Recession: what can you learn?

Economic times such as the current one bring a lot of pain along. It's no fun to go through such hard times. However, experience makes a person wiser. A first-hand experience, even more so. I am putting together the lessons I learned during these times. I hope these lessons will help me endure future economic recession(s) with less pain.

• Invest, but diversify. You want to invest because you want your money to grow. But diversify to minimize risk. Diversification would spread your gains, but on the other hand it would spread your losses as well. Base your diversification plan on your risk taking situation.
  

1.  Spread the portfolio among multiple investment vehicles, such as stocks, mutual funds, bonds, and cash.
   
2.  Vary your securities by industry, and/or by geography.
   
3.  Even the best companies can crumble in a matter of days. Think Enron, Worldcom, recent Satyam fiasco.
   

• Sell when everyone is buying. Conversly, DON’T BUY when everyone's buying (or when the demand is too high). I understand that it's hard to time the market, but there are certain obvious signs. This is easier said than done. It needs a lot of patience and courage. I made wrong investments exactly at the peak. At that time, I just couldn't wait because I was afraid that I’d miss the boat. 
  
• Markets, be it financial or real estate or services, have a temperament of their own. They don't care or follow the path most analysts predict. The analysts who predict correctly won't be heard in the media, until their predictions have come true.
  
• Prepare for rainy days – keep some funds in easily accessible accounts. Keep funds sufficient for at least 6 months. I just found out that my home equity line of credit was shut down. That account had been my source for emergency funds. Thank god, I still have my job and can build up my reserves. I hate to imagine the what-if scenarios.
  
• Plan for retirement - it's never too early. Keep building your nest egg. Put aside whatever funds you can aside for your retirement; it can only help. It’s hard to put funds aside in these tough economic times, but it's even more important.
  
• Go easy on your retirement funds: Many about-to-retire employees had their entire retirement savings invested in stocks. Their investments lost more than half the value. Now, they have to work a few more years to make up for this loss. Remember, jobs are not easy to find anymore.
  

The returns during the first year post-recession is typically quite high: Historically, it's been more than 30%. I hope you and I will enjoy the fruits and that too very soon. Cheers :-)