Recession - Thank you America.

[HappySqurriel]

fkusumot said:

HappySqurriel said:

One thing few people seem to understand is that a downturn in the ecconomy is an opportunity to make a lot of money if you are prepared for it ...

Most people make the mistake of going overboard in boom times, and spend money like drunken soldiers; often they will build up lots of debt and find that they are in a position where they need to make as much (or more) than they currently make in order to pay their bills.

If you have healthy savings you can withstand quite a large shock to your income and/or be able to invest in undervalued investments and get a good return as the ecconomy gets back on track.

I understand that this is easier said than done being that many people have difficulty making ends-meat, but the majority of people living pay-check to pay-check tend to be having difficulty not because they make too little money but because they spend too much money.

 What's the opportunity? How would you know that certain investmensts are undervalued? The only strategy that has made money in the long run is buy and hold. If you haven't been invested and have been holding your assetts in cash during a big run-up you're already behind in the investing game because of inflation. You would have to make more in a downturn to cover the money you left on the table during the upswings to make it a viable strategy.

  That said, your last sentence is very true. The savings rate has gone negative and that means people are spending more than they earn. Not a good strategy to be over-extended when the bubble pops which seems to be what might be happening now. 

Right now?

I'm not sure I would switch my investments today because I believe that a large portion of the markets' movement is unpredictable.

I am watching banks at the moment though ... I suspect that over the next 6 to 12 months banks are going to be taking a beating due to the sub-prime mortgage crisis and (soon enough) credit-card crisis; the nasdaq-bank index is already at a 4 year low and will (likely) drop to a 7 to 10 year low before this is all over. The banks that survive will have huge potential for growth over the next 5 to 10 years, and the index as a whole will probably be one of the best 5 year investments you can make.