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Life is about patterns and cycles. Like the seasons, things repeat themselves over time.
Many of you know that, just like the weather, there are four economic seasons. But unlike weather, economic seasons can last months or even years.
For those readers unfamiliar with the concept, it may come as no surprise that an “economic winter” is a state of recession or the precipice of one. And if you've been alive long enough, you've seen your fair share of economic downturns. When they occur, it can feel like everything is coming at us.
But when you look at history, zoom out and take the macroeconomic view, you see that a new growth cycle is inevitably emerging. And even in the dead of winter, you can take mitigating measures to keep your community and your personal finances growing.
This week we look at economic seasons and how we can take advantage of the current economic season.
Table of contents
The economic seasons
Spring
Spring is traditionally a time of relaxation. They're coming out of winter, there's a thaw, the beauty of the landscape is returning, and the seeds are ready to plant.
From an economic perspective, this is when markets begin to recover from a depression, recession or job cuts. In an economic spring, jobs recover, people become optimistic about the economy and lending becomes easier again.
Under these circumstances, the economy begins to grow and prepare for future gains.
Summer
The Sun shines in the summer! It warms up and the planted seeds begin to grow and ripen.
Economically, things are hot in a summer of economic activity. Of course there are ups and downs, but people are starting to enjoy themselves a little more. They work hard to care for what they planted in the spring. Although it is a time of growth, it is not yet the time of harvest. It's important to continue to water your investments as they continue to grow.
Falling
Autumn is the time of harvest. Broadly speaking, this is the time when the harvest is ready and we come together to be grateful for what we have sown in previous seasons. Things are so plentiful that it feels like you'll never run out of resources.
We see something similar with an economic downturn. The profits and returns are high and people have forgotten the hard times. Towards the end of this cycle, things start to slow down a bit – the beginning of a contraction. Money is becoming scarcer. Maybe inflation will rise a little. Then people start talking about how the good times can't last.
winter
When winter approaches, a cold sets in. Sometimes a freeze. Conditions are becoming difficult to manage and many are not venturing too far from home for safety reasons.
What follows is the fourth economic season: the economic winter. Everything seems to be going wrong this season. The value of assets decreases as credit tightens. People can't get credit. Those who made investments during the peak of the season are hearing words like “collapse” as they see declining profits. There is great fear in an economic winter as the storm of recession hits.
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#187 How to Take Advantage of This Economic Winter ft. Peter Kim, MD
What economic season is it right now?
In January 2024, we appear to be in an economic winter. It's still early winter, which means assets are just starting to fall – especially commercial real estate.
Some stocks have fallen and there is an overall sense of volatility as critics begin to voice their opinions even louder than before. We are still struggling with inflation, although it has been brought somewhat under control. However, to achieve this, the Fed had to tighten lending by raising interest rates. This led to what we see now: opportunities for new deals are largely frozen. What's worse is that vacant residential and office buildings are starting to accumulate debt.
It's tough out there and not everyone is sure about their ability to survive financially. If they can't survive the winter, they think about selling their possessions and don't know what will happen next.
If you look at history, an economic downturn tends to occur about eleven months after the Fed stops raising interest rates. For us, that could come in the form of a major recession, but at some point we tend to see negative growth over several quarters. This leads to job losses. In response to job losses, prices for everything are falling. In my opinion, all of this is still ahead of us.
In other words: we have a long winter ahead of us. So how can we respond? I see two possibilities.
Responding to an economic winter
1. Live in fear (not recommended)
The first and unfortunately all too common reaction is that we may worry, live in fear and decide to hibernate financially until everything is certain and clear.
There will be some casualties on the other side of winter. Your stock portfolio may go down. Some of your properties may lose value. Or maybe some deals you've been involved in aren't going as planned.
Based on several bad experiences, you may think that investing doesn't work or that you are unable to choose good investments. But of course, none of these things are actually true.
2. Keep a straight head (recommended)
The preferred response is to recognize that economic seasons – including this economic winter – are all part of a larger cycle. There will be ups and downs, and that's okay.
To best prepare yourself and your family for the future, you need to keep calm and carry on. Keep a cool head to plan your next steps. There are opportunities to benefit from the economy at any time of the year.
In fact, there are many examples of industries and specific companies that were founded during economic winters. Many of them are Fortune 500 companies, including FedEx, UPS, Walt Disney, Microsoft and Costco. They identified their markets during a downturn and sustained growth until they prospered.
So how do we not only survive the winter, but also emerge thriving for the next eleven to eighteen months? Here are two tips that I live by.
Educate yourself
Take action by continuing to involve yourself in supportive communities. This also includes the many communities here at Passive Income MD. By nature, communities strive to grow (and succeed).
Investment communities prepare you for success in a variety of ways. First, communities help you maintain a proactive and growth mindset. Additionally, members share opportunities and partnerships not available to individual investors. In this way, communities can provide the strategies and actions needed to achieve growth during a time of decline.
Don't miss this Leverage & Growth Summit This winter will see a unique event specifically tailored to physicians looking to explore entrepreneurial and growth opportunities beyond traditional clinical roles. It is an enriching platform that offers inspiring keynotes from successful physician entrepreneurs, interactive workshops on various areas such as digital health and investing, valuable networking with like-minded professionals and insightful panel discussions on healthcare trends.
This summit is not just a conference; It's a movement to expand your professional horizons, strengthen your entrepreneurial spirit and connect with pioneers who are reshaping healthcare. Mark your calendar for a transformative experience that promises to redefine the intersection of medicine and entrepreneurship.
Benefit from asymmetric risk
An economic winter is a prime opportunity for investors to find the widest range of asymmetric risk-reward opportunities. What does that mean? Most of us assume that risk and reward are proportional to each other. This means that the greater the return, the greater the risk associated with it.
For example, if you invest your money in a fixed savings account, you don't take on as much risk as you would with individual stocks, for example. However, savings rates are typically lower than the average returns of an equity-based portfolio, so risk and reward remain proportional.
But in times of downturn, opportunities arise where the potential reward is actually far greater than the risk you have to take. The disadvantage is small, but the advantage is huge. Diversifying your investments with asymmetric risk is one way to protect the downside while maximizing the upside.
The time of asymmetric opportunities is upon us, so take advantage of these opportunities.
Finally, challenge yourself
My challenge to you is to find other like-minded people and work together on strategies to grow and prosper financially. Make sure you stay strong and active during the economic winter. And if you want, let's find out together. We would love to see you at one of our conferences, events, courses or in one of our many communities.
Until next time, stay warm out there!
Peter Kim, MD, is the founder of Passive Income MD, creator of the Passive Real Estate Academy, and offers weekly training through his Monday podcast, the Passive Income MD Podcast. Join our community in the Passive Income Doc Facebook group. And let us know what you're planning for the new year in the comments below!
further reading
Create your very own Auto Publish News/Blog Site and Earn Passive Income in Just 4 Easy Steps
