The Beauty of Recession - A Quick Guide on How to Capitalize on the Bear Market

Economists in Canada have finally confirmed that the country is officially in a state of recession. As usual, Canada lagged a bit behind the United States in actually taking an economic downturn. Now, the official definition of a recession is negative economic growth for two or more fiscal quarters, but I'm sure if you spoke to anyone who works in any industry related to the automotive sector, they could have told you that things took a major dive a long time ago. However, the forecast is not doom and gloom, as these tough times present a few opportunities for those of us fortunate enough to still have our jobs. Here are a few things to keep in mind if you want to make lemonade from this economic lemon:

1) Invest in Real Estate – For much of the past decade, the housing market in Canada's urban centres has grown exponentially. Just when you think you've found a place you like, the value shoots up in just a few weeks or months and all of a sudden it's out of your price range. During the last recession in the early 1990s, the housing market crashed, particularly in Southern Ontario.

Illustration by Adrian Steeves

2) Diversify your Investment Portfolio – The bad news is that many people saw their investment portfolios shrink as the stock market crash took a chunk out of people's nest eggs. If you were planning on retiring in the next year or two or just recently retired and saw your mutual funds lose 30-40% of their value in just a few weeks last fall, there's not much you can do besides start over. However, if you happen to be in the under-35 demographic and you want to start seriously planning for the future, consider this time the Boxing Week Sale for the investment market. If your current portfolio is limited to low-risk ventures such as savings bonds, it is the perfect time to take a walk on the wild side and play the stock market. There are several strategies here you can use, depending on how risky or safe you feel like investing (although you should consult an investment specialist first!). For one, you can look at those companies whose stocks have been relatively unaffected by the recent crash, as they would be the safest bets for long-term investing – for example, banks and insurance companies. Also, you can look at well-established companies whose stocks have plummeted, as they would be the most likely to recover when things get better again, such as commodities. Thirdly, you could really roll the dice on companies forced to restructure due to heavy losses and hope they get it together and see their values take off once again, such as the manufacturing or tech industries. Or, you could look at diamonds in the rough and invest in new companies gutsy enough to go public when everyone else is looking for a window to jump from. Just imagine if you had invested in companies like Pfizer or Research in Motion when they were in their infancies! If you wanted to really play it safe, precious metals like gold are known to be good places to keep your money safe during tough times.

Illustration by Adrian Steeves

3) Time to Buy a Car – For many young people less than five years into their careers, a car purchase may not be high on the list of priorities, especially if you're doing all you can to stay ahead of your current bills, which may or may not include a hefty student loan. However, now is the time to buy a new car, as dealerships are scrambling to sell off their inventories. Many dealerships were still reeling from the dip in sales of larger vehicles such as full-size trucks and SUVs, mainly due to astronomical fuel costs. This, combined with dealers eliminating the lease option due to the credit crunch in the United States, has created the perfect buyers' market for new vehicles. The best bet would be to get an unsold vehicle from last year's model, as the price would be knocked down 20-25% but still be in mint condition with all the same warranties and guarantees. Don't forget to ask about recent graduate discounts that can save you even more money if you're eligible. Depending on the dealer, you could be considered a recent graduate even if you have been out of school for three years. If you require financing, you can still get a favourable rate if you managed to keep a good credit rating, but it is good to shop around just in case.

These are but a few tips to follow if you want to be proactive and make the most of the recession. Of course, doing nothing is another option, but five to ten years down the road, you may end up kicking yourself for passing up these opportunities once the market recovers. At the very least, you would be able to say that you did your part in stimulating the country's economy when it needed such contributions from its citizens the most.

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