Great News: There’s Another Recession Coming

If you’ve been keeping an eye on the US economy in recent years, you might notice that things are looking pretty darned rosy. Unemployment is at its lowest level in 40 years, wages are rising, and house prices have not only recovered from their fiery crash of 2009 – they have had several years of record breaking prices in most regions, just like the stock market.

A current snapshot of how expensive the stock market is – not in sticker price, but in the more instructive price-to-earnings (P/E10) ratio. In all of US history, it has only exceeded this expensiveness once – for the late-1990s bubble. Not something that should make you sell your index funds, but probably a clue about an upcoming bubble-based recession. Image source is the very useful site multpl.com www.multpl.com/shiller-pe/

In short, today’s situation is very similar to what Mr. Money Mustache, despite no magical forecasting skill, forecast back in 2013, in an article called “How to Prosper in an Economic Boom“. In that post, I suggested that we were in for some very good years, which made it a good time for getting ahead – make hay while the sun shines!

It’s a lot easier to fix your problems right now, with a stiff economic tailwind at your back, than it will be in just a couple of short years (or less?) when the high seas and lighting bolts and whirlpools are ripping at your pockets. Fair weather preparations include:

  • Rake in your big paycheck while it lasts and don’t blow it on temporary luxuries
  • Keep your living footprint efficient – in expensive cities this is a great time to rent, and not a great time to spring for the sprawling home of your dreams on a big mortgage.
  • Eliminate any last shreds of consumer and student loan debt
  • With the stock market at higher price-to-earnings ratio than usual, there is less harm in paying off your mortgage earlier, keeping six months of living expenses in cash or money market funds, and other non-stock investments like rental properties in low-cost cities (where reliable rent is over 1% of total property price per month).
  • Design your career and your self-employment side gigs so that they are resilient: multiple streams of income from different sources, and an easy answer for “What would I do if my job or industry ceased to exist?”

Of course, becoming less dependent on a steady job is always a good thing – it just happens to be much easier to build that independence if you’re surfing atop a giant economic wave like this one.

So, Here We Go:

With all those preparations in progress, I hope you’re ready, because there’s a recession on the way.

I can say this with confidence because there’s always a recession coming – we just never know exactly when. About the only thing I can guarantee is that we are about four years closer to the next recession than we were when I wrote that optimistic earlier article.

But it is very important to remind yourself of this, because when we get to this rosy point of the business cycle, things have been so good for so long that we  forget that crashes are even possible. If you’re a sagely 27 years old right now, you may have never experienced a recession in your adult life – all you have ever seen is the good times. You’re in for an interesting surprise.

However, on top of that folksy “It always happens” wisdom, there are a few other clues that suggest the time is approaching:

Household debt levels have risen back to their pre-crash peak, and with an even worse composition: more student loans, and a record level of auto loans, the most ridiculous and self-destructive piece of personal finance outside of mortgaging your shins to a loan shark to afford tonight’s cocaine.

Image from the very good Zero Hedge article linked above.

Consumer debt shouldn’t really exist at all – it’s simply a house of cards that allows impatient people to pull their consumption from the future, just a teeeeny bit forward into the present, in exchange for spectacularly bad costs, stress, and wrecking of lives. But because it exists and is profitable, a huge ($1.3 trillion in 2015) financial industry has sprung up to originate, multiply, and churn this debt.

Just like 2007, the financial industry is on top of the world again, with lots of easy money flying around into things like “subprime auto loans”. The Great Recession of that era was caused when the wild packaging and reselling of mortgage debt combined with a false sense of confidence that the party would go on forever.

The final piece of evidence comes from just how long the present party has gone on. If you look at the history of economic expansions – how long we have gone since the last recession – we are currently enjoying the third longest one in history:

When we put all Good Times since WW2 into a graph, you can see just how exceptionally long we have been riding high.

So we’ve had a good run. If we go on to tie the Clinton-era record, that still gives us a maximum of two years until the trouble hits. And if you happen to think that economic success correlates with the level of brainpower currently in the White House, then, hmm.. you can make some adjustments based on that as well.

“OK, But What Actually Causes Recessions? And What will Cause the Next One?”

In succinct terms, recessions are caused when a bunch of people lose confidence all at once.

Usually it starts with a mini-crisis: the prices of stocks and houses have been going up for so long that people forget the opposite can happen. A bunch of testosterone-fueled betting and speculation (often by overconfident and under-regulated junior hotshots on Wall Street) ensues. And in general, speculation is a dumb thing.

If you have ever heard of someone buying something, not because they actually want it or because it produces income, but just because they think it will be worth even more in the future, that’s speculation. When people buy apartments in Toronto and leave them vacant (or rent them out at a loss) in hopes of later selling them to an even Greater Fool, that’s speculation. Speculation leads to bubbles, and bubbles always pop, because there was no rational reason for the prices to get that high in the first place. They also happen frequently in the stock market.

When prices hit some random limit or wobble a bit, the bubble often pops. Everyone gets scared and rushes out to sell, so the prices drop rapidly. Suddenly, over-leveraged novices can’t repay their oversized bank loans and they start missing payments.

Banks get scared of losing all that money, so they tighten up lending, which causes businesses to scale back hiring and expansion, leading to layoffs, which cuts down on consumer spending, which cuts down business profits again, leading to even more layoffs, and the problem feeds upon itself.

Eventually, the prices of these valuable assets gets low enough that people with actual money like you and me perk up and start scooping them up at a discount. A pristine apartment building here, some shares of a few thousand established, profitable companies there via an index fund over there. This puts a floor under the dropping prices.

Meanwhile, the Federal Reserve Bank also steps in, lowering interest rates and flooding the system with cheap money to encourage people to start buying houses again and businesses to start expanding to soak up the pool of unemployed people. Everyone gets back to work, and the recession ends. Usually very quickly – most recessions last less than one year.

So, as long as you aren’t a Consumer Sucka, commuting to work in a bank-financed gas-powered racing sofa and/or borrowing money for furniture and appliances to outfit that last spare room in your suburban mansion, recessions are a great thing. Housing and profitable investments become cheaper, insanity and speculation is reset, and people actually start living more frugally again, getting back to the roots of what living a good life really means.

Most people who are wealthy today, achieved it by building and acquiring profitable investments in the past, when they were on sale.  A recession is just a big sale – on almost everything.

“So, Should I Be Worried?”

No, of course not! This is just money we’re talking about, and you should never be worried about money.

One of the joys of Mustachianism is that it makes you immune to the business cycle. You immediately stop living beyond your means, so you have stepped back from the cliff. Then you start to build a resilient mesh of skills, health, money, friendships, and peaceful personal badassity which further protect you from trouble.

After all:  who cares about the price of gasoline, or affording cholesterol pills, or how to make the next truck payment, when you’re a wiry and muscular Mustachian, riding your swift and sensible bike a few miles to work and banking almost all of your enormous paycheck every two weeks?

Then as you live this joyful existence for however many years it takes, the final stage of complete financial independence arrives automatically, and you are absolutely invincible.

Whether it comes in two weeks or four years, I hope all of us are prepared for next hill on this roller coaster – it’s a lot more fun when you know it’s coming.


In the comments: do you care for a wager on when the next “crisis” will hit and we’ll fall into recession again? What will be the thing that gets us this time?

  • Jack July 11, 2017, 6:41 am

    Mr MM check out this article in the telegraph-is FI making its way across the pond?


  • Nate July 11, 2017, 2:38 pm

    Good post! Agree across the board. Do you keep a bunch of recession proof assets (cash bonds etc?) to be able to take advantage at the bottom, or are you just counting on your income at the time?

    Another thing I was wondering about, what do we think is going to happen this time if the feds can’t really lower the interest rates since they’re already rock bottom? Kind of a new aspect to this next recession.


  • Travis July 11, 2017, 9:35 pm

    One thing I don’t hear too many people talking about is student loan debt. I estimate that if you put in school related credit card and housing debt together along with phantom family debt (the 0% loan from grandma), then we’re at $2 trillion.

    So many people are propped up by income driven repayment programs that hide the true cost of the degrees they’re getting. At this point, most new graduates coming out of most professional schools are not economically viable without the aid of the federal loan system. If something every happens where the government removed income based repayment options, I’d bet that would be the cause of the recession.

    For the moment, I’ll bet an unexpected bout of inflation that freaks people out along with tightening money supply from the Fed trying to dump their multi trillion dollar balance sheet

  • Shawn July 12, 2017, 10:01 am

    So for someone who auto-invests weekly would you recommend we stop and pile up some cash for the recession (I already have a years living expenses in cash – working in entertainment my career is med-high risk during a recession).

    Or should I just keep on trucking business as usual, I know we can’t time the market but it is hard to avoid the thinking that I should bulk up for the discount, or sell gains and buy in cheaper. Having said that I’ve never done that rode out 2008 just fine and was glad I didn’t panic sell, I only wished I had more cash available to buy more at that time, which is why I catch myself thinking I should stop the auto-invest to hoard some cash for a bigger buy in.

    Thanks for any suggestions.

    • Stephen July 12, 2017, 5:06 pm

      Trying to time the market is generally a fools game. If I would have gotten out each time I heard a talking head say that its time to get out and that its overvalued (starting in 2012), I would be giving myself a big face punch.

      Its probably more reasonable to shift more of your allocation towards bonds (25/75, 50/50 or towards emerging/foreign markets) if you think the US market is overvalued. Cash, however, is almost always a losing bet over the long term.

      • Shawn July 12, 2017, 6:38 pm

        That’s the logic I’ve always followed, it’s just just hard to fight that greedy thinking. I remember thinking the same thing back in 2012-2013 when everyone was nervous the first time about how high the market had gone, and was glad I just stayed the course as I always do because look where we are now.

        I currently have a mix of a mutual funds which expose me to about 20% bonds to help during the down times, and I do have some exposure to foreign markets as well.

        I really appreciate your response, sometimes I just need some positive reinforcement to keep doing what I’m doing.

        Thanks again!

      • Doug July 14, 2017, 9:28 am

        I have similar thoughts. The U.S. Fed has been slowly increasing interest rates, and more recently others like the Bank of Canada have started raising interest rates also. After a few more increases in rates, bond funds will likely become cheaper and it will be a good time to get more exposure to them. To buy these bond funds I’ll cash in some equity ETFs and rate reset preferred share ETFs (like CPD-T, XPF-T, and PGX-NY) which will go up in value with increasing rates.

        For the most part you can’t time stock markets, but sometimes you hear or read something that is a sure sign to cash in some equities and take a more defensive position. I remember in 2006 reading an article where some “expert” said: the economy is better managed nowadays so recessions are a thing of the past. After breaking into a fit of hysterical laughter, I decided to take a more defensive position. traditionally your age is about the amount you should have in fixed income investments. In 2006 or 2007 I read an article that said that rule was obsolete and you should have a greater percentage of equities in your portfolio, another sign it’s time to take a more defensive position. Another was where many analysts said there would be a massive labour shortage with all those baby Boomers soon to retire. The last times I heard that idea were in 1989 and 1999-2000. Coincidence? I think not. So far I haven’t heard or read anything that suggests a lot of overconfidence recently, but keep your eyes open and ears tuned. It’s bound to happen sooner or later during this economic recovery.

  • Joe July 12, 2017, 6:16 pm

    There’s always another recession coming. What a thought provoking statement. When I read this, I stopped and thought about how true that is. It’s easy when things are going great to forget that recessions do and will happen. Making sure you are prepared for the next downturn is great advice.

    I’m not sure what will cause the next recession, but I do think the rise of automation will cause one in the future. As more and more jobs are lost to automation, I think the economy will slow as we transition from everyone working to more and more jobs being performed by machines. Ultimately I think we will be better off with the automation, but the transition will be difficult.

  • CD July 14, 2017, 1:56 pm

    Full disclosure, I didn’t read every single comment because there are hundreds. But it makes me sick that people seem to be cheering for a recession. This is the kind of crap that is dividing the country and creating class warfare. There are disadvantaged people out there. MILLIONS of them. People who are discriminated against, or have expensive health problems that can’t be cured by a bike ride, or have family members who depend on them, or were simply born into a bad life. These people will SUFFER in a recession. And not because they can’t buy a flat screen. They will suffer because they can’t find a job or feed their children. Do you remember the man in the Big Short who was in the rental house about to be foreclosed on, and at the end you saw him living in a van with his children? Do you really want to be cheering about that? I am a logical person and I know recessions happen and it makes good, practical sense to buy stocks or houses when they are “on sale” and to feel proud about those financial gains. Hell, I know I benefited from buying stocks during the last recession. But my heart goes out to the people who were taken advantage of and are still suffering from the recession. I would never openly hope that happens again.

    • Doug July 15, 2017, 8:25 am

      Good points you make. A lot of us aren’t exactly cheering for a recession, but rather keep should in mind that recessions, whether broad based or in certain sectors of the economy, are a normal part of the economic cycle. For that reason, a wise person prepares for them BEFORE they occur rather than being unprepared when one comes along. It’s the same reason why you should have your flotation jacket on before the boat capsizes, rather than fumbling around trying to find it and put it on afterwards. If you are prepared for a recession when it occurs, you can take advantage of it by picking up assets like stocks or buying a house cheaper if you haven’t lost your job. As Warren Buffet says, never let a crisis go to waste. If you are one of those persons who has lost their job, a saving cushion (built up when times were better) can help you out a lot.

  • Jbh130 July 16, 2017, 6:57 pm

    I’m new and I was hoping someone could help me understand receiving dividends please. If someone had 500k in the S&P 500, would they receive a chosen percentage, such as 4%, every month, quarter,yearly? Also, if some of the companies don’t pay dividends, how do you work with an unreliable budget? 4% could be high one year and be zero the next? I apologize for the stupid question, but I haven’t found a clear answer on this. MMM, thanks, I am grateful for the knowledge you have shared and I hope to continue to learn how to live the good life. So much has changed already.

  • Constructing A Future July 17, 2017, 8:54 am

    I am preparing for another recession by stockpiling some cash to buy rental properties. If there is a real estate bust, that is the time to buy properties!

  • Ava July 18, 2017, 7:34 pm

    Great post!

    We’re in a much better position now compared to where we were 2 years ago, so another recession doesn’t phase me as much.

    I hope stocks can wait to go on sale until all of our student loan debt is paid off at the end of the year, and we the extra cash freed up! ;o)

  • The Finance Doc July 19, 2017, 11:12 am

    Interesting logic and agreed that we are indeed 4+ years closer to a recession than before. One can certainly take measures as you described to raise cash for a potential market slip-up, but in the meantime, you may end-up missing out on a significant run that could leave your assets in the dust.

    My take is that while confidence certainly plummets during a recession leading to a fire sale, I would imagine recessions arise from unsustainable debt gone bad. Since someone’s debt is someone else’s asset, as soon as the former stops paying, a whole cascade of defaults begins, as the asset holders may not be able to pay their own obligations. In the meantime, liquidity dries up completely.

    While subprime auto lending and student loans have significant default potential, they currently do not appear grave enough to influence the broad economy. Certainly worthy of keeping an eye on their lending, however.

  • Kat July 20, 2017, 6:35 am

    My only contribution to these comments is to say that every time I see the associated image I think it’s a gold-wrapped Chipotle burrito.

    That is all. Carry on.

  • Commoncent$ July 31, 2017, 4:53 am

    Assuming one’s asset allocation no longer matches one’s risk tolerance, what to rebalance (Crome equities) into? Money market; short term income like SHY, diversified bond fund like BND, or other?

  • jb1331 July 31, 2017, 5:19 pm

    I am 48 years old, with a wife and 2 daughters 17 and 18 living in Texas. My oldest is starting jr college this fall, and I am expected be laid off in January after 14 years with a good paying remote IT job ~127k.. My wife makes a paltry 18k a year as a teacher’s aid with no benefits, but we have socked away all of her income into a 457b over the past 10 years. Our home is worth about 325k (paid off), and we have about$725k in cash accounts, IRAs, 401ks, etc. total. Everything is in cash at the moment as I believe 2018 will be a tough year, both for me personally and for the economy as a whole. We have no debt, all 4 cars we own are old, but I am extremely handy and do 80% of repairs / maintenance. I do about 80% of home repairs too. We are frugal, and I am doing everything I can do to curb things even more now as the ladies appetites for stuff (the hardest part). I am super efficient about reselling anything we no longer use. I make my daughters pay their share of the car insurance too. Oldest pays her own gas, and most of her own stuff too. We use pre paid iphones on Virgin mobile for about $133 total a month for all 4 phones with unlimited everything.

    Being in Texas is good and bad. Our property taxes will be about $6k this year! We are in some of the best schools in the state, and my youngest has 2 years left. I am doing everything I can do to prepare myself for being unemployed for an extended amount of time. I do not want to leave early as I may get a severance and there may be some opportunities internally, but just think they may be stringing me along until they don’t need me.

    Based upon my most frugal budget, we need about 40k a year to exist including health care (if we get a subsidy). My wife would bring home about $16k if we opted to get paid and not defer to the 457b for the short run, then burn unemployment for a while. I have been telecommuting all these years which has been extremely liberating to see my kids grow up, but I do stay very busy as well.

    I need some advice here.. I think it may be a little challenging to find a new job with my skills in my late 40’s.. So we do not really have enough to retire (I think I could if our nest egg was about 1.5mm), but I may have to entertain the possibility of a career change. I could really use some advice on where to park some of our cash for safe, modest returns.. or tell me how I can live on even less..

    • Stephen August 1, 2017, 3:26 pm

      First off, wow. Am I reading this right that you have 725k in cash? That’s a hell of a freaking gamble my man. Only you know your personal situation but I wince at people predicting a specific market correct correction in 2018 (or any year) and pulling out their $.

      On to your question – things are not nearly as dire as they seem. In fact they’re great.

      You have the ability to stay at a 40k yearly spend. That’d require a $1 million nest egg assuming no other income. HOWEVER, you have 16k in income from your wife. So now your goal is 600,000. WAIT A SECOND – you have $725k! Which means that with your wife’s income and properly invested assets you don’t actually need any more money. Logistically it may not work out perfectly, as you have money in retirement accounts, but there are ways around this and you have 125k in surplus at the moment.

      Absolute worst case scenario is you get another job as you mentioned. With the amount of money you have you can get literally any job you want. You don’t have to replace $127k/yr in income, so don’t use that as your barometer. Because of your lifelong habit of saving you can get a hobby job that pays you $35k, more than cover your expenses between that and your wife’s income and coast for as long as you want in a low stress environment as your retirement nest egg grows.

      All of this is dependent on investing your cash into some sort of income producing asset, however.

      • jb1331 August 1, 2017, 5:06 pm

        That is just it.. not sure what to invest in at the moment.. everything is so run up.. can it all go higher.. yes…but the risk for stagflation is real.. eating away at purchasing power.

        Really kicking myself though… I had 2,000 NVDA shares I bought in 1999 on the IPO. Sold them for a nice profit but if I would have held all these years, I would be completely done with > 4mm..

        shoulda woulda coulda ..

  • The Timeless Gentleman August 1, 2017, 10:54 pm

    Well, I don’t think that the upcoming recession is so easy to prepare for. With all the cheap money that has flooded the markets the past ten years, we can expect a much worse outcome this time when the next recession hits. What few seem to realize is that there is a perfect correlation between the growth in the stock market, real estate market and the amount of QE injected by the FED. Growth in the real economy has been non-existent since 2008, with productivity falling each year. I fear the worst now that the FED is planning for a QT and an increase in interest rates…

    While painting a rosy picture, with for example unemployment at low levels, one has to question the real state of the economy. Somehow it feels like we are getting conflicting messages from the statisticians. What about the people outside the labor market and what about the level of personal debt that you wrote about in this post? Something seems very wrong with this equation…

  • Denise August 2, 2017, 12:19 am

    Do you completely believe in the Dollar? Or do you also see a chance of a complete crash of this currency, where you might permanently lose all your savings? I’ve been looking into Bitcoin and Blockchain theory a bit, and it seems that’s what those believers are afraid of. A chance of the government regulating or prohibiting you from withdrawing your money in a certain point of crisis. Or deflating your money’s value. Is this something you worry about or look into at all?

  • Jonas August 10, 2017, 6:41 am

    Sweden here… I have been waiting for the recession for some time and thought Brexit and Trump would do it. And it still might be the final factors, but in a slower pace than I expected. But the stock market here is starting to go down now so I am moving into bear funds, making money.

  • Francisco August 14, 2017, 1:42 am

    MMM: Your prediction of the next recession is based on financial data alone.
    How do you feel about the current stage of “promised wars” between North Korea and the US (along with other countries waging in like Australia and China) and what kind of impact it might have on the markets? Also, for those who have stock or invested in funds, would you feel its time to sell some?

    Thank you.

  • Car Inspection Guy September 10, 2017, 11:11 pm

    Article is to the point, been seeing this coming for awhile. I’m in the used car business, specifically, we inspect used cars people are looking to buy. Before the last economic crash, we were inspecting vintage muscle cars non-stop. The market for these cars was going insane, and people were using their new found wealth from refinancing homes to pay for them.

    It’s now 2017, and its happening all over again. The amount of vintage cars being financed with “cash” from leveraging home equity is getting crazy. How quickly consumers forget…

  • Kyle September 12, 2017, 10:30 am

    I have around 100k in my bank account (profit from our first home) that I am trying to decide what to do with. Normally I would just drop in in my Vangaurd index fund, but I want to be able to capitalize on a future downturn. I know trying to time the market is a fools errand… Can someone talk sense into me :)

    I’m leaning towards dropping it in the index fund until I can find a rental property to put it in, that way I can get a HELOC on the property and maintain some liquidity to take advantage of any future downturn in the economy.

  • Joe M September 15, 2017, 11:13 am

    Interesting post Mr. Money Mustache!
    I entered the workforce right at the start of this recovery but unfortunately have had to spend most of it paying down student loan debt. I managed to kill 160k in student loan debt from 2009-2015. I started to get antsy about investing around the end of 2015 and have since diverted funds massively towards my retirement/investment accounts. Likely purchasing at the peak of this cycle. I still have about 25k of student loan debt hanging around that I could easily pay off right now. Probably not a bad idea now since I’m buying high theoretically. Or might be good to hold cash and wait for the drop to pick up a property since my local real estate market is white hot at the moment. Decisions, decisions!

  • Jeff October 3, 2017, 9:37 pm

    As Warren Buffet just said, for the first time in his life, he is not selling “losing” stocks right now in anticipation of a lower capital gains rate next year. When all that pent up demand to sell is released, it will be like a dam breaking, likely causing a market correction (meaning a 10%+ fall in stock prices).

  • Trevor October 6, 2017, 2:11 pm

    Hey MMM,

    I am planning on escaping the concrete jungle of San Francisco and purchasing a home in a more affordable part of the country with access to the activities I enjoy (fishing, rafting, backpacking, etc) as soon as this impending recession hits. I have zero debt, and am saving a good amount of my income, but am putting almost all of it into Vanguard ETFs and Wealthfront (just to do a little self-A/B testing).

    My question to you is, with the goal of purchasing a home in the next 1-3 years (most likely when we’ll see an economic downturn according to you and others), does it make sense to start keeping my cash in a savings account vs taxable investment accounts? On one hand, stagnant cash isn’t making me any money. On the other hand, putting it in a taxable account not only subjects my gains to tax but also runs the risk of my money being undervalued when I need to pull it out to make that home purchase.

    Did my best to look through your previous posts and comments, but if I missed something that addresses this feel free to send me that direction.


    • Michael October 21, 2017, 12:44 pm

      Ask yourself this question: if the stock market drops by 20-40% in “the next 1-3 years”, will that put a dent on your ability to buy a house? Consider the emotional aspect of selling at a loss, as well as the financial aspect. In an extreme case, will you even have enough money left over to buy the house?

      The general advice is: any required large purchase you have in the short term should be invested in low risk investment options. If you want to buy a house in the 1-3 year term, then put your down payment into 1-3 year CDs or a high interest savings account or something equally safe. This way you have the money to buy your house when you want to buy it.

      That said, if you are flexible regarding your timing of purchasing the house, and are happy waiting until your investments recover (years? a decade?), then keep your money where you think you’ll get the best long term returns. You are mitigating the risk of a market down-turn by being flexible in your spending requirements.

  • G-Dub October 19, 2017, 10:40 am

    So sit on the $7450.00 in the Vanguard Money Market fund or put it into VTSAX/VYM? I’ve already started diverting excess cashflow into paying off mortgages instead of buying more securities but I thought I’d wait for a market drop before the next big purchase of securities.

  • Alicia Kennelly October 23, 2017, 12:42 pm

    I will disagree on auto loans being such a terrible thing. Like any other debt, auto loans are a tool that can be used to build or destroy. Depending on the car, the deal, and the financing, it can actually be less expensive to buy a new car on a usage-balanced basis than it is to buy a used one. Also, remember the use of your own money has a cost, and it can cost less to use other people’s money than your own.

    I actually took a car loan out because the interest was cheaper than my mortgage, even with the tax deduction. Cheaper to use the auto lender’s money than the house lender’s.

  • Stefano October 25, 2017, 9:41 pm

    I like this article. Much more, I have religious respect for the previous (2013) “How to Prosper in an Economic Boom”. In that piece though it says, among the rest, that a “big market crash is a time to joyously go out and buy as many more shares of your index funds as you can”. Which puzzles me a bit . Isn’t a MMM guideline to keep very, very little cash and have the money invested in index funds all the time (or properties that provide income)? So which money will you use to buy new stocks during the crisis? Same goes if you want to buy a house when prices are lower, you still need good cash for down payments (20% of a 500K is 100K so it is significant)

  • John Doe November 3, 2017, 3:48 pm

    Speaking as someone who was massively stung in the 07/08 recession I’m determined not to make the same mistake again. So this sort of discussion interests me massively. All the people on this thread looking forward to mopping up when the bubble bursts – where are the funds you plan to use currently invested that will be safe from the same bubble? Sorry if this is obvious but I didn’t pick it up from this thread.

    • Mr. Money Mustache November 5, 2017, 10:32 am

      Hi John – the message here is that a good index fund (for example Vanguard’s VTSAX) will bend but not break during any financial storm. Just hold it, no matter what, and you simply do not care what the stock market is doing.

  • John Olaf November 6, 2017, 9:54 pm

    So, at this point, do I save for a down payment or pay off the 20k student loans? Interested to see more follow up posts on this topic!

  • boubiyeah December 1, 2017, 4:02 pm

    I’m in a strange situation; I only recently learned about this blog (love it) and the general idea of early retirement.

    I sit on about 400k in my bank account; never invested anything. I know about buy and hold or not to try and predict the market, but is it truly wise to invest a big chunk of this money even though a recession is statistically likely to occur in the coming years?

    • Michael December 1, 2017, 5:31 pm

      This article may provide some reassurance.


      You may want to take a look at Vanguard’s Personal Adviser Service.

    • ComposerChris December 2, 2017, 1:20 pm

      The thing to consider is opportunity cost… “in the coming years” could be tomorrow, or 1-5+ years away. If the recession starts tomorrow, YOU WIN!!!! However, if it’s 2+ years from now, you’ve likely passed up some very good returns. If the recession starts far enough down the road, you actually might have accumulated enough gains that you are *still* ahead after the crash from the recession.

      Crash-to-recovery times are also worth researching and thinking about. That is, if you are in the market and a crash happens, how long until you’re back to where you would have been if you’d stayed in all cash? This time is usually quite short for all but The Great Depression (and in that case, you really have the start of WWII to blame for the recovery length, not to mention that you might have lost your cash anyway because bank deposits weren’t insured before then).

      These concepts are what you need to understand to make a wise decision WRT your investments.

      One final thought… if you do decide to move your investments into stocks, you don’t have to do it all at once. You can sacrifice some opportunity costs for “insurance” that you’re not buying literally at the top of the market. This is most commonly done by “dollar cost averaging”–the concept that if you have $1200 to move from cash to equities, you can do so over the course of a year by investing $100 per month, thus averaging out the fluctuations of the market over the course of a year. The key to true dollar cost averaging is that you don’t try to time the market in the process… i.e. if June 1st sees bad news, you would invest your $100 anyways… to do otherwise is trying to predict the future market, which is fraught with problems.

  • Kate December 1, 2017, 8:22 pm

    MMM, I’m doing the mustachian thing living well below my means and moving any excess funds to my retirement and investment accounts, but I must be missing some understanding here (my financial literacy is very low compared to most of these commenters. I need the big crayon drawings to understand). In a downturn won’t my assets be worth less like everyone else’s seems like it wouldn’t be smart to do anything that point except wait for things to go back up. How then could I go buying things on the cheap unless I had non invested cash in savings? Shouldn’t I have invested that according to MMM best practices? I’m not trying to poke holes, just trying to feel confident that my current strategy isn’t flawed.

    • Mr. Money Mustache December 2, 2017, 6:48 pm

      Hi Kate, I think you’ve got it all straight – you stay invested at all times. But during a crash you might just be a bit more exicted about doing that buying, and maybe a bit more vigilant about not letting cash build up in the checking account, more likely to sell stuff on Craigslist to raise cash, less likely to buy a new car, etc.

  • The Kechi One December 19, 2018, 11:19 pm

    Just came here to say it took about 18 months from the publishing of this post for the next resession.

    • Mr. Money Mustache December 20, 2018, 1:23 pm

      That’s still a bold prediction Kechi! I definitely see the bear market in stocks.. but are you calling for a contraction in the real economy (GDP) starting in Q4 2018 or perhaps the first quarter of 2019?

      It takes two consecutive quarters (6 months) of decline to meet the definition of a recession, so we won’t know for at least that long. But if you are right, I will owe you a beer.

      For the record, I think the first quarter of decline will hit SOMETIME in 2019, but I don’t think it has started yet.

      • Matt August 15, 2019, 10:07 am

        Sounds like he owes YOU a beer…. and we just hit the first solid sign of a recession yesterday.

    • HeadedWest December 24, 2018, 11:48 am

      Well here’s our Bear Market in the S&P500. Merry Christmas! History suggests that this is indeed a gift for those on the path to financial independence, and all investors with a long term outlook.

  • MagniFIMoney September 17, 2019, 2:45 pm

    “bank-financed gas-powered racing sofa”

    Might be the best definition of a car i’ve ever heard.

    I’d Tweet that.

  • Jeff April 1, 2020, 3:58 pm

    Have been thinking about this post for 3 years. It’s finally happened. Good call, MMM! Even though I have prepared, I am not glad that the recession is here. A lot of people are suffering. Those with the means and who prepared may soon be able to buy distressed assets given up by those who did not, or could not, prepare. But there is a great deal of suffering going on. I would like to see MMM update this post sometime.

  • Goatee Joe April 4, 2020, 6:08 am

    Extremely useful to re-read this article in 2020, now that the crash has actually happened. Unsurprisingly, there are tons of Suckas out now predicting chaos and doom, and rolling out the old “We’ll NEVER Recover From This One!” banners. Which sounds strangely like what hordes of soothsayers were proclaiming in 2008: this was the end of times, we’re ruined for good, might as well sell all your stocks and bury your cash in a big jar out in the backyard. None of which, of course, came true. What did happen: it took a while, but things got back to normal and then boomed greater than ever before. This article should be mandatory reading for folks who need a reminder why a Mustachian lifestyle prepares you for times like these. And for anyone who just needs to calm the F down right now and realize we’re now living in a time of opportunity, both to invest and to simply help others.

  • Gabeincal April 14, 2020, 11:40 pm

    Well, here we are… ;)

  • Jay McConnell March 27, 2021, 3:21 pm

    I love this one. “Should you be worried? Of course not!”. I’m realizing it applies today in 2021 to inflation worries, too. Should I worry about inflation? Not really. I don’t buy that much stuff. So, no big deal.


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