Since I left my day job in 2012, I've been constantly preparing for economic devastation. I had to because I no longer had a safety net. My plan was to take a leap of faith and succeed. It would have been too embarrassing to ask for my old job back if I had failed.
Besides, going through the 2008 financial crisis was not something I ever wanted to experience again. For those who were still in school during our previous economic meltdown, be thankful!
Psychologically, if you can prepare for doom, you will likely be happier and less stressed if the time comes. Then when the economy inevitably rebounds, you'll feel blessed to be making easy money again.
If the worst never comes, you'll also feel grateful. Sure, you'll have to contend with not getting as rich as you could have due to having a more defensive portfolio. However, you'll still feel like you're winning.
If the Fed doesn't stop raising rates by the end of 2023, let us look at the bright side of economic devastation!
Economic Devastation Leads To Less Road Traffic
One of the things I loved most about early retirement was not having to commute. Trying to squeeze onto a packed bus for 25 minutes each way was never fun. Even after I started making good money, I couldn't force myself to pay $20 for a cab ride home when the bus only cost $2.
From 2012 – 2021, I enjoyed the bliss of no longer having to commute during rush-hour traffic. However, once my boy began a new preschool in the fall of 2021, my least favorite activity returned.
Today, I spend between 40 – 50 minutes commuting during the weekdays. I leave the house by 8:15 am and pick him up between 3:30 pm and 5 pm.
During the commute, there will inevitably be a double-parked car making traffic worse. If it's not a double-parked car, it's a driver that cuts me off or blasts through a stop sign. Every two or three weeks I see a car accident. City driving is stressful!
The only way to get cars off the road is to create a deep recession. Fewer jobs will lead to less traffic. If supply chain issues can also cause car prices and gas prices to soar, even better for reducing traffic. After all these years, sadly, most people still don't follow my 1/10th rule for car buying.
Sure, creating more public transportation infrastructure helps. But SF city planners behind the 1.96 mile Van Ness bus project took 27 years to complete at a cost of $346 million! Nobody has time to wait that long.
When the dotcom bubble burst in 2000, downtown San Francisco became a ghost town in 2001. I could go to any restaurant or bar without a reservation. Sadly, people are now returning to San Francisco and many other big cities according to a latest LinkedIn jobs report.
Economic Devastation Leads To A More Fulfilling Career
Imagine you are a smart person who went to a top university.
You dreamt of going into publishing because you love books. Once you learn all about the publishing industry, you hope to one day become a published author yourself. However, because your parents spent $300,000 on your college education, you feel the need to get the highest-paying job possible upon graduation.
Instead of taking a $55,000 editorial assistant job at Penguin Random House in New York City, you accept a job at Facebook in Menlo Park making $180,000. Big tech, management consulting, and banking are where your “best and brightest” classmates go because these industries pay the most and have the most prestigious firms.
You love the perks at Facebook. But as an English major, you feel out of place. Instead of acquiring and editing the next great personal finance book, you spend your days optimizing online ad conversion rates.
For three years, you're making and saving lots of money working at Facebook. Even though you don't give two licks about Zuckerberg's metaverse, you pretend that you do. Then a bear market tanks your company's stock by 70%, wiping away five years of progress.
You Get Paid To Take A Chance On Your Dreams
Realizing it might take at least three years for Facebook's share price to get back to its all-time high, you decide to take a leap of faith and pursue your dreams.
Instead of just quitting to start your new adventure, you resourcefully engineer your own layoff. The money you gain from your severance package provides a valuable runway for you to launch.
Even if your dreams don't come true of eventually becoming a professional writer once you learn the publishing industry, you will at least feel content for having tried.
How many of us work at jobs we don't like just for the money, prestige, and benefits? Black swan events, like the pandemic, force us to weigh what truly matters when money is no longer the main driving factor.
If you're ready to start your own adventure, please read my guidebook How To Negotiate A Severance Package: Never Quit, Get Laid Off.
Economic Devastation Gives Our Children A Better Investment Entry Point
Although a recession usually hurts our wealth, it gives our children an opportunity to build more wealth.
Back in 2008, my line manager with two kids told me something funny. He said, “You're lucky you don't make that much. This downturn won't hurt you nearly as bad as it will hurt me!”
At the time I remember thinking, gee thanks. But I understood what he meant. The less you have, the less you have to lose when economic devastation strikes.
Think about the millions of people with no stock holdings. How fortunate to build their net worths just be saving more than they make!
Our kids can buy more shares of the S&P 500 in their Roth IRAs at depressed prices. Parents can feel better contributing to their kids' 529 plans, a portion of which can now be rolled over into a Roth IRA after 15 years starting in 2024.
If the economy gets really bad, maybe you could even pick up a rental property for your newborn at a deep discount. In 18 years, the property will likely have generated tremendous cash flow and be worth much more.
To pay for college, you could take out equity or use the rental income. Either way, life is much easier once your kid has an income-generating asset that also provides shelter.
Investing In Private Growth Companies
Personally, I'm investing in more private growth companies in the artificial intelligence space. Investing in private companies is where you might be able to find the next Google, Meta, Figma, Apple and more.
The most interesting fund I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. I don't want my kids asking me in 20 years why I didn't invest in AI or work in AI today.
The fund's investment minimum is also only $10, as Fundrise has democratized access to venture capital as well. Most venture capital funds have a $200,000+ minimum.
Economic Devastation Gives Us More Chances To Live In A Nicer Home
Shelter is a fundamental right. Affordable housing, on the other hand, is a big problem in the largest cities. Simply too few homes have been built over the decades to meet demand.
If it wasn't for the pandemic, my family wouldn't be living in a nicer home today. We had bought a fixer in April 2019 with the goal of remodeling it for one year and moving in.
But thanks to the start of lockdowns on March 18, 2020, several months later, I was able to buy a forever home soon after for about 9-10% less than if there weren't lockdowns. Public showings were cancelled and more people were understandably afraid to spend money.
If you've been wanting to buy a home for a while, have job security, and have the funds, a housing crash might be what you want. It's no fun getting into bidding wars and losing. Even if you win, you may feel off for paying more than everyone else.
The same thing goes for those who want to upgrade their homes. If your $500,000 home loses 10% of its value but so does the $1,000,000 upgrade home, you're still winning by $50,000.
In fact, I'm in contract to buy a dream home for 18% what I was willing to pay in 2022. I can't believe my good fortune. With stocks up over 20% since 2022 and this home down 18%, it's a double win and I'm taking advantage.
The best time to own the nicest house you can afford is when your kids are at home. Sure, there might be better entry points to the housing market, but your kids grow up quick.
Economic Devastation Enables The Best To Rise
Warren Buffett's quote is apt, “You only find out who is swimming naked when the tide goes out.”
It's easy to deemphasize merit during good times. When times are good profits are abundant. Companies and institutions have a higher tolerance for inefficiencies to better conform to society's virtuous demands.
When a downturn hits, however, companies are more focused on maximum productivity, maybe even survival! Non-essential programs get cut. Unqualified people no longer get hired. Bottom-tier performers are let go. It's all hands on deck!
The key is to be a strong performer. If you are a strong performer, you are OK with economic devastation because you have a greater chance of surviving. If you can survive a downturn, then you are one of the first to be rewarded when the economy recovers.
Those who lose their jobs during a downturn fall behind. If they remain unemployed or underemployed for one-to-two years, they will likely never catch up to those who survive.
Lean companies with strong balance sheets welcome the shuttering of competitors with bloated staff and weak balance sheets. Some of the most innovative companies are born during deep recessions.
Economic Devastation Blows Up Charlatans
When times are good, from a business person's point of view, it's easier to pretend you're an expert at anything to make money. You could attend the University of Portland for $70,000 a year as a theatre major and position yourself as a finance expert who grew up poor. People will believe you.
But when bad times come, people pay closer attention to substance and are less fooled by marketing. Those who are legitimate experts will outperform when the lights eventually come on at the night club.
If you have a risk-appropriate asset allocation, you don't mind if your rival buys stock on margin and loses all his money. If you were evil, you'd actually encourage them to leverage themselves even more when valuations are at extreme levels!
You wouldn't recommend your rival to subscribe to the Financial Samurai newsletter or read a bestselling personal finance book full of tactical advice. Instead, you'd steer them to expert TikTok marketers with no relevant financial background.
Not only will your rival get exposed to risk-inappropriate advice, they might also get sucked into buying $2,000 courses that make them even poorer!
Economic Devastation Is Great For Competing Countries
When the Chinese government decided to institute a Zero COVID policy, politicians from competing countries secretly rejoiced. Although the Chinese government's desire to save lives was admirable, everybody else knew that eradicating COVID in a country with a 1.41 billion population was impossible.
After almost three years of draconian lockdowns, China's economy has suffered greatly. China's 2022 GDP grew at only 3%, compared to a target rate of 5.5%+. Its youth unemployment rate hit almost 20%, resulting in tremendous social unrest.
As a result of China's economic slowdown, other countries and competing businesses have been able to take marketshare. If you're an American patriot, you are thrilled to see three years of huge outperformance in America's stock market, real estate market, and labor market.
Economic Devastation Enables You To Finally Live The Good Life
It's better to retire during a bear market than it is during a bull market. If you can retire during bad times, it means your finances are strong. After 13 – 15 months, bear markets usually end. Then your net worth tends to stabilize or get a nice boost.
The opportunity cost of not working hard during a recession is lower. Can you imagine working 60 hours a week for one year only to see your company's share price get cut in half? Therefore, it is only logical you spend more time doing other things that matter.
Giving in to losing money frees your soul!
Expect The Worst, Hope For The Best
So there you have it! If economic devastation comes again, there are at least some positives. Even if the middle-class is destroyed, there are some upsides as well.
The key is to not be one of the downturn casualties. If you can survive and also take advantage of suppressed asset prices, you'll end up winning big when things eventually get better.
Update: Well what do you know! Thanks to poor management decisions at Silicon Valley Bank and an overly aggressive Fed, the U.S. financial system is on the verge of collapsing once more. A bank run ensued at SVB bc it lost $1.8 billion in its loan book. The FDIC had to backstop all depositors to stop the spread of contagion.
Be prepared for economic calamity as the middle class gets crushed by the Fed. The economic grim reaper is knocking at our doors if the Fed doesn’t stop its rate hikes and pivot. The Fed broke sometime and might continue to. break things because the Governors or so rich, they don't care about the middle class.
Reader Questions And Suggestions
Readers, are you bracing from economic devastation? If so, how do you ensure you also participate handsomely on the upside? Do you welcome an economic purge so that green shoots might grow once more?
Check out Empower, the best free tool to help you become a better investor. With Empower, you can track your investments, see your asset allocation, x-ray your portfolios for excessive fees, and more. Staying on top of your investments during volatile times is a must.
To outperform the masses, pick up a copy of Buy This, Not That, my instant Wall Street Journal bestseller. The book helps you make more optimal investment decisions so you can live a better, more fulfilling life.
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