What is Recession Rich
Recession rich is a slang term for someone who manages to do relatively well financially during a recession. Recession rich does not necessarily mean rich. Sometimes it simply means a person has a job and can pay the household bills, unlike others in the neighborhood. Or it may mean their retirement account didn’t lose more than a third of its value, like most everyone else’s did.
BREAKING DOWN Recession Rich
Recession rich referred to a class of individuals during the Great Recession of 2007-2009, for example. During this time, unemployment and home foreclosures spiked. Cities such as Stockton, California, where housing prices rose particularly acutely prior to the recession, experienced some of the worst financial pain; the city itself eventually declared bankruptcy. Unemployment in the Stockton-Lodi area reached 18% in January 2011, according to the St. Louis Federal Reserve, and remained well above average until early 2018.
Consider a homeowner in Stockton in 2009 who owned a home outright, lived on a guaranteed pension, bought a new Toyota that year and went out to eat most nights of the week. Many in Stockton that year would call that person recession rich.
Some who are truly wealthy also are recession rich, while some are not. For example, an owner of a gold mining operation that rises in value with increasing market instability indeed is both rich and recession rich. The same can be said for the owner of a local dollar store that sees business change very little when the economy contracts. However, a local real estate baron with significant debt is not recession rich, as this formerly wealthy person may be overleveraged and in financial trouble.
Asset Classes for the Recession Rich
Back in 2009 and 2010, many working-class people continued to deal with elevated unemployment, lower property values and other financial constraints. The median income in the U.S. dropped to $49,445 in 2010, down from $52,823 in 2007, according to the U.S. Census Bureau. Meanwhile, as most who invested in a 401k during this time can tell you, lower equity values crushed many people’s retirement plans.
However, some wealthy individuals who placed money in hedge funds that invested in timberland and other assets that held up fairly well in recessions not only didn’t feel the pinch, their wealth increased during the recession. Others invested in managed futures, which also tend to hold up well in difficult financial times.
While most 401k investors can’t buy timberland or managed futures easily, they can invest in some other more liquid investments that have done well in past recessions, such as government bonds. For example, this asset class gained about 12% in 2008. Another is gold, which rose about 3.5% in 2008. In comparison, the S&P 500 stock index declined 37% in the same year.