The Recession Guide Part 2

Previously, we looked at what causes recessions and how to prepare. This month: how to make the best of one.

And yes, I’m confidently predicting a recession—because I’m not predicting a date. It might hit soon, or the economy could keep defying the odds for a while. Either way, it’s wise to be ready.

Three Predictions

Warren Buffett supposedly once said: “Only when the tide goes out do you discover who’s been swimming naked.”

Translation: when money gets tight, some companies that were barely hanging on go under. The surprise? You usually can’t tell in advance who they’ll be, so I’m not going to try. Here are three other predictions:

1. Most People Will Keep Their Jobs

Despite the headlines, most employed people will stay that way. Gratitude for simply having a job might make a comeback. A hard day’s work may start to feel like a blessing again. I hope I’m right on this prediction.

2. Crypto Will Seek Bailouts

Crypto is, in my view, almost pure speculation. No government backing. People love that—until they don’t. When prices tank, panic selling kicks in. With no regulation, the fall could be steep.Who do people turn to for help? Ironically in this case, probably the government. I hope I’m wrong with this prediction.

3. Some Industries Will Grow

Historically, certain industries do well in downturns:

• McDonald’s and cosmetics tend to perform well.

• The movie industry thrived during the Great Depression and Netflix benefited from the 2008 recession.

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Why? Affordable indulgence. Low-cost “feel-good” options shine when big-ticket spending dips.

During COVID, cleaning services, delivery services, and grocery stores did well.

The standard wisdom is that affordability rules during recessions.

Smart Moves: Tax Loss Harvesting

When the market drops, tax loss harvesting becomes a powerful tool. We’ve done this in the past when markets were down ~25%. Here’s how it works:

Quick Guidelines

1. If you’re in the 10% or 12% tax bracket, this probably doesn’t help you.

2. This only applies to taxable accounts—not IRAs, 401(k)s, or Roth IRAs.

3. Sell an investment that’s down, and buy a similar—but not identical—one.

   • Example: Sell Coke, buy Pepsi.

   • Sell one small-cap mutual fund, buy a different one.

4. Want to buy back the same security? Wait 31 days.

   
   

This is a strategy we routinely use during portfolio rebalancing and year-end tax planning. In a downturn, we may do it more often. The goal isn’t to “get out”—it’s to ride the wave strategically.

More on this in our video:🎥 Year-End Bear Market Tax Moves

Possible Buying Opportunities

If you’ve got cash and courage, recessions can offer deals.A few places to watch:

• Vacation Homes: Usually drop in price—though COVID was an exception.

• Cars: Manufacturers may offer deals when they need to move inventory.

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But there are caveats:The pandemic created a supply gap. Fewer new cars produced then means fewer used cars now. As Zach Shefsaka from CarEdge explains, we’re still feeling that shortage.📺 Watch his take here

Keeping Stress in Check

If you’re like me, part of managing a recession is managing your stress response. Here’s what’s helped:

1. Reflect on past downturns.

   Did you suffer personally, or do your fears stem from broader anxiety? For me, past recessions weren’t catastrophic—but I do worry about others. That leads me to #2…

2. Focus on small, meaningful actions.

   What can you do to make life a bit better—for yourself or someone else? That’s almost always worth doing.

Let me know what you’re seeing out there—and if you have questions about your finances or the market, reach out any time.

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