus on conversion and retention rather than inorganic user acquisition. - If you are a freelancer or agency: Think ahead to how your clients could be affected - you may need to aggressively grow your funnel while also planning for more downtime between work. - If you are an employee: You can't do much about your options or 401k. But recognize that you are doubly long the economy in terms of both your stock compensation and your job (and real estate in affected states). - If you work at a startup that has a cash burn necessitating future fundraising, be aware that this can become very very relevant to you if the funds don't materialize, through no fault of the founders. Think through second order effects - the funds may not materialize not just because VCs are less willing to part with cash, but also because the startup itself may fail to meet targets because of the broader economic environment.
It would probably also improve the living quality in overpopulated areas due to poor people being more likely to be infected and having less resources to survive.
https://www.usatoday.com/story/money/2019/10/15/every-states...
Maybe, but at best this means... buying a few more things, taking a few more trips.
Whereas
> elderly people,
Is my mom and dad.
I can think of some better effects than that. How about a bunch of California homes coming on the market and collecting property taxes proportional to their current value for the first time in decades?
As such (at least in my area on the Central Coast), many of these houses just become (high) market rate rentals with no change in tax status.
I could be wrong about this, but I know some people who own some properties in the area who tell me that’s the case.
That being said, the Renaissance came about right after the Black Plague and it is theorized the plague played a significant role due to smashing antiquated and counterproductive social structures and reducing the power of the church allowing new ideas to emerge.
Do you expect this from the current administration?
[0] https://www.bloomberg.com/opinion/articles/2018-12-03/u-s-yi...
* Don't count on contracting or remote work as a fallback. I've been trying my luck at it without success. The last time I did it was 5 years ago but it's totally saturated now, with most of the clients going through upwork.com and freelancer.com with 10-50 applications per gig. Go see for yourself under common searches like PHP or React.
* The jobs really will all dry up. Go on something like indeed.com right now and see how many there are. Now imagine the same scenario after everyone has cut their workforce by 10-50% like after the dot bomb in 2000 or the housing bubble popping in 2008. Your selection may change from software developer to driving a delivery truck so it's good to have something you can fall back on. In my case it's moving furniture, but, at 42 I'm getting too old to do it. There will probably always be work in warehouses and restaurants though, like in the old ITT tech commercial.
* Assume that any possessions other than big ticket items like a home or car are only worth 10% of their value. You can get 25% at a pawn shop generally, but not after a recession when everything gets dumped on the market in triplicate. So all of the consumer electronics in your home are probably worth less than $1000 and won’t sustain you for long even if you sell all of them.
* Find your poorest friends or relatives right now and ask them how they get by. This is a good time to learn about donating plasma, collecting unemployment insurance, signing up for food stamps, etc. You’ll be able to make about $300-600 per month through these sorts of tools, but it will take all of your time. The US no longer has an operational social safety net (compared to healthy economies in, say, Europe) so the psychological toll of poverty has a way of locking people into its cycle by paying just barely enough to keep you in a state of slow decline. Best to avoid that by arming yourself with knowledge and knowing your rights.
* Consider getting involved in politics. The problems looming in this next recession are severe and exacerbated by the fact that no real legislation happened to correct the original causes of the 2008 great recession. Expect there to be no cash or credit available. Millions of people will be calling for reforms and there could be ways to help in causes like a new version of Occupy Wall Street. Assume that politicians are asleep at the wheel on this so any help from them will either not come or be too little too late. We’ll have to pick ourselves up by our bootstraps again.
This will be the third severe recession I’ve gone through since I graduated from college in 1999. Unfortunately my brain has adapted for survival instead of contributing to society at the level I had hoped for. I’m planning on the next recession lasting at least 3 years, starting around the time of the election. If it starts by summer, then Trump will almost certainly lose, so in the meantime we can count on an influx of capital from the private sector to keep us afloat. But next winter could be quite grim. Try to have enough money on hand to make rent until spring, roughly $3-6,000 for the average American. Note that the bottom half of the country has no savings, so there’s nothing they can really do to hedge against what’s coming.
Leetcoding is a much more recession-proof skill than Rust.
Unsolicited advice: The end-users of the products you create don't care about how you build them and during recessions tools, processes and people without a long track record of delivering value tend to be first on the chopping block. The jury's still out on Rust's ability to generate (business + customer) value so I wouldn't hold my breath on Rust being "recession-proof".