Partner Article

Making money in a recession.

Businesses are navigating difficult economic times currently and the experts tell us things are going to get more difficult. What is happening globally is a cyclical process. We are told a global recession is on the way. Typically that means a depreciation in capital assets and an even bigger hike in the cost of living. History tells us we may see water and food shortages and there will be an impact on businesses. Preparation is the key to riding this inflation storm.

Go low in cash terms. In a recession money is the first thing to depreciate. However, there are always areas of growth. On my “Business Owners and Entrepreneurs - Transition Guy podcast” I featured Simon Severinio, CEO of Strategy Sprints. He told me that he is investing in areas tech stocks like Google, Tesla and Amazon as well as dividend stocks, like Canadian National Resources, Enbridge, and fertilizers companies, because he assumes that there will be a food and water shortage. He points out that in the gold rush, people who made the most money were not the people looking for gold but the people who were selling picks and shovels because there was such high demand. In terms of constructing a portfolio he ensures in times of global economic instability he has only 1% cash. The key is to find an asset which is limited in supply, but high in demand.

Investing in real estate is seen as a hard asset. With a property portfolio choose something that is low maintenance otherwise your asset becomes a job. Property is a solid asset which gives you income and can be borrowed against. However, if you need liquidity and access to your money you may need to take another route. In this instance Severino advises pristine stocks, dividend stocks and the three unbeatable network effects companies - Amazon, Tesla, and Google. These are easily sold and rarely depreciate more than 10%. Always consider capital gains when buying and selling assets. Severino gives the general advice to build hard assets over a long time and let them appreciate. If you need liquidity then don’t invest in hard assets.

Consider the three systems of investing. Many of us need access to our surplus cash and do not want it tied up. If this is you, Severino points out that there are three systems to consider fiscally in this instance. A revenue system, a saving system and an investment system. Build your revenue system up first. Revenue is your oxygen and needs to be protected and reliable. A saving system should be allocated in hard asset allocation, gold, real estate or even bitcoin are some of the hard assets people invest in. Your savings should not be seen as liquid, but they can be borrowed against and provide a source of money. Always consider and balance risk and opportunity. Find a revenue system that works whatever the weather is in the markets. Once you have stability in your revenue stream you can start shaving off and putting money into your savings. Then you look at where to invest those savings into hard assets to make you more money. Those hard assets can be borrowed upon to make more money.

Severino says that cash is trash and must be seen that way when businesses are preparing to ride out high inflation and unstable economic times. Look after your revenue, save and invest in hard assets which you can build upon or borrow against to invest in more hard assets. Grow your portfolio and protect your revenue. Building your revenue means growing your business.

This article was written by Business Coach Peter Boolkah, an expert with over 20 years experience helping organisations to scale up.

This was posted in Bdaily's Members' News section by Lucy Hood .