I heard about recession on TV. But what is a recession? And what causes it?
A recession is a period of economic decline that is usually triggered by consumers starting to spend less. That in turn causes businesses to cut costs and lay off workers. This results in higher unemployment, leading to even lesser spending.
Some people and businesses may also not be able to pay off debt since they’re earning less, causing even more economic damage.
How can you predict when a recession is gonna happen?
It is impossible to accurately predict a recession. But there is one telltale sign of a recession: when short term bonds pay a higher rate of interest than long term bonds. Generally, it is the other way around, and this odd reversal is caused by investor fear and uncertainty about the future.
How long do recessions typically last?
Recessions can last anywhere from 6 months to 1.5 years. However, most recessions in recent times – like the Great Recession following the financial crisis in 2008 – have lasted eight months to one year.
How should I invest during a recession?
Stock prices tend to go down during a recession, so contrary to popular behavior, it is a good time to invest for the long term if you have the cash to spare. A great way to invest during this time is by using a strategy called Dollar Cost Averaging, which is proven to almost always yield a good return in the long term.