How can Wealthy Individuals grow their NetWorth during the Recession?

The United States recession is already here. The global world is in a recession.

1. Follow the Economic Cycle of the United States

The United States Economy is not static and goes through stages. With human emotions and random events, the economy always has extreme lows and highs. The United States economy is not at the bottom of the recession yet. The United States economy is transitioning from Peak to Recession. The transition does not occur in one day but over numerous weeks. The economy will go deeper into the recession. The cause of the recession is not just from the pandemic, but from overvalued assets. Time is still there for those who act swiftly. Recession will be 6 months to 2 years depending on government actions, human emotions, COVID-19 events, and other random events. Do not be afraid, the United States economy will enter the expansion phase after the recession!

2. Cut Unnecessary Expenses and Debt

Cut the unnecessary expenses and debt like credit cards, luxury services, and non-essential services. The less you spend, the more you save. It is not the time to spending on a lavish lifestyle during a recession. Cut buying luxury cars, clothes, and jewelry. If parts of one’s businesses are not performing due to the current environment, quickly get ride of employees and non-essential businesses related expenses. This is not time to be expanding one’s business unless the current environment allows it.

3. Liquid Portfolio to United States Dollar

I’m sorry to all the doomsayers of the United States Dollar! The United States Dollar is not going anywhere during this recession. The goal of liquidating your portfolio into the United States Dollar is not to keep it, but to buy assets at the end of the recession, near the trough phase of the recession. The economy may take 3 months to 2 years to hit the trough part of the economic cycle. Sell stocks, real estate, and bonds for the United States Dollar. Depending on one’s risk tolerance, at least liquid 30% of the portfolio into the United States Dollar.

4. Keep Great Assets

Do not sell all your assets, but rebalance your portfolio. Keep the best assets and sell the worst assets. Selling worst assets does not mean one lost money but decided the capital gain was worth to liquid into the United States Dollar or Recession-Proof Assets. Real Estate may be much harder to sell compared to stocks. Some stocks are great recession-proof stocks that did not get hit hard like Walmart, Netflix, and Amazon. Recession-Proof assets do exist like social media, grocery chains, affordable housing, affordable online shopping, video streaming, and others!

5. Buy Recession-Proof Assets

Buy Recession-Proof Assets such as bonds, stocks, and real estate to have protection. Government bond values will keep continuing to increase while yield decrease during the recession. Government bonds have low chances of defaulting, although have much lower yield compare to real estate and stocks. Buy stocks that are recession-proof, some examples include Dollar General, PayPal, and Apple. There will always be an economic activity even during a virus pandemic or downturn. Examples of recession-proof real estate would be strong NNN tenants and affordable housing.

6. Tax-Strategies

United States Government or known as Uncle Sam will come for their capital gain taxes on the assets sold. Seek counsel from a qualified CPA and tax attorney. Not all professionals are the same quality. Depending on how long you own the assets, you may decide to keep assets that you recently bought within one year since capital gains taxes will be higher. Want to donate for the CoronaVirus pandemic? Make sure to obtain tax-deductible credits! Gift assets to your children or family members, then have them sell with a lower tax bracket. Open a self-directed individual retirement account (SDIRA) and conduct transitions with the SDIRA. Wealthy individuals should already be using SDIRA. Many more ways to prevent or lower your capital gain tax, seek counsel!

7. Buy Assets when Economy has reached near the Trough

If you just hold United States Dollar and do not actually use it at the end of the recession, then you have missed the opportunity to buy steeply discounted assets. This may include real estate, stocks, corporate bonds, and commodities. The best time is to buy is when banks are not lending and sellers must sell that asset. Less pool of buyers and more pool of sellers allow negotiating a steeply discounted sale price and terms.

Conclusion

  • Do not expect the value of your portfolio to go up during the recession, but after the recession.
  • With the right moves, a wealthy individual can come out from the recession wealthier than before entering the recession.
  • I primarily am a Commercial Real Estate and Biomedical assets expert, but I believe in allocation across multiple assets.
  • A diversifying portfolio with a majority stake in United States dollars will put one in a great position to take advantage of the recession.
  • The time to buy assets is not now, but at the end of the recession, near the trough stage of the business cycle.
  • Buying institutional commercial real estate and biomedical assets is not the right time now, but later in the recession, near the trough.
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Figure 1: The economic cycle, with four distinct stages, Expansion, Peak, Recession, and Trough. The economic cycle could be broken up even more into more stages. The United States economy as of March 23rd, 2020, is transitioning from Peak into the Recession.

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