For investors who are a decade or more from needing the money in their portfolios to help pay for their living expenses in retirement, recession-related volatility may represent a chance to buy high-quality stocks at discount prices in hopes that they will rise as times improve.
What would a recession mean for Australia? If Australia enters a recession, many people will have a tough time, whether through job loss, home loss, or even just a struggle to pay the bills. Whole markets will tank or lose significant value and many businesses will likely go bankrupt.
Food and drink
Food and drink continue to be essentials during economic downturns. You may think that consumers turn to rice, potatoes, and tap water when money is tight, but this isn't always this case! Many times, luxury food and drink products perform well for a few reasons: People need comfort (like with candy).
What are some examples of businesses that thrive in recession? Due to the elasticity of demand, recession-proof industries are usually in essential services, like health care, senior services, grocery stores, and maintenance, such as plumbing and electrical.
Retail, restaurants, and hotels aren't the only businesses often hurt during a recession. Automotive, oil and gas, sports, real estate, and many others see heavy declines during times like these.
Last week, federal treasurer Jim Chalmers reiterated that the government and Australia's central bank do not forecast a recession for Australia in 2023 or the next few years. However, the economy is only expected to grow at minimal levels through June 2025 (see table below).
Australia's economy was buoyed by large resource exports to China, whose economy rebounded quickly after the initial GFC shock (mainly due to expansionary fiscal policy).
Yes, cash can be a good investment in the short term, since many recessions often don't last too long. Cash gives you a lot of options.
Is It OK to Retire During a Recession? Retiring during a recession is certainly possible. If a client has diversified their income, saved enough in their retirement plan, trimmed costs, and maintained their investments, then retiring in a recession may still make sense.
In general, a recession lasts anywhere from six to 18 months. For example, the Great Recession that started in December 2007 lasted 18 months. But the recession prompted by the pandemic in 2020 only lasted two months. When a recession is on the horizon, it's impossible to know how long it will last.
Millionaires and billionaires are almost guaranteed to make a lot of money if they buy stocks/assets during a recession and sell them for a higher price at a later date. Plus, they can rinse and repeat the same strategy whenever there's a market crash.
GOBankingRates consulted quite a few finance experts and asked them this question and they all said basically the same thing: You need three to six months' worth of living expenses in an easily accessible savings account. The exact amount of cash needed depends on one's income tier and cost of living.
An economic downturn can put strain on your finances. Most experts recommend having at least three to six months' worth of living expenses saved up and easily accessible in case of emergency. Investing in yourself can help create a more secure financial future, no matter the economic situation.
Recession Proof Your Finances by Preparing in Advance
To recap, having a healthy emergency fund, learning how to adapt to a more frugal lifestyle, and diversifying your sources of revenue are just a few money saving tips that can help you survive a recession.
One way to make it easier to not sell during the next recession is to put a portion of your portfolio in low-volatility investments, such as bonds. The difference between shares and bonds is that with shares, you are part owner of a company, while a bond is a loan.
Australia has been in a lengthy recession before, but it was a long time ago. The first recession, since the development of the United Nations' System of National Accounts, was recorded 1974-75, the second in 1982-83 and the most recent recession occurred in 1991-1992.
Recessions last 11 months on average. The last recession that Australia faced in the early 90s lasted from September 1990 to September 1991.
You can keep money in a bank account during a recession and it will be safe through FDIC insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.
Prices could fall further
If you buy in a recession, there is always the risk that prices could fall even further. That said, Australian property prices usually tend to rise in the long run, especially in capital cities. So if you're prepared to spend some time owning your property, you're likely to come out ahead.
Retail, restaurants, hotels and real estate are some of the businesses often hurt during a recession. While such services “may enhance our quality of life, they're not necessary to maintain our basic standard of living,” Kantenga says.
During an economic downturn, it's crucial to control your spending. Try to avoid taking on new debt you don't need, like a house or car. Look critically at smaller expenses, too — there's no reason to keep paying for things you don't use.
Industries affected most include retail, restaurants, travel/tourism, leisure/hospitality, service purveyors, real estate, & manufacturing/warehouse.