How to Save Your Precious Money from the 2025 Recession

There’s a high possibility that 2025 will be a recession year. Let me explain why.

Warren Buffett has a simple rule: when the stock market’s total value gets way above GDP, prices usually can’t hold. This concept became known as the ‘Buffett Indicator. Right now, stocks are looking dangerously overvalued by this measure, suggesting we might be in for both a market correction and a recession.

And it’s not just the Buffett Indicator raising red flags. Another key warning sign, the Shiller PE Ratio (which is the Price Earning Ratio of all S&P 500 (America’s 500 biggest public companies), measuring if stocks are overpriced compared to their actual earnings) hit 38.55 in December 2024, which is dangerously high. The last time it was this high was November 2021 at 38.58. Remember what happened after that? In 2022, the stock market crashed hard – tech giants dropped 30%, and some stocks even fell 50%.

2024 has been a year of extreme optimism for tech businesses. All major tech companies are valued much higher than they deserve. Stocks and cryptocurrencies have skyrocketed – they’re simply overvalued. Here’s something scary: just before the dot-com bubble burst, the Shiller PE Ratio was 42.87, and before the Great Depression in 1929, it was 31.48. In both cases, we saw sharp increases just like we’re seeing now.

Shiller PE Ratio

from https://www.multpl.com/shiller-pe

But wait, as i mentioned, the Buffett Indicator is red-hot too.

The Buffett Indicator: Market Cap to GDP (which shows if the total US stock market is overvalued compared to the economy) is at a worrying 208%. Even in December 2021, right before the 2022 tech crash, it was only 190%.

https://www.longtermtrends.net/market-cap-to-gdp-the-buffett-indicator

What typically happens after stocks get this overvalued? A big price correction. Companies lose value, they cut salaries, and spend less money. When this happens, people spend less too – and boom, you’ve got a recession.

Adding fuel to the fire, Trump’s trade war could increase import prices, and his tax cut policy might cause inflation. If the Federal Reserve raises interest rates in response, stock prices could plunge – a perfect recipe for recession.

So, how can you protect your money? Here are two crucial steps:

  1. If your money is in stocks, consider selling. This isn’t the time to hold onto overvalued investments.
  2. If you’re planning to expand your business, think carefully about future demand. People typically spend less during recessions. Expansion during this time might not increase sales but will definitely increase costs. If the recession lasts long, stagnant sales and rising costs could lead to bankruptcy. Be especially careful with inventory – it’s dangerous to have too much. Unsold inventory ties up your cash, and if it sits too long, you might have to sell at a loss, making things even worse.
  3. Don’t be extravagant; savings are life-saving during a recession.

And hey, let me do my risk hedging here: I’m not saying this will definitely happen. I’m just pointing out that the chance of a recession in 2025 is higher than usual. Think of it like this – maybe everything will be fine, like how some heavy smokers live to be 110 years old. It’s possible! This is just my analysis, and you should make your own decisions. I’m not responsible for your choices.