The global economy is experiencing a slowdown, with the US recording two negative economic growth, which makes it a recession. The Bank of England predicts that the UK will fall into a recession at the end of the year due to high energy costs. At the same time, Germany may also be sliding into a recession. Primarily due to its heavy reliance on Russian gas for its economy.
The leading cause of the current recession is inflation. Central banks worldwide are racing to control inflation by increasing interest rates. An increase in interest rates makes it expensive to borrow money, and therefore consumers spend less. If consumers spend less, consumers will buy fewer goods, and producers will produce less.
The financial markets, e.g. the S&P 500 and NASDAQ, tend to be precursors of economic performance. During the past months, we’ve seen financial markets decline in price. The markets have entered a bear market, i.e. when the price of stocks goes down significantly.
One can conclude that while the cost of most goods and services increased significantly due to inflation, the price of investments like stocks and cryptocurrencies decreased significantly.
Could this be an opportunity?
First, one must distinguish between needs and wants. Needs include food, shelter, education, utilities, etc. Wants are luxuries, value-added items to life, such as buying a new car, going on holiday, buying an expensive phone, etc. Wants are choices and options. You can’t do without needs as they entail survival.
While the prices of goods and services are currently rising, the prices of investments are decreasing. In the long run, the prices of goods and services will go down, while the prices of investments will go up.
A recession can be an opportunity to increase your wealth by doing away with unnecessary purchases and investing. A recession is where investments get sold at a discount.
However, people tend to buy things they don’t need when things are at a discount. On the flip side, they tend to stay away from investments because they feel that their investments will lose value in a recession. In the short run, that’s true.
One has to keep in mind that whenever you buy a car or an expensive phone, it will start losing value from the first day that you start using it.
Most of the time, professionals make most of the money as they’re highly focused and specialised in their field. However, you don’t need to be a professional to increase wealth. In the same way, you don’t need to go to a doctor to cure a headache.
One common strategy you can use is called the dollar-average strategy. All you need to do is invest the same sum of money every month, regardless of the cycle in the market. For example, you may opt to invest Euro 50 per month into an exchange-traded fund or Bitcoin.
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