Tuesday, April 25, 2006

What To Do During a Recession? Depression?

I'm curious, would anyone be able to help me understand what my best options would be during a time of recession? How about a depression? Do you know what to do? I guess we wouldn't really know we're in a situation until after the fact...but still, it's good to know right? Let me try to explain my understanding, a depression is a severe or long recession. I never knew this until I found it on Wikipedia, but apparently a recession can be due to inflation (value of money goes down, costs of goods go up) or deflation (value of money increases, costs of goods go down). So during: a) Inflationary recession, the value of cash is decreasing, thus the best investments would be non-cash investments, stocks? b) Deflationary recession, the value of cash is increasing, so cash is king. Would you agree with that? Since we're in a period of inflation right now, the biggest threat is too much inflation...thus we need to find the best investment vehicle that can beat inflation. Right? Am I completely confused? :/ Hopefully I didn't overly simplify everything...But just trying to understand the basics first...

5 comments:

LAMoneyGuy said...

inflation would not be considered a cause of recession, rather could coincide with recession (such as in the 70s stagflation). Traditionally recessionary periods are believed to be periods of little if any price appreciation.

Are you asking what your best options are in terms of investment? Career?

If the latter, think bartender, mortician, psychologist.

If the former, think non-discretionary, non-cyclical companies. Recessionary periods are also frequently accompanied by declining rates, so consider bonds. Of course, this is not specific advice, do your own research. (wow, a disclaimer in a comment. Seemed warranted)

freedumb said...

Hehe...love the career options...but I was thinking along the lines of investments...

Maybe I misunderstood the Wikipedia article on recession...I've gotta do more research on this topic...but it's actually difficult to find any solid answers...I guess maybe because the topic itself is a little gray?

freedumb said...

Article on difference between recession and depression. Just found this...kind of interesting...

easy e said...

I'd say buy gold to hedge against inflation or pretty much anything that has an intrinsic value, but gold is small enough so that you won't need a warehouse. Stocks are OK because they should appreciate with an inflating dollar, but if the depression hits the company hard too, your SOL.

freedumb said...

But gold at today's value?!?! Yikes...Makes sense though...stocks might get hit pretty hard...