Sustainable wealth creation tips, for a recession or depression (or even in good times)

By Jeremy Britton DFA SAFin CFO, BostonTrading.co

After 25+ years in financial advising and stockmarkets, these are my top tips to get rich (and stay rich) during a recession (or, indeed, at any time):

Get rich slowly (stay rich forever)

Compound rates of return are best over the longer term, and we have all heard the adage that “get rich quick” doesn’t last, or “easy come, easy go”. Wealth which is built over a long time tends to stay for a long time; even possibly intergenerationally. Many companies which have done it tough in the past will do well in tough times, and may well come out of a recession stronger and leaner; ready to outperform.

Long-term successful companies have a different model from the ‘flash in the pan’ such as the dot-com stocks which blazed like a comet in the late 1990’s and then crashed to earth. Check some long-range stock stock charts, and you will see companies who have survived and thrived through world wars, recessions and even the Great Depression. Chances are, if the company has been around for 30, 40 or 50+ years already, it will be a good stock to hold past retirement, and pass onto your grand-children.

Keep your money in your own “personal” market.

Build your wealth slowly in companies with which you are already familiar. Investing in your own personal market means looking at where you spend your money and “investing where you spend”. This tip will keep you into sustainable stocks and helps you to avoid the biggest losers.

For at least one month (preferably for 3-4 months), write down in a journal every cent you spend, and where it goes. This will benefit you in multiple ways:

  • You will see areas where you may be able to cut back or rationalise. If you can trim your budget by 10%, this is money which you can start investing to build a better future.
  • You will see which companies are taking your money, so you can see how to get some of it back; by investing into their stock.
  • You will identify strong investment areas, whilst avoiding the companies who do not have solid recurring revenue.

During the early days of Covid19, the majority of people stopped spending money on fuel (sell oil stocks), stopped flying (sell airlines) and stopped renting cars (sell Hertz).

As the pandemic went on, people started to stockpile food and toilet paper (buy grocery suppliers), and hoard everyday medicines (buy standard chemists, and manufacturers of everyday-use pharmaceuticals). People stopped going to work in an office (sell commercial premises or REIT’s) and started to use online video-conferencing (buy stock in Zoom, Microsoft, Google and other providers of online meeting spaces).

Some people working from home chose to upgrade their computing, gaming or conferencing equipment (buy online office retailers, still avoiding the REIT’s and traditional ‘brick and mortar’ businesses unless you regularly go inside of them).

Remember that retailers must send some of your money to manufacturers, so you can guess that whoever supplies the raw materials (eg. Copper, steel, gold, glass etc) may also be worth some of your investing dollars.

Some people grew dissatisfied with their homes the longer they spent inside of them, so decided to do some home renovations, upgrades or redecorations. This means a trip to the builder, paint store or hardware warehouse; also good long-term investments for your money.

By watching your spending every month, and being flexible enough to pivot your investments as your spending pivots, you can always choose to be in the best position in the markets for the longer term.

Stay away from promises, only buy on facts

Avoid “shiny object syndrome” and promises of “the next big thing”. Keep your focus on your own personal daily, weekly and monthly expenditure.

Sure, some company may suggest they are only months away from a Covid19 cure or other tech/medical breakthrough, and their stock could go up rapidly, only to crash even faster when they don’t deliver, or when another company gets there first. Meanwhile, people continue to spend money on regular things, like paracetamol, or food, or power, or mortgages, and this ‘hidden market’ is as predictable as your weekly grocery spending.

Always remember to #investwhereyouspend 🙂 This tip won’t make you a millionaire overnight, but it helps you to avoid crashes, and a slow and steady approach worked for the famous turtle (Warren Buffett), who has been honoured for 50 years on the Forbes Rich List.

Bonus tip: don’t lose money

Buffett has two rules in his business.

  • “Don’t lose money.”
  • “Don’t lose money”

It may be tempting to jump into something which you don’t understand, on the promise that it is “the next big thing”. Resist the urge and remember to only #investwhereyouspend. Buffett was mocked for not investing into tech stocks, but when smug investors lost 90% in the Tech Wreck, it took a long time to recover; some never did.

If your stock goes down by 50%, you have to wait for it to double before it comes back. It is far safer to get 2-5% growth every year, compounding, than to chase an opportunity which may go sky high or crash and burn. Slow and steady wins the race. Turtles live a lot longer than rabbits do; so should your investments.