How to Make Money During A Recession
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If the pandemic has taught us one thing, it’s how to adapt. When schools and workplaces around the country closed in March 2020, we all turned to virtual platforms like Zoom. When we couldn’t make it to the grocery store, Target, or the local diner, stores and restaurants adopted new methods of online ordering and delivery services.
Likewise, during times of economic downturn, adaptability is key. The challenge of making money during a recession is intimidating. However, with a little research and ambition, you can find some peace of mind amidst the volatility of the U.S. economy.
In this article
How to profit even during a recession
Here’s some good news for you: It’s not as difficult as it sounds. The trick is understanding what continues to thrive even in economic hardship, taking advantage of short-term and long-term opportunities, and utilizing any resources available to you. Even a recession provides opportunities to maximize your cash flow. Here’s how.
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Invest in recession-proof stocks
Whether the economy is booming or nearing another Great Recession, the stock market provides financial opportunities worth exploring. You may be tempted to completely avoid stocks during a recession, especially if you hold a conservative risk tolerance. While many stock prices do plummet, some sectors remain stable and reliable, providing returns to investors even during economic hardship.
Take a moment to think about the products and services you, the community, and the rest of the country will continue to spend money on regardless of the economy. In other words, think about consumer staples — healthcare, utilities, consumer goods, etc. These core stocks and ETFs are the ones you should focus on during this time.
Using a dollar-cost averaging investment strategy can take the emotion out of investing. This systematic approach ensures you maintain consistency in the market, investing equal amounts at regular intervals. Because how much you invest remains the same, you’ll buy more shares when the stock price is low and fewer shares when it’s high. Not only can this result in paying a lower average price for each share over time, but it also helps to mitigate your losses in a market downturn.
Focus on dividend-paying stocks
Dividend stocks are companies that share a portion of their profits with their shareholders. It is a great way to be a part of America’s largest companies and earn passive income while doing so. The top dividend-paying stocks include Johnson & Johnson, Microsoft, ExxonMobil, Tesla, and Coca-Cola.
When evaluating dividend stocks, look for companies with strong balance sheets and low debt-to-equity ratios. I recommend beginners start with dividend aristocrats, i.e. companies that have been consistently paying dividends for at least 25 years. The payout may not be as high, but they are the most reliable dividend stocks — even in a bear market.
Jump on real estate opportunities
When the economy enters a recession, home value typically drops. This means investors can buy a property at a lower price, create an income stream through trustworthy tenants, and sell the property at a higher price when the housing market has recovered.
Between buying and selling, leasing and crowdfunding, there are many opportunities to create wealth through real estate. But you don’t necessarily need to purchase a new property to do so — you can turn the space you already own into extra cash by renting out an unused room in your home as an Airbnb host.
Investing in real estate can be profitable even in a healthy economy, but a housing market collapse makes the initial costs more manageable. A recession may just be the best opportunity to explore your HGTV-inspired house flipping dreams.
- Commission free stock trading.
- No account minimum.
- Trade stocks, options, ETFs, and more.
- First stock free.
Go for gold
Although it does not generate regular income like real estate or dividend stocks, gold is always in high demand. Because it is a hard asset, its value increases during economic hardship. Investing in gold mutual funds and EFTs is an easy and safe option that offers a low minimum investment. In addition, adding gold to your portfolio increases your diversification, ultimately helping you accomplish your personal finance goals.
Refinance your loans
One way the Federal Reserve responds to a recession is by reducing interest rates. This is good news for the average consumer. If you have a business loan, a home mortgage, or even a car loan, you should refinance while interest rates are low. Doing this could save you thousands of dollars in interest over time.
Monetize your hobbies and talents
When a recession hits, you may need to rely on nontraditional streams of income to make ends meet. If you are skilled at writing, check out freelance opportunities. If you are crafty and have a unique product idea, sell your creations on Etsy. If you have spare time to do yard work, walk dogs, or run errands, post your services on Craigslist, a community Facebook page, or use word-of-mouth advertising. Any skill or talent you have can potentially be an additional source of income.
Turn your attention to saving money
While the majority of this article focuses on how to make money, it’s important to discuss saving as well. Disposable income can easily become scarce during a recession. It is important to establish a budget and cut costs where you can. Any extra funds you can set aside in a savings account can become your emergency fund if the economy gets worse.
Furthermore, building up a cushion of cash now means you have the funds available whenever a lucrative opportunity arises in the future.
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Resources to help you succeed
Acorns
If you want to get into investing but don’t know where to start or are intimidated by the process, using a financial services company like Acorns is a great way to hit the ground running. Acorns can help you invest small amounts of money to begin diversifying your portfolio. They simplify the process so you can start building wealth seamlessly.
Betterment
Betterment is another robo advisor that can guide you through the world of investing. With their financial planner, you can set your personal goals, whether that’s buying a house, saving for a family, or traveling to Europe. Then, they provide you with an investment plan customized to meet your goals. They also provide tools for retirement planning.
RealtyMogul
If buying and selling houses isn’t for you, you can still invest in real estate properties through crowdfunding platforms like RealtyMogul. This program gives you access to and allows you to invest in individual properties and Real Estate Investment Trusts (REITs) that are safe and likely to yield a return.
Airbnb
If, instead of investing in someone else’s property, you have a property or room you want to rent out, head to Airbnb. Here, you can list your space for free, talk with potential renters, and get paid without any hassle on your end. This is a great way to capitalize on any extra space you have before, during, and after a recession.
Costs
When it comes to making money during a recession, the costs you will face depend on your strategy. Many budgeting apps, including Mint, are free to use. You can also find an unlimited amount of free resources to educate yourself on personal finances and investment opportunities. The investments themselves, however, will require you to dish out some money — otherwise, they wouldn’t be investments.
When it comes to stocks, you don’t need much to get started. Many online platforms (like Ally Invest) let you buy and sell commission-free, and some don’t require account minimums. If you are using the assistance of a robo-advisor, you will be charged a fee. Acorns costs $3 per month for an all-in-one personal plan, while Betterment’s most basic digital investing plan comes with an annual fee of 0.25% of your account balance. After the initial costs, the amount you choose to invest is up to you.
Real estate can be a pricey investment. Like stock, you determine how much money you’re willing to put in. However, the cost isn’t limited to how much you pay to purchase a property. There may be tens of thousands of dollars in costs related to renovations and upgrades, closing costs, insurance, and other unexpected expenses. Investing through crowdfunding platforms like RealtyMogul also comes with costs. Although the platform is free to explore, the minimum investment is $5,000, and you will also have to pay legal, management, and administrative fees.
The costs to refinance depend on the type of loan. For house mortgages, you’ll have to pay closing costs. You can generally expect to pay 2-5% of the total loan amount. However, refinancing can still help you save money in the long run. Depending on your credit score and property history, you may be able to cut costs by asking to waive a new appraisal, working with the same title insurance company, and skipping mortgage points.
- In under 3 minutes, start investing spare change, saving for retirement, earning more, spending smarter, and more.
- Make your first successful Recurring Investment (min $5) - get your $20 bonus within 10 days of following month
- Over 13M All-Time Customers
- Over $22B Invested
Pros and Cons
Pros
- There is light at the end of the tunnel. History shows that an economic downturn — as bad as it may be — is followed by an even-more-dramatic upturn.
- You have control over how much money you risk. You get to decide how much money you are going to spend, whether that’s in the form of stocks, real estate, or a small business.
- The changes you make now last longer than a recession. Refinancing your loans, selling your crafts, investing in gold and dividend stocks doesn’t just help you survive a recession — these actions can provide money for years to come.
Cons
- The economy is unpredictable. A stock that increased in value yesterday is not necessarily going to continue increasing.
- You may lose money. Because of the riskiness of investments and the unpredictable nature of the economy, you could face losses, especially if the recession worsens before it improves.
- Investing can be a rollercoaster. Stock prices are volatile, and those who invest may feel anxiety from its highs and lows.
The bottom line
The common reaction to a recession is panic. Although this is a normal response to a loss of control and predictability, not all hope is lost. Economic downturns can provide new opportunities for those ready to take advantage of them. Even with stock prices plummeting, certain core stocks and dividend stocks remain reliable. The real estate market becomes easier to enter as home values drop. Refinancing loans with lower interest rates can save thousands of dollars in the long run. And there’s no better time to focus on saving money and utilizing your skills to maximize your income.
In times of economic uncertainty, one thing is certain: Your reaction to life’s hardships determines not only how well you make it through the recession but also how well you flourish when the good times return.
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Writer
A veteran wordsmith and research nerd, Brittany Wren spent a decade working in higher education where she helped people overcome challenges to chart a path forward. These days, she writes about personal finance, careers, parenting and education. Her content has been published by a wide variety of brands including T-Mobile, Intuit, LifeLock, Reliant Fund Administration and CURO Financial Technologies Corp.
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