Does an Inverted Yield Curve Mean Recession is Coming?
We’re due for a storm…
It almost happened in 2018 but didn’t, it might happen in 2019 or in 2020, but it’s coming. In fact, one of the major indicators of this might be the inverted yield curve.
Let’s talk about what the inverted yield curve is, what it means for the future of the economy, and how you as an investor can actually take advantage of the opportunities that arise from this scenario once the market drops.
What is an Inverted Yield Curve?
An inverted yield curve occurs when the 5-year Treasury bond trades below that of the 2-year. This means that bondholders earn more interest on the shorter-term notes than the longer-term ones.
Why Does the Yield Curve Invert?
One reason for this is can be that the Federal Reserve is tightening up its monetary policies which has been historically loose for the last decade.
Interest rates start to rise, which tends to restrict credit and lending thereby slowing down the economy.
What Does an Inverted Yield Curve Mean?
Paired with other economic conditions throughout the world, such as ongoing trade wars and a slowing gross domestic product (GDP), the inverted yield curve is generally a harbinger of an economic slowdown, and more frequently, a total recession.
If we are on track for a recession, it could take some time before it actually hits us – but it’s unlikely that it would be as severe as the Great Recession in 2008.
The usual timing delay between the inverted yield curve and the onset of a recession is within about 18 months, so we could be well into 2020 before we actually start to see a major economic impact. If we see one at all…
Inverted Yield Curve Recession Prediction: Don’t Panic
Regardless of when a recession or stock market crash might occur, I’d urge you not to panic and here’s why. You need to understand that learning how to invest in stocksand investing is a long-term practice.
Many people might panic because they don’t truly know what they’re investing in, as they don’t believe in the companies they choose to invest in.
Learn the Best Way to Invest in Recessions
Rule 1 investors are confident in their investments because they are in it for the long term. Patience is a core requirement for any successful investor; otherwise, you’re setting yourself up to rely on emotion rather than strategy.
Preparing for a stock market crash is also a great time to think about new investments because it’s a great time to buy.
Keep a watch list of companies you’re interested in investing in and have completed your research on.
This means you’ve vetted your companies based on your understanding of them, their competitive advantage, the quality of their management team and their price.
Then once the price drops because of fear in the market, you’ll be able to buy those wonderful businesses at bargain prices.
Remember, a temporary crash isn’t going to put amazing companies under. The companies you should invest in are the ones you want to own for ten years or more anyway.
When you position yourself to be able to pull the trigger during a market correction, you’ll be in a great position by the time the market starts to recover.
The goal for Rule 1 investors is to buy when there’s fear and sell when there’s a lot of greed. It is essential to invest your money in the right companies at the right time. As you start to see more uncertainty in the marketplace throughout 2019, you know it’s almost time to take action.
Start performing your due diligence now to ensure you’re ready when the time comes.
What do you think about the inverted yield curve? Do you think it’s a sign for what’s to come?
via Inverted Yield Curve: Does it Mean a Recession is Coming? | Rule #1 Investing