Welcome back to ESL Gypsy. This week, we’re going to visit some of the implications of the impending recession and how digital nomads can better position themselves for the recession. There has been some back and forth on if a recession is coming. Let’s clear this up. The economy is cyclical. A recession is ALWAYS coming. It’s just a matter of when. After that, a recovery will be coming too. Hopefully the upswings last longer than the downswings. So, let’s look at where we’re at now. Unemployment is the lowest it’s been in decades (3.5%), the stock market is at never before seen levels, and Wall Street is raking in record profits. Regardless of how you feel about this, it is what it is. Now, what happens when things go south? Here are some steps that I am taking given the current economic climate. NOTE: Everyone’s situation is different, and this is not meant to serve as financial advice. Always consult with a certified financial planner before making any financial decisions.
Sell off the Real Estate
If you’re in it for the long haul, you may not want to do this- particularly if you’ve found your ‘forever home.’ However, if you’ve got significant real estate holdings in your portfolio, now might be a good time to divest some of these properties. The market is strong, but a prolonged dip in home values may impede your ability to liquidate your real estate holdings in the future. As a digital nomad, you may not need to keep the real estate in the states. Renting overseas is cheap (and so is buying). It’s always nice to have extra cash to buy in when prices do drop, too (just in case you decide to get back into the US market as a landlord).
Keep Cash on Hand
This gypsy is holding significant amounts of cash at present. On March 9, 2009, the Dow hit a bottom of 6,547. I wish I had the cash necessary at that time to invest significantly in the market. Unfortunately, like many others, I had bigger worries. I don’t expect a crash similar to the Great Recession (though many people expect worse). However, I do want to be well-positioned to buy in when prices start to drop. As a digital nomad, particularly those living in LCOL countries, you should have additional cash on hand. Keep this for buying opportunities that present themselves when the market does correct. If you don’t have a lot of cash on hand now and aren’t actively investing, then start to think about how you can adjust your budget to buy in when prices begin dropping. Think big here. Anything is better than nothing, but $100 a month isn’t really what you’re aiming for. Try to save as much as you can now and start to think about investing at least $500-1,000 each month (more is better).
Pay Off High Interest Debt
This is something everyone should probably be doing anyway. However, it’s more important with a recession coming. If you don’t see an opportunity to earn significant returns on new investments, then it might be a good idea to get rid of student loans that are charging you 6.8% interest. Credit card debt should be paid off as soon as possible. If you’re buying at the top of the market, your return in the near term will likely be negative. Saving on those high interest payments only makes sense.
Keep/Build an Emergency Fund
It’s a good idea to have six months of living expenses in reserve, and a year is even better. If that seems out of reach, aim for something smaller- maybe $1,000. You’re going to want to have this extra cash in the event that the recession is both long and deep, as it may impact your earnings. Being stuck overseas without the income necessary to pay your bills (or get home) is no picnic. A solid emergency fund can really cushion the blow. If you find that your job is stable despite the recession, then you can use this money when buying opportunities present themselves in the equity or real estate markets.
Invest in Yourself
Teaching is a pretty recession proof job. Being a digital nomad English teacher, we may be a bit more exposed than others. A lot depends on how deep and long the coming recession is. I am currently finishing a teaching certificate that will open up public and international schools to me in the event that ESL work starts to dry up. Remember that China is the biggest market for online teaching and, like all exporting nations, is highly exposed to downturns in the global economy.
Build various streams of income. The recession may impact one, or several, of these income streams, but having multiple sources of income helps you to hedge against the risk associated with the coming recession. I’ve written extensively about this, so won’t go into too much detail here. However, look for other opportunities within teaching and outside of this field. If things don’t get as bad as many expect, you can use this income to invest more when assets are priced at a bargain.
Invest in Alternative Asset Classes
It’s always a good idea to be diversified. Gold and other precious metals offer a measure of stability in times of crisis. With a belief in the impending recession, the price of precious metals has been bid up. If things get quite bad, then we’re likely to see the prices for gold, silver, and platinum rise considerably. If we only experience a brief pull back, then metals may represent a bad investment. I would look to these types of investments as simply a hedge against risk in an unstable market. If things get bad, you can make something back on the gold you own. If they aren’t as bad as you think they’re going to be, then your equities are performing well and you (hopefully) didn’t lose too much on the metals you purchased. Purchasing physical gold through companies like JM Bullion is great. However, you need to have it shipped to a physical US address. If you are a digital nomad, this may not be an option. In this case, check out gold/precious metal funds. I’m also continuing to gamble on cryptocurrency. The potential for loss is huge, but then again, so is the potential gain.
Role of Stocks?
Look for business ideas that you think will weather an economic downturn. When I was in college, I had a professor who loved Wal-Mart as an anti-cyclical stock. I personally look for dividends- whether the payout has been raised over the long-term history of the stock. Remember that in times of reduced earnings, companies may cut their dividends. If teaching jobs do disappear, a healthy dividend stock portfolio may help provide some much-needed income.
While I’m a fairly optimistic person, I do think that we are in for a recession in the coming months. Growth in the equity market has been too strong for too long. The powers that be are taking what, in my mind, amounts to outlandish steps to artificially spur the continuous rise of the Dow. Negative interest rates in this economic climate would represent a huge risk when a real recession comes along- leaving the Fed with few options outside quantitative monetary easing. I wouldn’t buy everything once the market starts to retreat, but look to buy lightly on the way down. If things are worse than expected, future prices may represent a deeper discount. In order to avoid the worst effects of the recession, begin your planning and saving RIGHT NOW.