Building Wealth In A Recession
Its hard to do.
Recessions are defined by a generalized shrinkage in economic activity - this includes contractions in spending, investing, economic growth and hiring. What it means is that in a recession year, its harder for everyone to make money, so one's success at building wealth should be judged accordingly.
That said, here two ideas for building wealth in a recession:
1) Investing in industries that sell inexpensive products. Companies like McDonalds (MCD) and Wal-Mart (WMT) which sell inexpensive food and consumer goods are doing better than most. Also, Family Dollar Stores (FDO) and Dollar Tree (DLTR) haven't done as badly as some others.
2) Being in new industries. Companies in relatively new technologies fared well during the great depression. Of course, back then they were technologies like radio, telephones and suppliers and services for those industries. Today, the internet is still pretty new, so you might look to companies that serve the web. For example we're still seeing some demand for advertising on our webpage, even thought its been a bit softer lately.
Finally, you ought to consider sticking with the basics. These include spending less than you earn, taking advantage of 401k and IRA deductions and saving and investing prudently. It doesn't make sense to hoard your money under the mattress. Ultimately, you'll have to be "in the game" to make progress building wealth.
Best,
James
Stumble It!
4 comments:
One other place I found myself looking more at is the bond market. With the current credit crisis, the yields are really nice. The yields come down a bit since a few weeks ago, but some still are nice. E.g. if you don't think Goldman Sacks is going out of business, their bonds are yielding 9%. Municipal bonds came down quite a bit since a few weeks ago, but those that mature in 2024 and later still have 5.5% yield-to-maturity which is tax free - but this only makes sense if you are in the high tax bracket.
Now this is simple interest paid to you as income twice a year, but you can always invest the money in something else. I got about 10K worth of municipal bonds a couple of weeks ago, and I just transferred additional 5K to my broker. I am thinking about some corporate bonds, maybe Goldman or AmEx - I don't think they'll go bankrupt.
If you are really adventurous, you could try insurers with double digit yields, but I am too much of a chicken.
Although, I did gamble a small amount yesterday on Citigroup - bought about 150 shares. I just can't believe it'll fail. Oh well, I will either lose all the money or will gain.
Kitty,
You've left the most marvelous comments on our blog, if you don't mind would you be willing to leave your email in the comments or perhaps drop us a note if you don't feel comfortable?
I'd love to hear more about the sorts of bonds you have been investing in.
Best,
James
Thanks. You have a great blog, by the way, I love reading it.
Just sent you an e-mail where I talk about bonds - what I bought, general info. You probably know most of the general info, but I wasn't sure how much you know.
That's some great advice from you both. Personally I don't have much money right now, so the bulk of my 'money management' involves taking the federal aid I get in the form of Stafford loans and applying them to my private loans, since the Staffords are essentially 'free money' right now as the government pays the interest until I graduate. Not the case with my private loans however.
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