Episode CF02 – How to prepare for recession

Episode CF02 – How to prepare for recession

Hello and welcome FI Europeans! We do another Community Friday episode and the topic for today is how to prepare for recession. People are expecting a recession since 2015 so it’s always good to check. Are you prepared? What is a recession? How does it come from and how to spot it may be also before? These are some of the questions we will try to address today. Enjoy!

We also talk about:

  • Definition of recession
  • Hedging
  • Economic cycles
  • Timing the market
  • Recession-proof portfolio
  • Investing in your skills

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The causes of recession

Mathias talks about his personal experience, having dealt with the 2007-8 depression, and form there we try to identify which factors can lead to a recession. In that case one main factor was some sort of fake success (the real estate market in the US), but another plausible scenarios could be a trade war like the one happening now between USA and China.

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Can we forecast recession?

Does being able to identify the causes can of course allow us to forecast an incoming recession at least to some extent? There are many indicators or groups of indicators that can be seen as revealing in this regard. A negative interest curve as seen in 2005-2007 is considered an early indicator for example. But in the end most indicators show a recession that is already in place, so other work in understanding what factors are at play and how they interact has to be done.

Strategies to deal with recession

Even if we don’t have the ability to forecast recession there are some strategies that we can put in place to at least have some level of protection against it. One of the most immediate is to always have some cash available, and hedging risk can be a viable option. Buying gold or other assets that reduce volatility can also prove to be effective in some cases.

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