How to Build Generational Wealth during Covid or a Recession
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How can you build wealth to last for generations especially during a recession or the current covid-19 crisis? To become wealthy, you need to have sustainable multiple passive income sources from good investments and assets. Being wealthy simply means you are able to make money work for you even when you stop working. Question is, how can you build wealth?
Savings, Cash flow and Liquidity
The first step is to increase your savings and investments. Make your savings readily available, easy to assess and stable, to safeguard you from unpredictable market situations. You want to make certain that you will have cash to take advantage of opportunities during recession that may present themselves.
Lower your outgoing payments and increase your cash flow to have money on hand to weather the covid-19 crisis. You may also want to take advantage of the low interest rates and consider refinancing loans like business loans, mortgages, or cars to increase your cash flow especially if you are tight on cash.
If you have enough saved cash during recession, you may want to consider real estate investing. There are currently many distresses home owners willing to sell their properties for less than its worth. When people want to liquidate their assets, who do you think they would rather sell to?
If you have ready cash, you can take advantage of such opportunities and buy the asset. This is equally a great time to buy struggling small businesses that are cash strapped, or gain access to infrastructure, employees and save dying businesses that complement your current business. This is the best time to save money, buy assets, and build your liquidity.
Restructure High Interest Loans
Restructure high interest loans by using equity to pay off the loans and renegotiate to lower your interest rates. Negotiating a lower interest rate is easy even with a mortgage, you can refinance. You may want to sell your non-performing or underperforming assets such as a mutual fund, certificate of deposit or use cash from a life insurance policy, family loans, or a loan from retirement plans, to pay off the high interest loans with longer terms.
In case you have a credit card, you can lower your payments by looking at refinancing it into a car loan. Remember, you need to pay off high interest rate loans, or lower your interest payments and improve your cash flow.
Protect Your Downside
During the downside of the financial markets, you can implement a stop loss strategy on your investments to move cash out if the market goes down by a percentage. If you have retirement plans or investments in the stock market, you remove the risk by determining the point where you are unwilling to accept losses or deal with market volatility.
You can use the freed cash to hire new employees for your business if you are short on staff, and or invest in developing your skills in what you already know. Assess your investment strategies, focus, and determine the investments you are most comfortable with.
Stop speculating or gambling and know what investments make the most sense to you as an investor. Remember for smart investing during recession, do not rely on people who know more about sales than financial strategy, stop handing money without an exit strategy, lower your risks, and minimize cash flow. Risk is not a strategy, invest in developing your capabilities, and become more productive by offering solutions during such tough times.
Save on your Taxes
You can save on taxes legally and ethically by maximizing your tax deductions. If you work from home or have a home office, you can write off more of your car, pay your kids if they don’t have to claim income, rent out your home to your business for 14 days annually, document your business revenue and expenses, and assemble a tax team to maximize your tax deductions.
Eliminate Insurance Inefficiencies
If your insurance has duplicate covers and improper structures like insuring inconsequential things, you can get rid of it to keep more money. You can raise your deductibles and drop short term insurance if you have enough savings.
Eliminating period on certain insurance, getting multi-policy discounts or using umbrella policy, can lower your limits of liability to the minimum and be more efficient hence, lowering your premiums. You can invest that extra cash saved into building your liquidity, acquiring catastrophic cover and transfer the risk to your insurance company.
Be Neutral When the Cycle Turns
If you are looking at where to put money during a recession, you need to weigh your guaranteed return against the possibility of missing out on further gains, or losing your money. Remember, even if you liquidate your stocks to cash or CDs, you will still make a guaranteed 1.7% on your money based on the risk free rate.
If you have made over a 200% return on investment, making a pantry 1.7% a year instead of 8% annually is not so bad. Having cash, bonds, and CDs is to preserve your capital and not making lots of money.
If you own a property whose value has risen to 500%, it makes sense to liquidate it and free yourself from the burden of having to pay property tax, mortgage, and maintenance expenses, since the price may stay flat or go down gradually. Want to know what to invest in? Get your information from real money managers!
Take some risks
To know how to make money during a recession stock market, you need to take risks. You can lose money if the downturn doesn’t materialize but the easiest way to lessen your risk, is by buying an ETF that rises when the underlying index it tracks falls. Consider investing in leveraged short and long ETFs to boost your returns.
You may also want to short individual stocks, if you feel you have an edge and need more direct exposure. High beta stocks with weak balance sheets and no earnings are usually the stocks that get affected by market downturns the most. In other words, biotech and tech sector stocks are usually most affected since their valuations are based mainly on speculative terminal values such that as speculations grows, the stocks get affected on the short side.
Be Content with Making Less Money
You need to be content with not making enough money during a recession. Even investors who made money during a recession, methodically sell off risk assets like stocks and real estate the longer the crisis persists.
Though it feels bad to miss out on financial gains, missing out is the only solution to not losing money. You need to time your asset allocation so that you have least exposure to risks. No one knows when the situation will get better but you can make an educated guess if only you take the time to learn from history.
Assess Your Company Balance Sheets
If your business is making loses, it is very hard to get access to the capital markets to raise funds during a downturn. On the contrary, businesses that make money during a recession are those with a long history of paying dividends and large cash reserves to last through years of unprofitability.
Recession only lasts for about 18 months and most investors buy utility or consumer stable stocks for safety. Take note, if you short a high dividend yielding stock or Treasury bond ETF, you will have to pay dividends.
How to Make Money in an Economic Collapse
During such times, you can buy a volatile ETF and go long volatility for a brief period of time usually for less than a few months and rise in value, before the structure of the investments lose you money due to decay.
Go Long on Treasury Bonds
Investors always put their money in Treasury bonds during a downturn. Treasury bonds give more upside and volatility given the longer duration, but are more sensitive to interest rate changes. Bonds yield a steady 3% annually and should be given consideration despite the lower risk returns.
Buy Gold
One of the best ways on how to build wealth during Covid is to buy gold. Gold is a great asset that does well during such times. Even though you will not earn dividends or get any money from buying solid gold, it is a commodity that can be traded.
If you invest in gold for the long term, it is important to understand the global demand and supply dynamics, and US dollar strength. The more tough economic situations become, the more valuable hard assets like gold become.
Invest in Yourself
Build your skills, client relations, and internal goodwill to safeguard your job during a recession. You are the best asset to yourself and without you, you cannot make money.
Go to school part-time, buy books, read widely and learn new skills and exercise your creative mind. In other words, look for creative ways to offer new solutions and make money from it. Remember, you are not limited and can make money whenever you allow yourself and want to.
How to Build Wealth during a Recession
The best way to build wealth during a recession is to save money and invest. Saving money in a bank is not helpful due to depreciation and inflation and the smartest thing to do is to invest your money and make it work for you. To improve your investing habit and make more money;
Keep Investing
You need to be consistent with your investment plan and learn to reinvest your earned interest by taking advantage of the magic of compound interest.
Create an Investment Plan
List your financial goals and come up with a plan on how to achieve them. Learn to plan ahead, decide what to invest in, look out for risks involved in your investment, calculate your interest rates, and track your investments.
Research
Do in-depth research on risks associated with the type of investment you are planning to make and the industry. As a smart investor, you should do a thorough research on industries with great potential to get better returns.
Learn from Financial Mistakes
No successful investor has made no financial mistake or lost money. If you want to be a better investor, you need to accept and learn from your mistakes. If you lose money or make a mistake with an investment, accept your loss, learn and move on.
Be Patient and Disciplined
Patience and discipline are key habits of successful investors. Learn how to let go of your funds and let it come back to you when it is ready. Markets don’t always give huge or favorable returns on investments, but your patience will go a long way to helping you survive such situations.
Copy Successful Investors
Do research and find successful investors that have similar strategies like you, follow their steps and learn from their mistakes. Take control of your emotions and never underestimate the power of your personal intuition. Always remember;
Do not worry about or analyze the general economy
Buy a business and not the stock of the business
Do not follow the daily stock market fluctuations
Manage a portfolio of businesses by investing as a business owner with focus on long-term value of the business.
In Summary;
To make money during the covid-19 situation or a recession is to have no high interest debts. Pay off your debts and do not let lenders make money off you. Refinance your mortgage, go long on cash or cash equivalents, and build outside income sources with low risks.
Consider diversifying into REITs or real estate crowd funding instead leveraging up to buy a single property. It makes sense to work from home, diversify and earn income passively, invest long term and make sure to read and learn what you are investing in.
When you learn to save money by investing long-term taking advantage of compound interest, you will gradually grow wealthy beyond your expectations.
If you are already wealthy and have enough money to be happy, taking excess risk is not necessary. Once you have made your money, the key is to keep it. If you are interested in protecting and building your wealth, get your information from actual money managers.
