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> Peter Lynch once said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in correcti

> Peter Lynch once said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” > The same is true of recessions. > How do you prepare for one? The same way you prepare your finances for anything else. > Instead of changing your portfolio because you think a recession is coming, create an investment plan that is durable enough to withstand a wide range of environments (one of which includes economic contractions). > Give yourself a margin of safety with a high savings rate and an emergency fund not because it will help you survive a recession but because it will help you survive any number of curveballs life will inevitably throw at you. > Pay your bills on time and create a good credit score not because it will help you during a recession but because it will help you anytime you need to borrow money.

lupire 5y ago
> > Give yourself a margin of safety with a high savings rate If everyone does this, it creates a recession. https://en.m.wikipedia.org/wiki/Paradox_of_thrift https://en.m.wikipedia.org/wiki/Paradox_of_thrift Better to purchase durable goods (save real value, not shared delusion of money) (edit: or shelf-stable consumables), and invest in future productive capacity (backyard farm, work on your health and strength and education).
- throw0101a 5y ago
  > If everyone does this, it creates a recession. If everyone suddenly switches from low-savings to high-savings, yes, that may happen. But if everyone consistently has a not-low savings rate, then that is the 'baseline' that the economy will base its production on. It's the sudden changes that can cause problems and not necessarily the/a steady state. Even sudden changes up can cause problems, as we've learn with supply chains when everyone switched from buying services (going out) to buying goods during the lockdown(s). Of course 'just save more' isn't an answer for some people, as the author's coworker observed: * https://ofdollarsanddata.com/the-biggest-lie-in-personal-finance/ https://ofdollarsanddata.com/the-biggest-lie-in-personal-fin...
  - nicoburns 5y ago
    If everybody has high-savings, then does anybody actually have high savings? As in, would it still be possible for everyone to redeem those savings for concrete goods and services?
    - throw0101a 5y ago
      A savings rates (of a person's income) of 15% is higher than a savings rate of 5% is higher than a savings rate of 0%. Some of those savings goes to building an emergency fund (which eventually tops out), while other savings goes into a retirement account to generate for future income; some may go into a child's education fund. Eventually most people will retire and draw down their savings. Eventually one's child will grow old and go to some kind of post-secondary school and need money for tuition, books, etc.
      - gruez 5y ago
        That doesn't really answer OP's question, which is how everyone would turn those savings into goods/services. At the end of the day, the production capacity of the economy is fixed, and if there's more dollars chasing the same amount of goods, the value of goods will go up and the value of dollars will go down.
        nightski 5y ago
        I'm not sure I agree that the production capacity of the economy is fixed. It's heavily dependent on the value of that production.
        gruez 5y ago
        Just because something is high value and resources from lower valued production can be diverted into them, doesn't mean that the production capacity of the economy as a whole isn't fixed. At the end of the day there's still only so many people available to do stuff, and so many machines/raw materials available.
- bsuvc 5y ago
  > Better to purchase durable goods (save real value, not shared delusion of money) I don't understand what you mean by it being better to purchase durable goods. Do you mean things like appliances and vehicles? Those things depreciate. Saving, and investing in stocks (diversified) has been a better move historically than just about anything else you could passively do with your money.
  - lupire 5y ago
    "Durable" means holds it value for later use or sale. > Saving Not cash, because inflation. > and investing in stocks (diversified) Creates a bubble if people aren't consuming. "diversified" is load bearing there. Invest in a range of companies that are creating persistent value, sure. Not consumable or rapidly depreciating luxuries.
    - newaccount2021 5y ago
- UncleMeat 5y ago
  A backyard farm will be a productive investment for almost nobody. Farms take a huge amount of labor to be productive and farming has huge economies of scale. "I can grow lettuce and carrots in my backyard" doesn't produce enough food to even make a dent on your overall calorie needs. It is a fun hobby and you can grow tastier food than the stuff at the grocery store but the people with kickass farms in their backyard that actually grow meaningful amounts of food have been doing it for years and years and spent lots of money on it.
  - zabzonk 5y ago
    > doesn't produce enough food to even make a dent on your overall calorie needs Grow potatoes. My grandad did, and it seemed to keep his family doing pretty well.
    - gruez 5y ago
      They might contain more calories, but they're also significantly cheaper than fruits/veggies. So much so that it's probably not worth your time/money even if food prices go up 100%.
      - iamthemonster 5y ago
        I did the sums - it takes me 6 minutes of paid work to earn enough to buy a day's calories worth of potatoes. I was always told that salad leaves are by far the best thing to grow for amateurs - relatively easy to grow, but very expensive in the supermarket.
        throw0101a 5y ago
        > I did the sums - it takes me 6 minutes of paid work to earn enough to buy a day's calories worth of potatoes. Assuming you have a job to work at. Or that (food) supply chains have not gone sideways. What you grow in your garden depends on (a) whether you're just doing it for fun, and/or (b) if you're offsetting certain risks you're worried about. E.g., how hard is it (for Ukrainians) go get potatoes with a war on? How hard is it to get groceries after an earthquake (or hurricane)?
- giantg2 5y ago
  "If everyone does this, it creates a recession." Theoretically, at least during the transition period. In reality I don't think there's any real danger of that given that the majority of people in the US don't even have $1k in a bank account. I don't think culture and circumstances are going to change fast enough to make that happen.
- kuratkull 5y ago
  Good advice is good advice, most people won't heed it, so we're safe.
- 0x262d 5y ago
  I don't think it makes any sense to try to hold people responsible for keeping the economy running hot as individuals on top of being rational self-interested actors.
- dqpb 5y ago
  Money is not a delusion, it’s a data structure. The distribution of money is the state of a market. A market is a protocol for multi agent coordination. It’s effective because it minimizes the amount of information-exchange required to participate.
- marcosdumay 5y ago
  On macroeconomic terms, "investing" and "saving" are synonyms. The savings you put on paper instruments are just lent to somebody making an investment. So, no, investing in future productive capacity is exactly the kind of thing that triggers that paradox. Anyway, everybody seems to severely overrate their understanding of those things. I would advise people to not use macroeconomic theories to plan their own lives.

lupire 5y ago

> > Give yourself a margin of safety with a high savings rate If everyone does this, it creates a recession. https://en.m.wikipedia.org/wiki/Paradox_of_thrift https://en.m.wikipedia.org/wiki/Paradox_of_thrift Better to purchase durable goods (save real value, not shared delusion of money) (edit: or shelf-stable consumables), and invest in future productive capacity (backyard farm, work on your health and strength and education).

throw0101a 5y ago
> If everyone does this, it creates a recession. If everyone suddenly switches from low-savings to high-savings, yes, that may happen. But if everyone consistently has a not-low savings rate, then that is the 'baseline' that the economy will base its production on. It's the sudden changes that can cause problems and not necessarily the/a steady state. Even sudden changes up can cause problems, as we've learn with supply chains when everyone switched from buying services (going out) to buying goods during the lockdown(s). Of course 'just save more' isn't an answer for some people, as the author's coworker observed: * https://ofdollarsanddata.com/the-biggest-lie-in-personal-finance/ https://ofdollarsanddata.com/the-biggest-lie-in-personal-fin...
- nicoburns 5y ago
  If everybody has high-savings, then does anybody actually have high savings? As in, would it still be possible for everyone to redeem those savings for concrete goods and services?
  - throw0101a 5y ago
    A savings rates (of a person's income) of 15% is higher than a savings rate of 5% is higher than a savings rate of 0%. Some of those savings goes to building an emergency fund (which eventually tops out), while other savings goes into a retirement account to generate for future income; some may go into a child's education fund. Eventually most people will retire and draw down their savings. Eventually one's child will grow old and go to some kind of post-secondary school and need money for tuition, books, etc.
    - gruez 5y ago
      That doesn't really answer OP's question, which is how everyone would turn those savings into goods/services. At the end of the day, the production capacity of the economy is fixed, and if there's more dollars chasing the same amount of goods, the value of goods will go up and the value of dollars will go down.
      - nightski 5y ago
        I'm not sure I agree that the production capacity of the economy is fixed. It's heavily dependent on the value of that production.
        gruez 5y ago
        Just because something is high value and resources from lower valued production can be diverted into them, doesn't mean that the production capacity of the economy as a whole isn't fixed. At the end of the day there's still only so many people available to do stuff, and so many machines/raw materials available.
bsuvc 5y ago
> Better to purchase durable goods (save real value, not shared delusion of money) I don't understand what you mean by it being better to purchase durable goods. Do you mean things like appliances and vehicles? Those things depreciate. Saving, and investing in stocks (diversified) has been a better move historically than just about anything else you could passively do with your money.
- lupire 5y ago
  "Durable" means holds it value for later use or sale. > Saving Not cash, because inflation. > and investing in stocks (diversified) Creates a bubble if people aren't consuming. "diversified" is load bearing there. Invest in a range of companies that are creating persistent value, sure. Not consumable or rapidly depreciating luxuries.
  - newaccount2021 5y ago
UncleMeat 5y ago
A backyard farm will be a productive investment for almost nobody. Farms take a huge amount of labor to be productive and farming has huge economies of scale. "I can grow lettuce and carrots in my backyard" doesn't produce enough food to even make a dent on your overall calorie needs. It is a fun hobby and you can grow tastier food than the stuff at the grocery store but the people with kickass farms in their backyard that actually grow meaningful amounts of food have been doing it for years and years and spent lots of money on it.
- zabzonk 5y ago
  > doesn't produce enough food to even make a dent on your overall calorie needs Grow potatoes. My grandad did, and it seemed to keep his family doing pretty well.
  - gruez 5y ago
    They might contain more calories, but they're also significantly cheaper than fruits/veggies. So much so that it's probably not worth your time/money even if food prices go up 100%.
    - iamthemonster 5y ago
      I did the sums - it takes me 6 minutes of paid work to earn enough to buy a day's calories worth of potatoes. I was always told that salad leaves are by far the best thing to grow for amateurs - relatively easy to grow, but very expensive in the supermarket.
      - throw0101a 5y ago
        > I did the sums - it takes me 6 minutes of paid work to earn enough to buy a day's calories worth of potatoes. Assuming you have a job to work at. Or that (food) supply chains have not gone sideways. What you grow in your garden depends on (a) whether you're just doing it for fun, and/or (b) if you're offsetting certain risks you're worried about. E.g., how hard is it (for Ukrainians) go get potatoes with a war on? How hard is it to get groceries after an earthquake (or hurricane)?
giantg2 5y ago
"If everyone does this, it creates a recession." Theoretically, at least during the transition period. In reality I don't think there's any real danger of that given that the majority of people in the US don't even have $1k in a bank account. I don't think culture and circumstances are going to change fast enough to make that happen.
kuratkull 5y ago
Good advice is good advice, most people won't heed it, so we're safe.
0x262d 5y ago
I don't think it makes any sense to try to hold people responsible for keeping the economy running hot as individuals on top of being rational self-interested actors.
dqpb 5y ago
Money is not a delusion, it’s a data structure. The distribution of money is the state of a market. A market is a protocol for multi agent coordination. It’s effective because it minimizes the amount of information-exchange required to participate.
marcosdumay 5y ago
On macroeconomic terms, "investing" and "saving" are synonyms. The savings you put on paper instruments are just lent to somebody making an investment. So, no, investing in future productive capacity is exactly the kind of thing that triggers that paradox. Anyway, everybody seems to severely overrate their understanding of those things. I would advise people to not use macroeconomic theories to plan their own lives.