Skip to main content

How You Should Get Ready for the Next Crisis

Ahamed has an MBA and worked in document control for years. He enjoys writing and has freelanced and blogged across the internet.

When it was revealed that Keeping Up with the Kardashians would finally be canceled in September 2020. People were in quarantine all around the world, and the death toll from COVID was rising.

But just as COVID began to wind down and the world was about to exhale a sigh of maskless relief, Russia decided to invade Ukraine and become the turd in the punch bowl once more, sending global markets into a tailspin. And if that weren't bad enough, the Kardashian family made a comeback with a brand-new Hulu reality series three weeks after Russia invaded Ukraine. The COVID pandemic had sown the seeds of inflation, and as a result, things would only get worse as time went on.

how-you-should-get-ready-for-the-next-crisis

Worldwide, inflationary has reached levels that have not been seen in nearly 50 years; as of the writing of this piece, it has reached 8.58% in the US. a record that was set in 1981. The shocking increase in inflation is mostly caused by the rising cost of food and energy as a result of the COVID pandemic's slowdown in both sectors of the economy.

Between February and March of this year alone, food prices rose by 12.6%, the greatest rate of inflation since 1990. Due to the direct effects of the conflict and a Russian blockade on Ukrainian shipping, the price of wheat and other crops was impacted particularly hard by the conflict in Ukraine, with prices soaring by 17.9%. Since a large portion of the world's wheat and other crops are grown in both Russia and Croatia, the war has had a devastating impact on commodities prices.

What little wheat was able to be harvested in Ukraine has either been taken by Russian troops or blocked by Russian ships in the Black Sea. Ukrainians have had their farms damaged or occupied by Russian troops. There has been a rising desire in the West for Ukrainian trade convoys to be accompanied by NATO warships to break past Russian blockades as the situation is becoming so desperate, especially for impoverished African nations that face an impending famine.

The Russians would be forced to make a decision that would have serious repercussions: either engage the stronger NATO fleets and escalate the conflict, or permit the export of Ukrainian grain, eliminating the threat to African countries and bringing down food prices globally. This historical inflation has also been fostered by the world's voracious need for things.

Beginning in late 2021, millions of individuals emerged from lockdowns and quarantines, flooding retailers around the globe with the money they had saved up during the detention. Everyone was in desperate need of food, and as a result, prices increased in line with the jump in demand. Last but not least, the current surge in energy costs is a result of Russia's annexation of Ukraine.

All of these circumstances converged like a perfect storm at the worst possible time, just as people were about to resume their normal lives after the pandemic. Oil prices have increased dramatically as a result of sanctions against Russia and disruptions in Russian oil supplies. The fact that OPEC members refused to raise production in order to counteract Russia's interruption made the situation worse.

The rising price of oil is a financial boon for OPEC members like Saudi Arabia, who are profiting handsomely as the rest of the globe struggles. Thankfully, American President Joe Biden was able to negotiate an increase in oil production by OPEC, which should lower prices in the upcoming summer months. This was likely made possible because countries like Saudi Arabia were reminded of who really provides for their national defense against enemies like Iran.

how-you-should-get-ready-for-the-next-crisis

In what way are you prepared to withstand the impending financial meltdown?

First, try to relax. Economic crises don't last forever. Even the Great Depression only lasted a few years before the US entered its most successful period of history due to economic recovery. Despite the fact that World War II was helpful, both the depression and this recession will eventually come to an end. You should make an effort to maintain perspective and avoid succumbing to what investors refer to as FUD, or Fear, Uncertainty, and Doubt. The typical recession lasts 11 months.

Interest rates are being raised by governments all across the world to help fight growing inflation. This means that loans for expensive products like houses and cars will now have higher interest rates, resulting in higher payments. Higher interest rates make customers less willing to spend money, which can lower demand for goods and bring prices back down. This is how central banks combat inflation basically.

So put off purchasing a car or a brand-new home for the time being. Save money now and wait for the recession to end, when traditionally economic growth rebounds and interest rates decline once more. If you are an investor, you probably feel a lot of dread right now. Traditional equities have been severely damaged, and the S&P 500 has now entered a bear market after falling by 20% from its most recent high.

The entire stock market has lost billions of dollars as a result, forcing some portfolios to crumble. Given that the value of cryptocurrencies has fallen by over $1 trillion since March 2022, if you invested in them, you have undoubtedly felt this anguish. Even Bitcoin, the biggest cryptocurrency, has lost more than $60 billion in market value over the past six months, so the bottom doesn't seem to be in sight. Many people now fear the crypto market due to the fall of various altcoins, most notably Luna, which has only made matters worse by scaring away new investors.

Scroll to Continue

Market movements, though, aren't always awful for investors if you can persevere for a while. Remember, you don't lock in losses until you sell, so resist the desire to sell and cut losses unless you have a solid cause to think your investment is headed towards the single digits. Instead, it could be time to reevaluate priorities and change where money is invested. During bear markets, investments in consumer goods, healthcare, and energy are always wise choices because these sectors are essential to the typical person and are likely to suffer the least damage.

In reality, if you invest during a down market, you can even see a tiny profit because everyone needs essential consumer goods. Investors in cryptocurrencies could be better off simply tossing their money down the drain. I'm joking. It's time to reassess the financial ventures you're supporting and to switch your attention from less risky to more tried-and-true investments.

how-you-should-get-ready-for-the-next-crisis

Given their extensive acceptance, significant coins like bitcoin, virtual currencies, and worthwhile efforts are unlikely to disappear. People want to use these coins, and while using a well-established cryptocurrency is still incredibly risky, compared to your cousin's altcoin that he airdropped you last week at Starbucks, there is intrinsically less risk.

Looking at the market capitalization of all the coins is a fantastic approach to figure out which coins are most likely to survive this crypto-crash since it will show you which coins people are keeping or utilising. The trick during a bear market is to refrain from trying to time the market, regardless of whether you choose to invest in more risky options like cryptocurrency or classic investments like equities. Stop hunting for the bottom in the hope that you might enter at a rock-bottom price and profit greatly from the recovery. Stop chasing moons and Lambos and start investing like an adult by employing the tried-and-true method of value investing.

This means that you always invest a given amount at a set period, regardless of the price. Regardless of the price, if you get paid on the first and fifteenth, you must invest on those days. This is ultimately considerably more fruitful than saving money and trying to time the market. Paying off your credit card debt as soon as you can is the next strategy for surviving a recession. Although it could be challenging, given the rising interest rates, this is extremely vital.

This implies that the total amount you end up paying will continue to rise every month. A few percentage point increase in interest could result in you paying hundreds or even thousands more if you make low payments over the long term. So set a spending limit and quickly pay off your credit card debt.

The next thing you should do is make sure to save money. The last thing you want is to lose your job and all of your funds during a recession, which can have negative consequences on a wide range of industries. In order to ensure that you have a comfortable cushion in case things quickly go south, it's essential to reduce spending and tighten your belt. If you're fortunate enough to have a sizeable cash reserve, now is the time to start looking for investments that will protect your money from deflation.

Although hoarding real estate at the time may come with its own risk due to worries about a housing bubble burst, gold and real estate are historically strong inflation and recession shelters. Don't be surprised if social discontent and demands for government action cause a significant decline in the value of your real estate; instead, read the room and park your money elsewhere. Home and rent prices in the US and even the rest of the world are at historic highs.

Additionally, by purchasing real estate merely to stash your money, you are only worsening the situation for everyone else by reducing the supply and raising costs. When bonds are typically fairly reliable investments even amid economic turbulence, stocks suffer during recessions while equities perform poorly. Bond prices have also been negatively impacted by the economic downturn.

how-you-should-get-ready-for-the-next-crisis

Unless you're asking how they differ from one another, stocks are a form of partial ownership in a business. Consequently, if you purchase Apple shares, you are now a shareholder in the business. But don't count on getting a meeting invitation to the following board meeting unless your percentage is significant. However, when you buy a bond from a firm or government, you are actually making a loan to them.

Bonds are great investments for anyone searching for a predictable income because you are promised a certain amount of interest on the bond each year. If you invest $2500 in a ten-year bond with a 2% interest rate, you will receive $50 per year until the end of the term, at which point you will receive your initial investment back in full, making a $500 profit. Whether you purchase a bond from a corporation or government, that organization or entity is now obligated to repay you for the amount you purchased plus interest over a predetermined length of time before the bond is fully repaid.

Investing in stocks can frequently produce noticeably superior outcomes because your return grows as the company's own worth does. The inverse is also true; your stock's value decreases as the company's value increases.

Securities and bonds each have a unique risk-reward ratio. Investing in stocks can frequently produce noticeably superior outcomes because your return grows as the company's own worth does. The inverse is also true; your stock's value decreases as the company's value increases.

Last but not least, a bond offers a very safe return on your investment, even though that return is frequently substantially lower. The only true danger associated with bonds is if the organization from whom you purchased them fully fails for some reason, such as the demise of a business or government. Treasuries may continue to offer a little but appreciating return during a recession, which could be a wise decision and help you weather the financial crisis.

Recessions come to an end, and the sun will once more shine. Unless you bought Luna. Notwithstanding your plan of action, the most crucial thing is to never succumb to panic.

Related Articles