Is the next GFC just around the corner?

It is a decade since the last GFC and almost 10 years ago to the day since the collapse of the Lehman Brothers. That started a domino effect onto other US financial institutions that would have fallen were it not for the US officials stepping in with support.

Luckily, Australia was mostly shielded from the extreme carnage in other countries, although the share prices of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) all took a tumble. Next time Australia may not be as lucky.

We are in one of the longest bull markets for the global economy in history. The past tells us that a recession happens roughly once every ten years. At some point there will be another crash, it is almost inevitable.

Every day we get closer to the next recession, but we are also getting closer to the next growth stage of the economy.

The thing to remember is that the economy always recovers, even if it takes a while. It is never a good idea to panic sell just because the price of something is falling.

Can you imagine selling your home just because it has fallen a bit in value? It’s the same home with the same bricks, the same objects inside and the same occupants.

You should think of share market falls in the same way. It’s the same businesses with the same products and the same management. Most shares’ underlying value hasn’t changed during that time. Except you can now buy it for a cheaper price.

Foolish takeaway

So, whilst the next recession is closer than it’s ever been, that doesn’t mean you need to worry any more. It could be years away, it is pointless trying to guess. But the share market will recover when it does happen. The key point is to have a decent amount of cash set aside in-case you run into financial difficulty, that way you don’t have to sell at depressed prices.

This top ASX share could be the best way to ride out the next recession, its earnings are likely to get a boost during that time.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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