Investing

If I think a recession is likely, what should I do?

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  • Jan 28th, 2023 1:03 pm
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Dec 24, 2022
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localAlberta wrote: If I think a recession is likely, what should I do? Should I sell etfs and stocks?

I have about $40k invested in index funds (XIC and XEQT split evenly) across my TFSA and RRSP and about $10k in other stocks, mostly Canadian dividend stocks, a few US companies.

About $10k in cash in HISA and 1yr GICs.

Bought a home in the summer and have two inexpensive rental condos that are just barely cashflowing, but I doubt I could sell them right now without taking a big hit. Steady job with a pension but not taking home as much as I could be if I switched employers.

Should I go more or less cash? Short the entire market? If I'm pretty sure a recession will happen, how does a person best take advantage of that? Thank you for your thoughts.
Sometimes a recession can mean a loss of employment. Raising cash is a preventive measure. You do not need to keep it in cash. For example, say you have $100K in cash you could invest it in a 5 yr GIC at 5% and consider that emergency fund. If ever you need cash in an emergency you could always borrow up to $100K using the GIC as collateral. As long as having your money locked for 5 years suits you. It is always nice to have a cushion for emergency.

In my mind this should be your priority number one. In regards to the stock market, to me it's business as usual. I don't let events dictate how I invest. I'm buying stocks, not the whole stock market.
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Alpha0 wrote: For example, say you have $100K in cash you could invest it in a 5 yr GIC at 5% and consider that emergency fund. If ever you need cash in an emergency you could always borrow up to $100K using the GIC as collateral.
How does one do this?
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Nov 29, 2022
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Another thing I just thought of is doing preventative maintenance on your properties as it's always cheaper to do schedule maintenance instead of paying emergency rate.
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Quentin5 wrote: How does one do this?
You get a secured line of credit. Similar to a home equity line of credit. No need to be locked in for 5 years. But if your GIC is for 5 years then the money can't go anywhere for 5 years and your secured line of credit is valid for the whole duration of your GIC. This is particularly useful for those who do not yet own a property.
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Alpha0 wrote: You get a secured line of credit. Similar to a home equity line of credit. No need to be locked in for 5 years. But if your GIC is for 5 years then the money can't go anywhere for 5 years and your secured line of credit is valid for the whole duration of your GIC. This is particularly useful for those who do not yet own a property.
Interesting, is this easily done or do you have to hunt for a bank who will give you this loan?
Also what kind of interest rate is one looking at?
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Alpha0 wrote: You get a secured line of credit. Similar to a home equity line of credit. No need to be locked in for 5 years. But if your GIC is for 5 years then the money can't go anywhere for 5 years and your secured line of credit is valid for the whole duration of your GIC. This is particularly useful for those who do not yet own a property.
But for emergency use, can always have unsecure line of credit.
The rate may be just a bit higher.
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In case of recession we can expect increase of unemployment. Worst case scenario, you can lose a job and your tenants can lose a job and stop paying rents. Due to current market conditions I wouldn’t sell properties with loss. However, I would do my best to increase cash, maybe to cut costs or find some hustle job. Only way to take advantage of recession is ability to buy discounted assets. I personally sold my portfolio (and missed the last growth) because I expect better opportunities ahead either in stock market or real estate. This cash also can help me to maintain my rental properties and cover living expenses if things get really ugly.
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Jul 30, 2016
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Hire a good, experienced financial advisor. Yes, it will cost you some money and yes I know many financial advisors have a bad reputation so many people prefer to DIY. But if you are worried about recession, remember an experienced financial advisor has gone through multiple recessions in the past so they know how to handle it.
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localAlberta wrote: If I think a recession is likely, what should I do? Should I sell etfs and stocks?

I have about $40k invested in index funds (XIC and XEQT split evenly) across my TFSA and RRSP and about $10k in other stocks, mostly Canadian dividend stocks, a few US companies.

About $10k in cash in HISA and 1yr GICs.

Bought a home in the summer and have two inexpensive rental condos that are just barely cashflowing, but I doubt I could sell them right now without taking a big hit. Steady job with a pension but not taking home as much as I could be if I switched employers.

Should I go more or less cash? Short the entire market? If I'm pretty sure a recession will happen, how does a person best take advantage of that? Thank you for your thoughts.
If you have a crystal ball and know that we're at the peak today, then by all means the right move is to sell everything. Using the same crystal ball, you should be able to predict when the market will bottom out. So you re-deploy your cash at that time.

Now obviously the above is not realistic. Furthermore, if there's a foolproof strategy, everyone would be doing the sell. Buy and sell are individual actor decisions. If everybody sells, the market will definitely plummet. If everybody buys, then prices will go up. This is dictated by supply and demand.

My advice...

1) Who says we're in a recession? It's a hot topic these days but it doesn't mean it will materialize.

2) Stock market is not necessarily tied to economic indicators. 2020 is a good recent example. Stocks actually hit new highs during the pandemic, after a steep initial drop in March or April 2020.

3) My advice, if you need to ask the question, is to just do nothing. If you're not retiring within the next 10 years, there's plenty of time for the market to go back up, EVEN if it falls, which is hasn't so far. TSX is at 20.6k today, right now.

4) You mentioned you have rental condos. Now that's almost an entirely different topic. But just like stocks, nobody knows if BoC will keep raising rates. The more rates rise, the lower your profitability on your investment due to higher interest costs, not to mention the cashflow drain. Nobody knows if the real estate market will go back up. But right now, it's kind of just "normalized" to pre-pandemic levels.

You have a job, so I guess focus on that. For your condos, do a numbers analysis. How much more interest rate hike can you stomach? There comes a point where you might need to consider selling if you can't maintain it.

Your answer to the condo question ties to the stock market question. I mean...if you have built equity in the condos, and you believe the stock market will keep going up, then you can sell the condo and put the cash into the stock market.

Nobody can tell you exactly what will happen. You just need to run the numbers, and know what you are betting on when you make decisions.
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Dec 24, 2022
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Quentin5 wrote: Interesting, is this easily done or do you have to hunt for a bank who will give you this loan?
Also what kind of interest rate is one looking at?
I would think that it can be done easily in all FI. But it is my understanding that the GIC must be in a saving account, not in a registered account. And obviously you need an ok credit score. You will be paying whatever the FI is charging for a secured line of credit. You could get a preferential rate depending on the amount and relationship you have with the FI.

Another twist on this approach is as follow. Let's say you only have $60K to invest and want to do it now as you are concerned that long-term rates are about to go down. And you would like to invest more than $60K. In that case you could go to a FI and ask for a secured line of credit matching your $60K. So you could invest $120K in a GIC. This strategy can be to your advantage as long as you can pay back the $60K on the LOC within a reasonable time.

cheapshopper wrote: But for emergency use, can always have unsecure line of credit.
The rate may be just a bit higher.
An unsecured line of credit could be called by the FI if, for example, you were to lose your employment. Whereas a secured line of credit backed by a GIC will not be called. The rate will be slightly higher with an unsecured, but by far the biggest difference is the amount involved. Unsecured LOC will tend to involve small amounts. While one backed by GIC could be 7-figures.
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Alpha0 wrote: I would think that it can be done easily in all FI. But it is my understanding that the GIC must be in a saving account, not in a registered account. And obviously you need an ok credit score. You will be paying whatever the FI is charging for a secured line of credit. You could get a preferential rate depending on the amount and relationship you have with the FI.

Another twist on this approach is as follow. Let's say you only have $60K to invest and want to do it now as you are concerned that long-term rates are about to go down. And you would like to invest more than $60K. In that case you could go to a FI and ask for a secured line of credit matching your $60K. So you could invest $120K in a GIC. This strategy can be to your advantage as long as you can pay back the $60K on the LOC within a reasonable time.




An unsecured line of credit could be called by the FI if, for example, you were to lose your employment. Whereas a secured line of credit backed by a GIC will not be called. The rate will be slightly higher with an unsecured, but by far the biggest difference is the amount involved. Unsecured LOC will tend to involve small amounts. While one backed by GIC could be 7-figures.
Seems like a lot of hassle just to lock your money up at 5%. What would the IR be on the LOC? Probably similar to the interest on the GIC?
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Dec 24, 2022
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treva84 wrote: Seems like a lot of hassle just to lock your money up at 5%. What would the IR be on the LOC? Probably similar to the interest on the GIC?
It is not a lot of hassle when GIC are a normal part of your portfolio. I think ~ 65% stocks, ~30% real estate, 5% GIC with some small cash is an acceptable setup. If you already have GIC why not maximize its convenience?
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I don’t see why OP panick when got so much assets and have multiple properties. Barely consider to be the under privileged.
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Alpha0 wrote: I would think that it can be done easily in all FI. But it is my understanding that the GIC must be in a saving account, not in a registered account. And obviously you need an ok credit score. You will be paying whatever the FI is charging for a secured line of credit. You could get a preferential rate depending on the amount and relationship you have with the FI.
I imagine it would only work on a large GIC balance.
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spike1128 wrote: I don’t see why OP panick when got so much assets and have multiple properties. Barely consider to be the under privileged.
Seeing red is scary no matter how rich you are. We always want more too. If our anchor point is yesterday and today is worse, that's going to trigger anxiety. All subjective. Def isn't underprivileged though lol.

I think he's being prudent in preparing for bad times, if only most people knew the danger they were really in...
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ADenariusSaved wrote: Seeing red is scary no matter how rich you are. We always want more too. If our anchor point is yesterday and today is worse, that's going to trigger anxiety. All subjective. Def isn't underprivileged though lol.

I think he's being prudent in preparing for bad times, if only most people knew the danger they were really in...
He is panicking because he is over leveraged and driven by some sort of greed. That’s why.
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ADenariusSaved wrote: Seeing red is scary no matter how rich you are. We always want more too. If our anchor point is yesterday and today is worse, that's going to trigger anxiety. All subjective. Def isn't underprivileged though lol.

I think he's being prudent in preparing for bad times, if only most people knew the danger they were really in...
I get the impression that he wants to use it to increase his wealth.
That said everyone wants to increase their wealth and if people are jealous of the rich then stop supporting more trickle down economics.

That said the OP doesn't sound incredibly wealthy, frankly they might be over leveraged.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
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Quentin5 wrote: I get the impression that he wants to use it to increase his wealth.
That said everyone wants to increase their wealth and if people are jealous of the rich then stop supporting more trickle down economics.

That said the OP doesn't sound incredibly wealthy, frankly they might be over leveraged.
That's my impression too (the overleveraging). But he's aware at least. So he's going to try appropriately mitigate his risks.

Yeah, my bio/temperament makeup is different, envy is not in one of my seven deadlies. So I'm not upset with OP on that front (not saying you are but I can detect it in the thread in general.) I have multi-millionaires complaining to me about their finances while I'm not even at 7 figures yet lol. I understand that would piss off most people.

Sometimes increasing wealth is just surviving, inflation economics is one hell of a fight. We're all self-interested and rational I think.
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spike1128 wrote: He is panicking because he is over leveraged and driven by some sort of greed. That’s why.
Yep, hey, I give him points for concern!

I see everyone as greedy, even myself. Not going to fault him for that lol. Evolutionary bio, without greed many of us would not have been born. It's built into all of us.
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ADenariusSaved wrote: That's my impression too (the overleveraging). But he's aware at least. So he's going to try appropriately mitigate his risks.
Most of his first post seems self protection but the last bit is trying to take advantage.
That said we all know the advice about "buying the dip" for example.
Thats technically taking advantage.

There is a difference between middle class struggles and the rich throwing others under the bus to get richer but we have the tools to handle that, just that voters prefer making the rich richer to win their pathetic culture war against progress.
Yeah, my bio/temperament makeup is different, envy is not in one of my seven deadlies. So I'm not upset with OP on that front (not saying you are but I can detect it in the thread in general.) I have multi-millionaires complaining to me about their finances while I'm not even at 7 figures yet lol. I understand that would piss off most people.
I know what your getting at, another facet that few think about i that few know what their needs are.
I had read an interesting article about someone in Texas(?) who had 3 million in the bank when they died but lived in a dilapidated house with an old pickup truck until they died.
Probably fear of spending money even though they had it. Might have even been a depression era child.

I have asked people what level of income would you find comfortable and what do you need to achieve that, i rarely get a thought out answer.
Though those who are FIRE proponents actually try to answer this.
Sometimes increasing wealth is just surviving, inflation economics is one hell of a fight. We're all self-interested and rational I think.
Humans are most certainly not rational.
If they were then politics would look very different, instead of baldfaced lies and easy answers and culture wars we would be on a race to the top instead of our highly irrational current race to the bottom.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people

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