According to conventional wisdom, market downturns are excellent times to invest because stock prices and interest rates on real estate frequently decrease. A six-figure sum of money is typically needed to invest in business strategies that can withstand economic downturns.

Just see the investments made by the super-wealthy during a recession. They already favor “alternative” asset classes including businesses, art, agriculture, and real estate in regular markets. Because alternative investments are separate from the public markets and have the potential for high returns without introducing too much risk, they are often pumped into portfolios during recessions.

It used to take a lot of money to invest in these asset groups. But not only the extremely wealthy will have options for wealth protection thanks to legislation that was passed in the wake of the 2008 recession (more on that later). The common person will be able to invest like Shaquille O'Neals of the world throughout this recession and come out on top with healthy cash flows and stock growth for the first time in history. Here's how regular investors can take advantage of alternative assets to weather a bear market in stocks and begin to change the course of generational wealth.

The wealthy are skilled at using their capital as well as at making money.

There is a reason why it is wise to research where wealthy people keep their money. They demonstrate that you can continue to increase your wealth once you have access to finance.

They use their capital to obtain and increase their wealth through alternative assets. Only 5% of the average investor's assets were allocated to alternative investments in 2022. Individuals with high net worth (those worth $1 million or more) kept 26% of their assets in alternative investments, while those with ultra-high net worth (those worth $30 million or more) kept 50%.

Ordinary people will need to somewhat alter their strategy at this point. Not all alternative investment kinds are currently available to or will be available to average investors. Private equity, luxury products, and other industries have significant entry barriers. Additionally, not all alternative asset classes are equally resistant to recessions. One asset that can fluctuate in any market is cryptocurrency.

Franchises, on the other hand, are a sort of alternative investment that billionaires and millionaires increase their stake in during a recession and are accessible to regular investors.

Franchises have helped some of the world's most wealthy investors achieve financial success.

Dairy Queen, Benjamin Moore Paints, a real estate agency, Pilot Travel Centers (of the famed Pilot Flying J Truck Stop), and other businesses are all majority-owned by Warren Buffett. In spite of the early 1990s recession, Berkshire Hathaway was able to turn a profit thanks to his franchise investing strategy.

It's difficult to think of a more successful investor than Warren Buffett, yet the Oracle of Omaha may be beaten by Shaquille O'Neal's franchise play.

Hundreds of franchises, including car washes, gyms, and eateries including Five Guys, Papa John's, Krispy Kreme, and Auntie Anne's, have been owned by or in which O'Neal has invested. He recently increased the number of franchises he owns by becoming one himself. In Las Vegas, he introduced his own brand “Big Chicken” in 2018. Since then, he has sold 200 more development locations and expanded to nine units. Shaq's wise financial decisions allowed him to build a franchise empire worth $127 million.

During a recession, high-net-worth people like Buffett and O'Neal gravitate to franchises for a variety of reasons.

Why High Net Worth Individuals Always Look to Franchises During Recessions

Franchises are typically found in sectors that are resilient to recessions.

People continue to wash their cars, get their hair cut, join gyms, and eat at quick-service restaurants even when the stock market declines. They can protect themselves from inflation for the same reason. Franchises are real assets that generate money, therefore when prices rise organically, profitability increases as well.

Franchises can assist investors in insulating their portfolios against changes in the economy and stock market since they don't rely on the effect of the mainstream market. Franchises provide a protected asset class if the stock market declines, and well-diversified holdings are important to generate reliable investment income.

Finally, franchises may be able to produce consistent profits. Franchises are carefully scrutinized as an investment strategy. The Federal Trade Commission oversees franchising, adding an additional layer of transparency. They operate as a business in a highly systematized manner. Business plans for franchises are constructed using statistics and analytics from previous successful sites. With a tried-and-true path to profitability, they can provide returns comparable to those of venture capital investing.

In previous recessions, franchises remained profitable.

Franchises appear to have done well throughout earlier recessions, according to the evidence. We may anticipate the same growth potential in the impending recession if the past is any indication.

Growth indicators like nominal dollar output, the number of franchise sites, and GDP decreased at the worst of the pandemic in 2020 as a result of COVID-19. But by 2021, every metric had recovered and was growing at rates that were even higher than they were before the pandemic.

Franchises often performed better than other firms throughout the 2008 crisis. Franchises continued to expand at a compound annual growth rate, and many new businesses started franchising between 2009 and 2011.

Domino's was one such company that prospered after the 2008 financial crisis. Domino's market share, margins, and reputation all suffered in 2008. But it understood that a resurgence was necessary during the recession. Individuals would be working longer hours and in greater numbers in dual-income households, which are signs that fewer individuals would be choosing to cook at home and would prefer a less expensive eating option.

After an aggressive makeover, Domino's became the largest pizza chain in the world. Its strategy made international expansion a prominent component. Domino's launched hundreds of new restaurants in nations less afflicted by the financial crisis, like India, Canada, and Australia, as the downturn hindered economic activity at home. Domino's has increased the number of its locations by 10,000 since 2008 by capitalizing on the recessionary environment.

Retail investors should take advantage of alternative assets now.

Because of the JOBS Act, regular investors can now benefit from the asset class that made Shaquille O'Neal and Warren Buffett wealthy. The JOBS Act, which was passed in 2012 to encourage small business growth following the 2008 recession, permits non-accredited investors to make investments in private enterprises. “Non-accredited investors” are regular people who don't meet the income standards, whereas “accredited” investors earn above $200K per year or have a net worth of $1M or more.

There haven't always been as many possibilities available to non-accredited investors as to wealthy ones. They haven't adjusted as well to adding alternative asset classes to their portfolios. However, since the last recession, the regulatory landscape has become more open, and non-accredited investors now have greater access to alternative investment options.

Franchises, farms (like AcreTrader and FarmTogether), wine (including VinoVest and Vint), and even trading cards (like ALT) may all be purchased through a variety of sites today.

The opportunity to profit from the steady, income-generating asset class that the one percent has long utilized to weather economic downturns is now available to the common investor. To build generational wealth, you don't need to wait for future generations.