The Potential Benefits of a Recession

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The term recession normally conjures images of financial fallout, unemployment, and panic. But an economic recession can actually create benefits as well. Here’s what you should know about the silver lining of every recession.

What is a Recession?

A recession is a period of significant economic decline. There have been 33 recessions throughout American history, each triggered by high-interest rates, high inflation, or both.

As prices rise, Americans struggle to borrow money or purchase the everyday goods and services they need, such as gasoline and groceries. Higher prices mean that wages don’t stretch as far, causing consumers to spend less. This type of overall slowdown reduces spending activity and sends a domino effect through the economy.

During a recession, that domino effect continues as companies layoff and furlough employees to save money and survive the storm. Meanwhile, the government debt rises in its attempt to stabilize the economy through measures such as unemployment and stimulus payments. The end result is a recession where most people suffer, but some people and organizations actually thrive.

Businesses that Benefit in a Recession

Discount Retailers, bankruptcy attorneys, and grocery stores have a history of thriving during economic recessions.

During the 2008-2009 recession, Dollar General stock rose more than 60%, making it the highest returning stock of the year. This pattern reflected the fact that consumers sought cheaper prices at discount stores during the uncertainty of the recession.

Bankruptcy attorneys also experience a surge in business during recessions, as businesses and individuals alike seek legal support for their financial problems. During the recession triggered by COVID-19, businesses like Pier 1, Gold’s Gym, and Neiman Marcus have all filed bankruptcy.

Grocery stores also enjoy a steady stream of customers during recession periods as people try to save money by trading restaurants for home-cooked meals.

How You Can Win a Recession

The best way to conquer a recession is to get strategic with your investments.

First, understand the dollar-cost averaging method of investing and start using it to your benefit. In good economic times, how much of a stock or investment does a single dollar buy you? If you invest $500 a month in mutual funds selling for $25 each, your contribution buys 20 shares.

However, if the price of each mutual fund drops to $12.50 during a recession, you can buy double the amount of mutual funds for the same price. When share prices rebound post-precession, your share prices will rise far higher than your cost basis, earning you a pretty profit.

This same principle can be applied to dividends as well. Consider purchasing stock in established, large-cap companies with strong records and cash flow. These companies are prepared to weather the economic storm and more likely to pay dividends. Even as share prices decline during a recession, you’ll earn dividend payments to boost your bank account during hard times.

Read More: Tips for Finding a Job in a Recession