Recessions Are Ripe With Opportunities To Make Money

September 3rd, 2008

Recessions rarely ever bring about good news, but what if I told you that there’s a foolproof way to make money from a recession? Now before you get all excited, I have to tell you that if you came here looking for a get-rich-quick type of solution, you’ve definitely come to the wrong place, because it nothing but riding out a recession by combining dollar-cost averaging and compound interest.

Last month, billionaire investor Warren Buffett said that the U.S. economy is still in a recession, according to his definition of the term, and will continue to be for at least several more months. He says the economy is in a recession because most Americans aren’t doing as well today as before (the economists’ definition is two consecutive quarters of negative growth in the nation’s GDP or gross domestic product).

Although his definition sounds simplistic, it does strike closer to home because most of us don’t really care about the GDP’s ups and downs unless the implications of that hurt us where it hurts: in our wallets. In this regard, the public at large was most likely aware of what was going on before the “experts” eventually agreed that we were indeed in a recession.

This is usually where budding investors (or those without a long-term plan) fail. Stock prices usually plunge during a recession. If you’re an investor who’s buying stocks for the long run in order to develop passive income streams, the lowered prices actually present you with the opportunity of ending up with very solid returns a couple decades down the line.

Unfortunately, many investors won’t get anywhere near stocks during a recession. Or if they were in the market, they either stop investing, or worse yet, pull out, thus missing out on the “fire sale” going on in the stock market.

Recessions generally last less than a year, with the market turning up months before the economy picks up. Returns vary according to when you invest: before, during, or after the recession. But the best time to get the best yields is at the midpoint of the recession. Of course, the trouble lies in knowing exactly when said midpoint happens…

The best approach to success in the stock market is to have the discipline to steadily invest in the market (thus using dollar-cost averaging), and letting the power of compound interest multiply your investment many times over.

When you look at it this way, you realize that recessions are no different than your local supermarket or department store sale. Conduct your analysis as usual, and highlight the stocks with the strongest fundamentals so you can eventually buy them. It just might be time for you to go on a (stock) shopping spree!