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Alright, so let’s talk about the next economic recession. Some potential causes some things that central banks may do to try to prevent or and dig us out of recessions. And then, most importantly, how you people like you and I can prepare for the next economic recession. Because the truth is regardless of what anybody may have told you, we will see recession at some point in the future is the how our economy, where it is very cyclical. We have times of economic prosperity.
For the past 10 years, our economy has been growing, and then eventually we hit some times of economic contraction where the economy actually contracts where we see people getting unemployed, the unemployment rates go up, they will see consumer confidence fall, and maybe we’ll see the GDP might decline. So there’s a lot of different things that we can look at in this video. But we’re trying gonna really try to give you the best idea as to how you can prepare for recessions in the future. So if you’re new here, the channel, you want to learn more about investing or personal finance or building wealth and consider him a subscribe button so you don’t miss more videos like this when we really do our best to help people as much as possible.
So let’s get started with this video, and the first thing that we have to mention is that if you’ve been watching the news for the past 10 years, you’ll probably remember that. It seems as though every year you’ll hear people talking about the next recession, the recession that’s happening next year. People been saying that for ever. OK, so if it was 2011 you want to see NBC they’re talking about The next recession is coming next year. And then the 2012 recession, the 2013 recession, the 2014 recession and it goes on and on all the way through 2019 people are talking about how this big recession might be coming in next year, so it’s very easy to talk about that, And the reason for it is because fear cells.
So, ah, lot of these news organizations you’re going to see, maybe you’ll see an article about how there’s a 60% chance of a recession next year, and then a couple days later you go into the same News Organization’s website and have a totally different article about how the economy is gonna be booming next year. And the reason for that is because it’s kind of gate clicks trying to get people to click on their content, and so they’re going to really flip flop a lot. And there’s a lot of different varying opinions on this. The reason why the somebody varying opinions is because it’s incredibly difficult to actually predict when and exactly when precisely we are going to have the next recession.
That’s just the truth behind it. And in theory, if we could predict the next recession accurately, we could almost prevent it from happening or lessen it much worse than it actually is. And it’s just very interesting idea behind that. So let’s talk about some potential causes of recessions and how this can affect your investments, because on the channel we talk so much about investing, why it’s important to invest in why it’s difficult to retire on strictly savings, but rather investments. Eso what some causes of recessions one of them and probably the most obvious, is that people get overconfident in the market.
They get overconfident in businesses and in their ability to invest in. Maybe you start seeing people walking around talking about how there are multi millionaire in real estate. But maybe some of those people are over leveraged. They borrow too much. They borrowed up to their neck. And if you see one little blip in the economy, all of a sudden everything could go toppling down. So the way that I like to view this is sort of like appear right. And there’s all these pillars on this pier. And if you just knock one of those out, which could be anything within the economy, maybe it’s the housing market like we saw about 10 11 12 years ago. Maybe it’s something else within the market, maybe something within the economy and all these different pillars. If one of them gets knocked out, this whole peer can go down.
And so it’s really that that’s how it’s the best way to view how the economy can work and how just one little thing within the economy could totally take down the economy and put us into a deep recession. So let’s let’s talk about these things that can further cause recessions. Like I said, fake success or things where people are getting very overconfident. They’re borrowing a lot of money. This can actually amplify recessions even more so. For example, if the count is doing great 3.6% unemployment rate like it is now in the summer of 2019 and everyone’s opening up new credit cards bringing out $100,000 in student loans, it’s all going very great. But what happens is as soon as we start to see some economic downturn, this can actually get amplified. Can amplify the recession when everybody has all these credit cards and all these bills, but they start to lose their jobs. And so now they can’t afford to pay off the creditors that can’t afford to pay off their loans.
They can’t pay their student loans that home mortgage and create this domino effect. So people who are opening up a lot of credit when you see one of the half trillion dollars in student loan debt when you see credit card debt skyrocketing. Those are all factors that do play into causing the next recession in the future. So a very important indicator for recessions upcoming recessions could be the yield curve. And when we see an inverted yield curve now, if you look at historically, if you look at recessions in the past, you’ll see that the yield curve when inverts. It’s really been a pretty reliable indicator for an upcoming recession at some point on average, about 300 some days later. So this is a really interesting idea. I’ll try to explain this as easy as possible for people who maybe don’t understand it.
We don’t want to get over anybody’s has too much, but essentially the yield curve. The way that you could view this is when investors started a little bit scared about the future of the economy. Maybe they think it’s going to slow down. Or maybe they think that there might be a recession in the future than what they might do is they might put some money into the 10 year Treasury bonds, which is seen as one of the safest investments that you can make investing into the U. S. Government. It seems very safe, and so people might start putting money into that they might start moving money from maybe stocks or other types of investments into that Treasury bond. The 10 year bond. Now, what happens here is that it actually drives up the price, basic supply and demand. It will drive up the price of that bond, which may lower the yield on that bond.
Now, what happens when that yield gets below some of those shorter term bonds, Maybe a three month ah U S Treasury bill? Or know that you might see from the shorter ones when that actually eyes lower. The yield on the 10 year is lower than the shorter term bills and notes and different types of government things you can buy. That is when the yield curve inverts. So like I said, the yield on those longer ones is lower than the yield on the on the shorter term ones. That’s the best way to view it. And that’s typically not how we see it in our economy. And that’s typically not a good sign. It means that people are very wary of the future economy. And so, like I said, this is a pretty big indicator will throw up a chart here just to show you the past recessions and the yield curve vs the economy versus the stock market, and how accurate.
It really has been in the past. But as with anything, you can’t simply just look at one indicator and say, You know what? Because we see this happen. We’re going to see a recession about 300 some days after we see this yield curve invert, which it did many many weeks ago, and it’s still been inverted now, the longer it’s inverted. That also does kind of, ah, play into it a little bit more, giving more reason to into recession about next year, but once again to something that’s very difficult to accurately predict, because the Fed can actually do something on the flip side and say, You know what? Well, we’re gonna lower interest rates and lowering interest rates could have a different effect on that were maybe we will see that yield curve the inverted yield curve actually revert back to positive because maybe lower the rates.
It gets very complicated well, trying to break this down as best as possible, and we’ll also make sure that we touch on how you can actually prepare for this. But it is very important to understand how this can affect you. So there is a plethora of information that you can look at when trying to understand the current health of the economy and trying to better predict where it may be going in the future. You can look at unemployment, which really looks into the past, to see how many jobs were gained or lost in the past 30 days last month, you can look at consumer confidence. You can look at business confidence. You can look at corporate profits.
When did corporate profits peak? And how does that sort of foreshadow recessions? Or is it too late after the fact to really understand that that’s something else they can consider? But with all they said, what it really comes down to is that there are so many factors that can cause a recession. So it’s more so focus on what people like you and I can do about this. But before we talk about that, ah, it’s important to mention some different things that central banks were the Fed in America might try to do to try to prevent recessions or essentially smooth out the curve so that we’re not entering massive depressions and then skyrocketing, like the roaring twenties and massive depressions again That’s what the Fed in central banks try to do.
They’re not always successful. Sometimes they can make some wrong moves. But essentially the central banks, they have a different a few different tools in their pockets that they can use in order to hopefully smooth out this curse that we’re not seeing those really big a drastic changes within the economy. Because when you see those drastic changes is generally not good for long term growth. When you see massive boom, massive bust, generally speaking is better. See nice, steady growth. So some things that they use, they like to cut interest rates. This is something that’s not as effective as it once was. So cutting interest rates or modifying these interest rates s O that maybe they wanted to say, for example, after the dot com bubble, they cut interest rates down to about half a percent lowest.
It wasn’t about 50 years, so they kind of very low started rising again. Then we see the financial crisis of 2008 while they cut interest rates down to zero. But the problem is you can’t really cut interest rates below zero, so they had to come up with some different tools, some new tools in order to hopefully stimulate the economy, to promote growth and to get people to start borrowing money more on spending more money. So they had to do something called quantitative easing, which we’re not gonna get too into detail here because I know as soon as you say the words quantitative easing.
Most people totally tune out because it’s just these big words that most people look at and they say, I don’t want to learn that. It just sounds too complicated What I was just doing just do a Google search on it. You should do a Google search to understand how the Fed can use these policies to hopefully sort of smooth out the economy or the effect that they could have on our economy in the long run. But the truth is, they’re not as tested as some things that we’ve used in the past on DSO quantitative easing. Essentially, the way that you can look, look at this is that we’re essentially making more money. We’re not necessarily printing physical money, but it’s pretty close to that.
We’ll talk about it a totally different video. Maybe we’ll just make a video called Quantitative Easing. You probably get like 30 views on it, but we’ll try to do that just because it’s something that we don’t want to touch on too much in this video is just too much to discuss in a 15 minute video here. So those are the tools that the Fed can use. There’s a lot of the ones as well. You can have create stimulus packages. The government can create public works programs like they did back in the 19 thirties, when we were in a Great Depression. FDR New deal. A lot of things with public works trying to get people to start working Maur. That’s something else you can do. I believe under the Obama administration is about a one point some trillion dollar stimulus package to hopefully boost the economy.
Now the actual benefits from it. I’m not sure it probably did have a pretty decent of fact, but still it’s important to realize that that’s probably one of the later steps where we need to think about how the government can help step in and help promote growth in the economy so that we don’t enter into a deeper recession. Let’s finally talk about what you can do about recessions and how you can prepare from them. That’s probably what you came for this video.
Hopefully you learned all that other stuff that we mentioned today in the city of very important. But what can you do to actually prepare for this? Now there’s a few things you can do. First of all, what I do is dollar cost averaging. So, uh, if you miss out on some of the best days within the market because you’re trying to time the market too much, get really hurt you a lot. So what I do is every month put in a specific amount of money into the markets on a monthly basis, regardless of where we are in the economy, because the truth is most people, the goal here is to buy low and sell high. You buy stocks low and you sell them high. Maybe it’s real estate. Maybe it’s stocks.
Maybe it’s different types of investments, but that’s the idea behind this. But the truth is most people, and I’m not joking when I say this. A lot of people end up buying high and selling low because they watch stocks climbing or maybe even Bitcoin. This happened exactly with Bitcoin about late 2017. Early 2018 people are watching it, climbing, climbing, climbing with watching stocks climbed for 10 years and eventually they say, You know what? I’ve watched you climb enough. I’ve watched my neighbors make enough money. I’m gonna jump into this. They invest into it up here, and then we see the market crash.
The market comes down and people get scared. They say, My God, I just lost 40% of my money in the stock market and they sell so they buy high and they sell low, total opposite of what you want to do. This is very common quote that you want to be fearful when others are greedy and greedy when others are fearful. It’s a very common quote that you want to really, really taking to think about that, because when everybody’s running away, that could be a time to actually buy. And when you see recessions, while I don’t look forward to them because the truth is, a lot of people enter into some pretty bad times. During recessions, people lose their jobs, which creates a lot of financial stress, which is not something I would wish on to anybody. But the truth is, when we enter into recessions, you can make a lot of money.
That’s where billionaires air made during recessions from the pit of a recession. People invest money If you have a lot of cash on hand and you invest money in 2000 in the fall of 2008 or early 2009 you’re probably doing much better today because you invested at the lowest possible point. So that’s something to think about dollar cost averaging, which is what I do just over time, smooth it out and invest over this long period of time. Now, some other things you can do. You want to think about where you are in terms of age and how that’s going to affect how you’re sort of balancing your portfolio.
Now. I’m not a financial adviser, so you should consult with one. But the idea here is that as you get older, once you get older, you might not be pro. You might not be able to handle as much risk as you could when you’re 20 because when you’re 20 if you see the stock market declined 50% next year. Well, you’re 20 years old. And that money on the stock market Hopefully you weren’t banking on having that withdrawing that money, but rather maybe keeping it for retirement. So you, if you’re 20 years old, the stock market declines. Next year, you’re 21. Well, you have another, like, 30 or 40 years in the market to recoup that cost.
There’s never been a 20 year period in modern stock market history, where we have seen the markets actually declined over a full 20 years. So in just about every case, the market does come back to where it was originally and go past that. But if you’re in your fifties and or your sixties and you have all of your money and risky investment, speculative investments or just in general, a lot of money in the stock market, rather than maybe some safer investments and we see the market tank that could really actually hinder your ability to retire, it could hinder your ability to have money coming in from your investments when you’re older when you are retired. So that is something that you really do want to consider Now, if you’re looking for stocks that are seen as safer, generally speaking during recessions, utility stocks performed better than the overall market as well as consumer staples, tend to do a little bit better than a lot of other stocks. Dividend paying stocks Blue chip stocks tend to fair somewhat better than some more speculative stocks.
That might be a little bit more rocky for some people during those times of economic hardship. All right, so what about precious metals? Is this something that you should be investing into? Should you put money into gold and silver and platinum, or should you stay away from them? We’re probably going to make it totally different video on this topic, but to give you a short answer my view on precious metals I don’t like to put a lot of money into them, but it’s something that I do put in a very small, amounting to about 1% or less of my portfolio is made up of precious metals. A lot of people view gold and silver and platinum in these various different types of metals, sort of as a way to preserve wealth rather than actually invest, because if you look at the long term historic returns of gold, they’re not as great as something like the stock market over the long period of time. But a lot of people still do like their precious metals, especially if we do enter into times of very serious economic hardship.
That’s why I do have some precious metals on hand because it’s something that does hold its value is not a Fiat. Currency is something that is a physical asset that you can have that does typically hold its value or even increase in value during times of economic hardship. So, like I said something that I keep a very, very small amount of, but depending on where you are, depending what type of person you are and where you think the economy is going in the future, then that’s going to kind of decide on how much money you put into precious metals. But I would be careful putting too much into them there.
There is a point where you have too much in precious metals in my personal opinion, but once again this is my opinion. You can do whatever suits you now something else you want to do before we wrap up, this video is maybe consider cashing out on some profits. If you’ve seen some great profits over the past 10 years, maybe consider shaving a little bit of money off the top of that putting in cash, putting in something that that is a little bit more stable because the truth is it’s important to time the market.
You really don’t want to time the market because people are talking about the next recession, the next recession for the past 10 years, they said in 2016. And if you pulled money out of the market 2016 to mid 2019 you probably missed out on a decent gain over that time. So you don’t want to pull out too much money. But it’s still a good idea to likely shave off some money from some of those different investments and put it into cash. I love having cash on hand, so when we do hit some type of time where we see the market’s decline quite significantly, it’s great to be able to jump in there and buy up stocks and buy up real estate and buy up things. Then they have gone down considerably.
Imagine if you had a large amount of cash in the late to thousands. If you’re a large amount of cash in 9 10 6011 and you could have bought real estate. You could have bought stocks at a very, very discounted price. That was the position that some people were in. So, like I said, I don’t like to keep a lot of cash, but I like to keep about 15 to 20% of my total assets in cash. And I know people are gonna disagree with that. I know they will. But I love having cash on hand. I think it really is something that has a lot of value to it. So if you found any value on this video, thanks for watching. We do our best.
Like I said, to educate as many people as possible. So if you enjoyed it, make sure you share this with a friend who you might think might find some value in the video. Thanks for watching. I hope everybody has a wonderful day. I’ll see you in the next video
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