Recessions are scary times for the world economy and also for regular everyday people. The stock market often drops by substantial amounts, the unemployment rate rises, and prices for items rise. In times like these, it can be tough to determine how best to allocate your money.
As someone who’s always looking to optimize in life, I figured I would share how I’m personally investing through this recession (it might not be a recession quite yet, but with all the world events happening and effects on the economy, the result is essentially the same).
This post will run through my own thought process and how I’m dealing with this recent market downturn.
Investing is uniquely personal to each individual person. Somebody close to retirement will have a very different investment strategy than somebody who has just entered the workforce.
I believe that it’s important to shed some light on my personal circumstance before we dive into my investing preferences because where I am in life sets the backdrop for the way that I invest.
Here are some important things to note about my circumstance:
- I am very young and have a lot of time on my side.
- I come from a middle-class family that supports me and allows me to go through my college years without having to worry too much about finances.
- I work during the summers and also run some side hustles on the side to bring in some income.
The most important out of these is probably the first point. As Warren Buffett famously said, “I can buy anything I want basically, but I can’t buy time. There is no way I’ll be able to buy more time.” Being young allows me to make mistakes and take risks because there is still time for mistakes to be covered up over time. The older you get, the more difficult it typically is to correct course and you need to become increasingly careful with your money management.
My Long-Term Goals
Another important piece that frames investing decisions is long-term goals. Different people have different goals and will hence make differing investments.
My long-term goals include:
In the long run, I’m trying to amass a nest egg large enough to allow me to do what I want with my life. I’m also trying to build this nest egg as fast as possible as I don’t want to wait until I’m 65 before I start enjoying my life.
As such, my investment choices will likely be more aggressive than most and you’ll find that I’m putting a higher percentage of my paycheck towards investments than someone who’s content with retiring on a nice lump sum at 65 years old.
Generating Passive Income
Another facet of personal finance that I’m really interested in pursuing is building passive income. I believe that having a strong enough stream of passive income enables you to more aggressively pursue building wealth and doing what you love as you don’t need to worry about covering your living expenses.
A lot of the money I make goes into finding ways to generate passive income. For example, most of the blog income I generate is poured right back into the blog to help grow it and push it higher and higher.
Like many others, one of my major goals in life is to become financially independent. This means that I am able to cover all my living expenses without needing the financial support of someone else (boss, family, etc.)
However, becoming financially independent is not the end goal for me, it is just a stepping stone that enables me to actually go after what I want in life. Not having to worry about money is huge and a major motivator behind all my investing decisions.
How I’m Investing Through This Recession
Now that you know about my personal circumstance and most of my major financial goals, let’s get into how I’m investing through this recession!
The first thing that I’m doing is making sure that I have a lot of cash on hand. This is because I believe that the market will continue to go downwards for a little bit and I want to be ready to buy any and all stocks at a discounted price.
Things that I’m doing to stockpile cash are:
- Cutting down on unnecessary expenses like eating out and spending money on things that don’t get used.
- Taking on more freelancing work to supplement the income that I earn from my blog and job.
- Being more strict with my accounts receivables and reminding people that owe me for previous work to pay up!
Stockpiling cash is great during a market downturn because while everyone else is panicking and selling their positions for fear that they’ll lose money they need to survive, I’ll have a large “emergency fund” on hand to help cover any expenses I might incur, and also have the luxury of buying into the stock market at low prices.
Buying and Buying Some More
While I’m piling up my cash, I’m also devoting a sizable amount of it towards buying positions. As Warren Buffett once said, a good investor is “fearful when others are greedy, and greedy when others are fearful.”
I think that right now with the supply chain issues in the world, out-of-control inflation, and sky-high interest rates, people are very uncertain about the future and honestly quite “fearful” about what is to come next. I believe that’s part of the reason why the economy isn’t doing so hot and why the stock market is experiencing a hit.
It’s for this very same reason that I’m pouring money into the stock market. I think that there is indeed a chance that the stock market declines even further, but that even as it is now, there are lots of discounts and buying opportunities.
This is especially true amongst some of the biggest COVID-19 winners. Stocks like Meta, Amazon, and Google have experienced an intense run-up during the COVID-19 period but have recently also been hit the hardest. If you look at Meta, it’s almost down to pre-covid levels.
These are also the very stocks that I’m personally eyeing right now. I think that these companies aren’t going anywhere and that in the long run, they are going to prevail against the market conditions. For this reason, I’m confident to invest in them and just wait (since my time horizon is 10 years+ and I don’t really mind the current market volatility).
Something else that I’m doing to ensure that I don’t miss out on any market discounts and opportunities is dollar-cost averaging into the market. This means that I’m not buying large amounts of stocks at once, but rather consistently investing some of my money every month.
Dollar-cost averaging allows me to rest easy knowing that regardless of how low the stock market drops, I’ll be ready with cash on hand to dive in and buy up some more. I don’t need to worry about the stock market taking huge hits because those actually benefit me in the long run (I get to scoop up stocks at very cheap prices!)
Of course, this reflects a highly optimistic long-term view of the economy and of the world. I’m making the optimistic bet that the world is going to return to normalcy eventually and continue to grow. I think that there is still a lot of innovation to be had in this world and that the trend is generally up and to the right!
There will always be people that take on a more bearish stance and I don’t fault them for doing so. There is a chance that the stock market completely drops to zero and that I never get a single cent of money back… but if the whole stock market drops to zero, I think there are greater things to worry about than what’s in my investing accounts.
Conclusion: Investing Through Recessions
Recessions are scary times full of uncertainty. During recessions, the world often looks dark and the outlook on the future isn’t very good. However, recessions also provide great buying opportunities in the markets for those who are ready for them.
My personal investing strategy during this coming recession (which I’m predicting) is to stockpile a whole bunch of cash, use a portion of it to invest in the market, and consistently dollar-cost average shares so that I can partake in any future upside. I’m not too worried about the market taking a further nosedive because my time horizon is long and I’m not planning on liquidating any of my positions any time soon.
Of course, this investing strategy is personal to me and is built upon the foundations of my personal circumstance and aligned with my future goals. Your investment strategy will likely look really different, but that doesn’t mean that one is right and one is wrong. Each person should do what is best for themselves and allocate their money in a way that optimizes their situation and what they are trying to achieve.
Jeff is a Harvard 2025 student passionate about making smart financial decisions both in school and in the workplace so that he can spend more time doing what he loves (like playing golf, spending time with family, and travelling). He has experience working in the financial industry and enjoys sharing all things personal finance, academic, and golf-related. Outside of blogging, he loves to cook, read, and golf in his spare time.