Download The difference between a recession and a depression? "It`s a

The difference between a recession and a depression?
"It's a recession when your neighbour loses his job. It's a depression when you lose your
own." — President Truman
The actual definition of a depression is a recession where real GDP falls by more than 10%.
The last one in larger developed economies was the Great Depression of the 1930s, where
unemployment in Australia got to 20%. The worst recession in the last 60 years was from
November 1973 to March 1975, where real GDP fell by 4.9 percent.
Where are we headed?
It is predicted that the outlook for 2009 is a mild recession with positive growth returning in
the second half of the year. Year-on-year GDP growth for 2009 should be just positive
(could possibly turn out to be slightly negative), with positive growth for 2010.
Source: Perennial Perspective – Monthly Investment Update (Feb 2009)
‘Staying Put still the best option’
We know we have said it before, but we will say it again…. staying put is still the best
option for most investors. Those who panic and cash in growth assets will be doing so at
what is arguably close to or at the bottom of the market.
Example: If your equity portfolio has lost 50%, and you decide to move your funds into
cash, with interest rates at 3.25%, it would take nearly 30 years for your portfolio to recover
and with no tax relief through imputation credits / capital gains tax discounts (of course
interest rates are likely to rise at some stage in the future).
On the other hand, over the last nine bear markets in Australia it has taken between 15
months and just under eight years for portfolio values to be restored (average time was
three and half years). Part of the reason this is the case is that once the sharemarket
reaches a bear market or recession low, it typically bounces back reasonably
dramatically in the first year (on average, 32% over the last nine bear markets).
Source: Perennial Perspective – Monthly Investment Update (Feb 2009)
Why it’s not all bad

The Australian economy is currently in better shape than most of the developed
world.

Although it looks like Australia may have a mild recession, the economy should
bounce back, as it always has done in the past.

Recessions represent an opportunity for investors to buy good assets at great prices
looking forward to the next boom.

Sharemarkets typically bounce back well before the recession is over.

The sharemarket has always bounced back to new highs, although this may take
some time.

Most Australians have long-term superannuation assets that will grow over the longterm and are not forced to sell at rock bottom prices.
Source: Perennial Perspective – Monthly Investment Update (February 2009)