In this recession strategy guide, I explain how to prepare for the next stock market crash using six strategies to reduce your financial risk and put you in a position to profit from the next recession. Subscribe here for more content: http://bit.ly/SubscribeMichaelJay

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Recessions – these are not fun events to go through. Technically speaking, they are two quarters of negative GDP growth, but in reality, markets crash, people lose their jobs and sometimes even their home, businesses fail, and incomes fall. However, this doesn’t have to be you. While recessions are not avoidable, there are actions you can take to limit the negative impact of the next recession, and actually put you in a financial position to come out ahead. In this video, I will walk through my recession strategy guide explaining how to prepare for the next market crash.

First, you need to build cash savings with an emergency fund. Most people don’t go bankrupt from too much debt (though that doesn’t help), but from too little cash. A cash fund is important for when emergencies come up, but is also useful in the context of a recession where there is a higher risk of job loss/loss of income. Having cash gives you more options and flexibility.

Second, get serious about paying off your debts. If you have debts that you can’t pay during a recession, you will be forced to sell assets at depressed prices (wealth destructive). Don’t get caught in this situation and develop a plan to reduce your debts. Starting with the highest interest rate debt first will save you the most money over time. For high interest rate debt, you should really prioritize paying this down before investing as this is a RISK-FREE return.

Third, reduce your current level of spending. You don’t have to become an extreme cheapskate, but take a hard look at your finances to find potential areas for improvement. Saving a dollar has more impact than earning an additional dollar because you don’t have to pay tax on a dollar saved. Start by examining big ticket expense categories like housing, transportation, and food. Then work through your other expenses to see if you can find ways to optimize and economize.

Fourth, with a solid foundation you should now invest your extra cash. There are several assets you can invest in and it doesn’t have to be all-or-nothing. One option is building an opportunity fund with fixed income assets (cash, money market funds, bonds) that you can use to buy higher returning assets (like stocks) during a recession. You can also continue to invest directly in the market using index fund ETFs or investing in individual businesses/stocks by dollar cost averaging into the market overtime. This helps you systematically buy more shares when prices are cheap and future returns are more favorable.

Fifth, an optional step, is that you can add hedges to your portfolio. These are generally smaller bets designed to perform differently from your main investments. Having more cash in your portfolio is one simple hedge to help mitigate the adverse impact from recessions and smooth out portfolio drawdowns. Gold and options are also discussed, but most investors probably should not use options within their portfolio.

Sixth, control your emotions during a recession. If you have done the previous steps, you are already in a good spot. Don’t jeopardize that by emotional mistakes. One of the biggest mistakes is panicking and selling investments usually done to prevent further “loss”. But this is a very short term mindset and the exact opposite of what you want to do for building long term wealth. Don’t be afraid to buy even when prices are declining, and stick with a system to avoid emotion (DCA works well here).


DISCLAIMER: This video is a resource for educational and general informational purposes and does not constitute actual financial advice. No one should make any investment decision without first consulting his or her own financial advisor and/or conducting his or her own research and due diligence. There is no guarantee or other promise as to any results that may be obtained from using this content. Investing of any kind involves risk and your investments may lose value.

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