I'm 32 years old and living in Europe and come from a blue-collar worker's family.
I'm pretty good at my job (broader data science) and have been earning US-level income while maintaining Eastern Europe-level expenses for the last 7 years or so. Thus, I've managed to have a decent amount of savings in cash and index funds / ETFs .
During the last recession (2007-8), I was just 16yo and my family was hit pretty hard back then. Now, I do believe that recessions are the only realistic way to achieve real social mobility, and have been planning to really benefit from the next one (whenever it happens).
Any additional thoughts, tips, and personal experiences are welcome.
One thing we must make clear is, is there actually a recession? Many companies are firing, but they've fired much fewer than they've hired in the past few years. Many companies are still hiring now. I don't think there is a recession, much as people might be scared that there is.
[0] https://news.ycombinator.com/item?id=34296393
With all the talks about recession, IMO people are not appreciating that not all recessions are like the GFC we just went through. Yes, some recessions are really bad. But historically there have been milder recessions which were not as catastrophic.
What made the last recession so bad was due to a problem (lax loan standards causing the housing market to become overpriced, very fragile to macro conditions, and creating riskier-than-expected financial derivatives) that is since addressed. The days of NINJA loans are over, and the financial markets are of course going to be cautious in assessing the risk of financial instruments based on mortgages going forward.
We are in an entirely different situation now where supply/demand and global trade keep getting messed with due to COVID and geopolitics, and where central banks across the world are having to deal with the effects of over-stimulating the economy. This is us finally leaving the status quo of low rates and low inflation (in most developed economies) after over a decade. So yes that will disrupt things, but it doesn’t mean it will be anything like last time.
People also don’t appreciate that a stock market/asset price correction is not the same as a recession. The two often co-occur for obvious reasons, but each can happen independently of the other.
Slow down? Sure. Recession? Eh.
Give this a skim - https://www.oaktreecapital.com/insights/memo/sea-change
https://tradingeconomics.com/united-states/gdp-growth
Had 1 in 2020, and 1 in 2022. On average they are 7-10 years between. Split US government control likely going to result in balanced budgets. High cost to debt means less spending.
Reality speaks, the next recession is always coming.
I don't see the U.S. getting anywhere close to balanced budgets in the next few years. Deficits are running a trillion dollars a year. Divided government blocks bold new expensive programs, but existing programs and spending just keep growing.
For just one example: last year Congress spent an extra $100 billion on defense alone over and above what was originally budgeted. Anyone who pointed that out was accused of being a Russian shrill or of hating Ukraine, because $26 billion of that went to support Ukraine. But no one discusses the other $74 billion...
What people colloquially refer to as a recession vs the textbook definition is important to understand.
> Reality speaks, the next recession is always coming.
Just like the sun rises and falls. But this is meaningless information. Recessions have varying severity and you can't say when it comes.
The question is about which plans it affects. This year, next year, or seven years from now?
-- These cycles are part of the sickness of our system. Prepare for it.
-- When times are good, hoard money. IE: save it, don't spend it. Put it in the market, in assets, in something for when you need it.
-- Always have a side hustle. It doesn't have to be much, but some little side thing where you are making a little money can make a difference when times get tough if you lose your main income source.
-- Live way below your means. While I hate the idea of being so frugal that you can't enjoy life, the cycles I've seen tell me that you have to be really on top of this. Drive that used car for 5 more years. Don't go out to eat. Buy clothes only at thrift. Don't expect to be able to vacation every year. Squeeze that budget as tight as you can to make sure that you have cash in the bank to last a year+, and more than that if you have a spouse /house / kids.
-- Even when things are bad, there's someone out there who is making money and doing ok. Health care, for example, at least in the US, is often a safe place to work in bad times. There are stocks that run counter to the rest of the market, etc.
--Try to stay ahead of the curve when things look like there are clouds coming. The market can shift downward quickly and unexpectedly, but it is often a longer, slower improvement. There is no logic to any of this, it is often the whims of forces we don't control.
-- Decide how much risk you are willing to take on in life. Being a self-employed / small-business owner is hard in a downturn.
I'm optimistic that things are going to get better again throughout 2023, because the things that are dragging us down at the moment feel more ephemeral than real, IE: we're in a recession because we all think we are in a recession and we are all following the playbook for a recession. So there will be layoffs and cutbacks etc until such time as we all realize it's probably not armageddon and we all go back to trying to push our respective businesses forward again.
I was spending about 10-15% of my gross income for a few years until I realized I was denying myself a lot by not spending closer to like 20%. Yes I am happy that it allowed me to grow my investments quickly. but after a certain point it feels like you are just optimizing for a high score in your 60s. If you are financially driven you may always be thinking that $1 now could become $10 (in real terms) in a few decades. But I imagine when I’m 60 I’d gladly trade 20% of my worth to be able to experience things as a young adult.
I consider the Eastern Europe having unique opportunity these days, as the Ukrainian market has extremely good potential to grow in many areas. If it goes EU+NATO direction after the war, it may boost the whole region and follow the direction set by other countries two decades ago. Just the property market alone rose manyfold in those countries after the EU access.
I am in a similar position to you, living in EE country as well. We may exchange some contact and share some more info if you are interested.
I think investing and war are very very bad companions. If you want to _invest_ your cash you should avoid too risky moves.
On the other hand if you want to _speculate_ then go ahead, but be prepared to lose 100% of money for maybe 200% gain (for my example with real estate).
That is why I don't see many people living in the West would consider it safe enough anytime soon. If the correct legislation and public funds would build up over the years, with the natural resources, land fertility and industrious population it may grow even faster than post soviet block in the 90s.
I don't say it's certain, I just consider it possible.
Sure, email me at poordadrichsonhn / gmail
Personally, I don’t see it getting nearly as bad as 2008, but I could be wrong. I think some big corps will eat shit, there will be some layoffs, yada yada same old shit. There’s not going to be thousands of people suddenly homeless and destitute like before.
That seems about a year too late on the nose, though I get your point.
One staggering stat for me is that ~40% of owner-occupied homes have no mortgage. Sure property tax and insurance (not required on a fully owned house) but that seems minimal especially if you were able to pay off the home, outside of very high areas or appreciation.
It's a good time to read up on investing now, figure out some asset classes (real estate, securities, gold, crypto, etc) that you think you could fairly evaluate, and then be ready to buy when you see stuff priced below what they're worth.
Investing is risky, so don't put all your eggs in one basket.
[1] I read this in two places, and forgot both, sorry.