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What can the average founder, employee, and person do in the face of this news? I understand that it’s scary, but what can we do to turn that fear into an acti

What can the average founder, employee, and person do in the face of this news? I understand that it’s scary, but what can we do to turn that fear into an actionable checklist?

jrussino 8y ago
Similarly: I'm in my early thirties with young kids. Apartment life is getting cramped and we're ready (eager) to finally buy a home. How should this prediction/speculation factor into my decision?
- smallgovt 8y ago
  You can see how fixed rate mortgages trend during periods of recession here: https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US Using this data, you can make some guesstimates on how waiting might effect your home purchasing decision. By my read, mortgage rates tend to decrease during a recession. However, mortgage rates are already very low, so the potential savings may not be meaningful.
  - vijayr02 8y ago
    Wouldn't the larger driver be a potential fall in house prices?
    - smallgovt 8y ago
      With the exception of the 2008 financial crisis, housing prices typically appreciate during times of recession, albeit more modestly. My guess is that this is primarily driven by falling mortgage rates. "The FHFA U.S. house price index rose by an average of 7.4 percent in the year prior to a recession and prices rose an average of 2.7 percent from the start of a recession to the end" [ https://www.cnbc.com/2018/12/11/housing-could-be-an-unlikely-place-to-hide-out-if-a-recession-is-coming.html https://www.cnbc.com/2018/12/11/housing-could-be-an-unlikely... ]
      - dragonwriter 8y ago
        > With the exception of the 2008 financial crisis, housing prices typically appreciate during times of recession, albeit more modestly. My guess is that this is primarily driven by falling mortgage rates My guess is that it's a smaller market with less price sensitive buyers, based on who can afford to buy and who is therefore likely to sell during a recession (the late 00s recession being different because of the central role of the housing market collapse in that recession.)
toomuchtodo 8y ago
Reduce your burn rate (you should have no debt except a mortgage or a lease obligation). Have at least 6-12 months of emergency fund in an FDIC insured account. Network to be prepared to find a new gig fast if yours evaporates. Be prepared for credit card and home equity credit lines recinded with no notice. I did not do these things prior to the 2008 global financial crisis, and it was unpleasant.
rossdavidh 8y ago
For example, paying down debt would be a good idea. [sound of numerous economists jumping up and down saying this would turn prediction of recession into self-fulfilling prophecy] Also, holding off on any major new purchases like houses or new cars. [sound of foresaid economists moaning and putting their heads in their hands in despair]
- conanbatt 8y ago
  > For example, paying down debt would be a good idea. Opposite from a financial standpoint: if interests rates lower in the future you will be able to refinance. From a job-vulnerability perspective it always lowers your risk though: better not to be very leveraged if your income can fluctuate.
  - sf_rob 8y ago
    You'll only be able to refinance if a bank is willing. If a recession is the driver of a fed rate reduction, that seems less plausible.
- qzw 8y ago
  It really depends on the type of debt. Don't pay down your mortgage by $10k. It will probably do nothing to lower your monthly payments. Do reduce high-interest credit card debt if possible. If you don't have high interest debt, save the money in cash or cash equivalents. High yield savings accounts are paying 2.5%. Also, do everything you can to increase your liquidity and access to liquidity. Maybe open a home equity line of credit, but don't dare spend from it! In a recession, liquidity is king. During the Great Recession, Leman Bros. went under due to illiquidity more than anything else. Whereas Warren Buffet made a killing because he could come up with cash when hardly anybody else could or would. The same principle applies to economic entities of any size.
wyldfire 8y ago
Hedge against market risk by moving from a market index into something like a volatility index.
- somebodythere 8y ago
  The cost of carry to long volatility is insane, and there's no guarantee spikes in volatility will be well-correlated with drops in the market. Don't do this unless you know what you're doing.
- levthedev 8y ago
  Don't do this. See the other response as to why.
alehul 8y ago
If you're a founder and this genuinely does scare you: raise money. Assuming your company stays on the same trajectory, you can raise at much better terms now than when a recession hits, especially if said recession will impact your growth.
- byset 8y ago
  Yes, raise now and to be safe, assume that you will not be able to raise money again.
Cshelton 8y ago
First thing, don't panic. (And I'm not trying to play on HHGTTG...). So don't go rush out and liquidate all of your investments. Second, always make sure you personally have a plan with savings for at least 6 months or more. Think about what would you do tomorrow if your source of income stopped and you had to make it for a year without any more income. How would your life style change? What sacrifices would you have to make? Unfortunately, many people have very little to no savings and this isn't even an option. If you are close to retiring (5-10 years or less), consult a financial advisor who you trust. At this point, you should have enough to live off of in safe/less volatile investments. As a startup founder, I think the macro economics side is the last of your worries on a long list... you should always have contingencies for things not going right. For instance, a large company releases a competing product to you tomorrow...
throw0101a 8y ago
> What can the average founder, employee, and person do in the face of this news? Make sure your finances are in reasonable order in case you get laid off: * https://www.reddit.com/r/personalfinance/wiki/commontopics https://www.reddit.com/r/personalfinance/wiki/commontopics Not all economic downturns are as bad as the Great Recession was.

What can the average founder, employee, and person do in the face of this news? I understand that it’s scary, but what can we do to turn that fear into an actionable checklist?

jrussino 8y ago

Similarly: I'm in my early thirties with young kids. Apartment life is getting cramped and we're ready (eager) to finally buy a home. How should this prediction/speculation factor into my decision?

smallgovt 8y ago
You can see how fixed rate mortgages trend during periods of recession here: https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US Using this data, you can make some guesstimates on how waiting might effect your home purchasing decision. By my read, mortgage rates tend to decrease during a recession. However, mortgage rates are already very low, so the potential savings may not be meaningful.
- vijayr02 8y ago
  Wouldn't the larger driver be a potential fall in house prices?
  - smallgovt 8y ago
    With the exception of the 2008 financial crisis, housing prices typically appreciate during times of recession, albeit more modestly. My guess is that this is primarily driven by falling mortgage rates. "The FHFA U.S. house price index rose by an average of 7.4 percent in the year prior to a recession and prices rose an average of 2.7 percent from the start of a recession to the end" [ https://www.cnbc.com/2018/12/11/housing-could-be-an-unlikely-place-to-hide-out-if-a-recession-is-coming.html https://www.cnbc.com/2018/12/11/housing-could-be-an-unlikely... ]
    - dragonwriter 8y ago
      > With the exception of the 2008 financial crisis, housing prices typically appreciate during times of recession, albeit more modestly. My guess is that this is primarily driven by falling mortgage rates My guess is that it's a smaller market with less price sensitive buyers, based on who can afford to buy and who is therefore likely to sell during a recession (the late 00s recession being different because of the central role of the housing market collapse in that recession.)

toomuchtodo 8y ago

Reduce your burn rate (you should have no debt except a mortgage or a lease obligation). Have at least 6-12 months of emergency fund in an FDIC insured account. Network to be prepared to find a new gig fast if yours evaporates. Be prepared for credit card and home equity credit lines recinded with no notice. I did not do these things prior to the 2008 global financial crisis, and it was unpleasant.

rossdavidh 8y ago

For example, paying down debt would be a good idea. [sound of numerous economists jumping up and down saying this would turn prediction of recession into self-fulfilling prophecy] Also, holding off on any major new purchases like houses or new cars. [sound of foresaid economists moaning and putting their heads in their hands in despair]

conanbatt 8y ago
> For example, paying down debt would be a good idea. Opposite from a financial standpoint: if interests rates lower in the future you will be able to refinance. From a job-vulnerability perspective it always lowers your risk though: better not to be very leveraged if your income can fluctuate.
- sf_rob 8y ago
  You'll only be able to refinance if a bank is willing. If a recession is the driver of a fed rate reduction, that seems less plausible.
qzw 8y ago
It really depends on the type of debt. Don't pay down your mortgage by $10k. It will probably do nothing to lower your monthly payments. Do reduce high-interest credit card debt if possible. If you don't have high interest debt, save the money in cash or cash equivalents. High yield savings accounts are paying 2.5%. Also, do everything you can to increase your liquidity and access to liquidity. Maybe open a home equity line of credit, but don't dare spend from it! In a recession, liquidity is king. During the Great Recession, Leman Bros. went under due to illiquidity more than anything else. Whereas Warren Buffet made a killing because he could come up with cash when hardly anybody else could or would. The same principle applies to economic entities of any size.

wyldfire 8y ago

Hedge against market risk by moving from a market index into something like a volatility index.

somebodythere 8y ago
The cost of carry to long volatility is insane, and there's no guarantee spikes in volatility will be well-correlated with drops in the market. Don't do this unless you know what you're doing.
levthedev 8y ago
Don't do this. See the other response as to why.

alehul 8y ago

If you're a founder and this genuinely does scare you: raise money. Assuming your company stays on the same trajectory, you can raise at much better terms now than when a recession hits, especially if said recession will impact your growth.

byset 8y ago
Yes, raise now and to be safe, assume that you will not be able to raise money again.

Cshelton 8y ago

First thing, don't panic. (And I'm not trying to play on HHGTTG...). So don't go rush out and liquidate all of your investments. Second, always make sure you personally have a plan with savings for at least 6 months or more. Think about what would you do tomorrow if your source of income stopped and you had to make it for a year without any more income. How would your life style change? What sacrifices would you have to make? Unfortunately, many people have very little to no savings and this isn't even an option. If you are close to retiring (5-10 years or less), consult a financial advisor who you trust. At this point, you should have enough to live off of in safe/less volatile investments. As a startup founder, I think the macro economics side is the last of your worries on a long list... you should always have contingencies for things not going right. For instance, a large company releases a competing product to you tomorrow...

throw0101a 8y ago

> What can the average founder, employee, and person do in the face of this news? Make sure your finances are in reasonable order in case you get laid off: * https://www.reddit.com/r/personalfinance/wiki/commontopics https://www.reddit.com/r/personalfinance/wiki/commontopics Not all economic downturns are as bad as the Great Recession was.