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Many forecasters are saying that the U.S., and perhaps Canada too, are facing a recession. But while a recession is never good news for society at large, it doesn’t have to be a disaster for your personal bottom line. In fact, with a little foresight, many of us can find ways to turn a recession to our advantage. You can:
DO RENOS Remember that three-month wait you had to endure to get your leaky faucet fixed? Remember the staggering bill you had to pay? That all becomes a distant memory if recession hits. When times turn tough, skilled trades people are eager to do household chores — on your schedule. Better yet, homeowners will once again have some bargaining power and that should result in lower prices. “A roofing contractor, for instance, can knock a thousand dollars off a $6,000 job because he can absorb the loss into labor costs,” says Mel Fruitman, vice-president of the Consumers’ Association of Canada in Ottawa. “That’s why home renovations and repairs is one area where you’ll see actual price decreases for consumers instead of just price freezes.”
BUY SMALL CAPS Conventional wisdom says you should seek the safety of large capitalization stocks during recessions. That’s what Michael Zhuang, president of MZ Capital Management, an investment adviser in Washington, D.C., thought, too, until he studied nine recessions going back to 1950. He discovered small caps actually did much better than their big brothers during bad times. “Three years after the start of all nine recessions, the average return was 28.20% for the [large cap] S&P 500 vs. 76.21% for the Fama/French Small Cap Value benchmark portfolio,” says Zhuang. “While the future may not be like the past, we think small is beautiful.” One way to load up on small cap value stocks is the Rydex S&P SmallCap 600 Pure Value exchange-traded fund (AMEX: RZV). Its management expense ratio is only 0.35%.
SNAP UP A HOME “A recession is always a good buying opportunity for house hunters,” says Don Drummond, chief economist with TD Bank. It’s also a good time for getting lower rates, says Douglas Gray, author of Canadian Home Buying Made Easy. “You’ll get a better rate if you renew your mortgage, and a recession is also good for lines of credit tied to prime.”
TAKE A TRIP A slowing economy hits hard at the travel industry. Caribbean cruises are already selling at rock-bottom prices. Consider a five-night cruise aboard Royal Caribbean International’s Enchantment of the Seas. It leaves from Fort Lauderdale, Fla., on June 9, has stops in Key West, Cozumel and Belize, and costs only $629 (port charges included).
Those who prefer going overseas can also find great bargains. At press time, return flights from Toronto to London on Air Transat were as low as $149 plus $320 tax and fuel charges. “It’s actually cheaper to go to London these days from Toronto than it is to go to Vancouver,” says Peter Martens, Flight Centre’s marketing manager for Eastern Canada. And check out the deals Air Canada is offering to Bangkok and Tokyo. At press time, both destinations are going for under $1,200 from Calgary, Vancouver and Toronto.
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