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Certain politicians have dismissed the idea that the U.S. is currently in a recession. But if you look up the textbook definition, it seems like we can’t avoid using the “R” word anymore.
A recession is defined as two consecutive quarters of real GDP contraction. And real GDP in the U.S. decreased at an annual rate of 1.6% in Q1, followed by 0.9% decline in Q2.
Recessions are prolonged downturns in economic activity, usually associated with falling retail sales, lower industrial production, declining wages, and higher unemployment.
The good news? Downturns also provide plenty of opportunities for regular people to build wealth.
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Stocks
Every investor wants to buy low and sell high. A stock market downturn during a recession might be an opportune time for bargain hunters.
While the GDP contraction in Q1 and Q2 wasn’t too severe, stocks have already fallen — by a lot.
The S&P 500 is down about 20% in the first six months of 2022, marking its worst first-half performance since 1970.
Investors who want to scoop up shares on the cheap might want to be cautious and focus on companies that can thrive during a recession.
Warren Buffett, for instance, loaded up on shares of food giant Kraft Foods (which later merged with Heinz to create Kraft Heinz) and electric utility NRG Energy (NRG) during the Great Recession of 2008.
According to Hartford Funds, the S&P 500 actually gained 3.7% on average during the 13 recessions since 1945.
You don’t need a lot of cash to start investing. Some investing apps even allow you to buy fractions of shares with as much money as you are willing to spend.
Real estate
Real estate offers another potentially lucrative opportunity during a recession.
A recession doesn’t necessarily mean we are going to see a drop in property prices. But one specific factor could deter the upward momentum in the real estate market: interest rates.
Right now, the Fed is raising its benchmark interest rates aggressively to tame spiking inflation. Higher interest rates are bad news for real estate.
When the cost of borrowing is high, it makes people think twice about getting a loan to purchase a home or investment property.
Real estate mogul Sam Zell — also known as the “Grave Dancer” — made a fortune from buying properties when no one else wanted to.