There is always a contingent of the financial punditry that is screaming at the top of their lungs that a horrible recession / depression is “imminent” and that we’re all screwed.
Some of these guys I actually like, and make really good points that I agree with. Peter Schiff and Doug Casey are two examples, but there are others. Other guys are just insane and are being irrational.
Indeed, in the last 30-60 days or so, we have seen signs that the next big recession (that we are several years overdue for) is getting pretty close. Could it happen soon? I don’t know, and as I’ve said before, no one knows exactly when this will happen, and if they say they do, they’re lying. It could happen this year, it could happen next year, or it could happen in 2020 or 2021. You don’t know. I don’t know. We just know it’s coming, because it is, but we don’t know when.
However, just because we know something bad is coming doesn’t mean we need to get irrational and leap off the deep end on this crap. It’s not like 80% of the population will lose their jobs or we’ll all be ravaged by wandering bands of zombies in the streets.
It’s possible to be prudent and prepared without turning into a EOTWAWKI sky-is-falling bunker-dweller.
For example, I’ve talked about how it’s a good idea to keep a large portion of your cash in a safe somewhere, either in your home or at a loved one’s home (loved one’s home is better; just don’t give them the combination to the safe). I don’t say this because I think the bank or the government will suddenly confiscate all of your money. It’s certainly possible, but I think it’s unlikely.
I mostly say this because interest rates on liquid cash savings are less than 1% right now. So hell, you might as well store much of your cash personally instead of utilizing the overhead and problems of using a corporatist bank. You’re able to control your own money and you don’t have to dick around with going back and forth to a bank, particularly in a recession / depression where lots of people will be at their local banks pulling money out of their accounts, and you’re really not losing any real money by doing this. (If interest rates were 6% instead of less than 1%, then I’d have a different opinion.)
Yes, have lots of cash hedged by gold. Yes, have your non-cash investments very, very diversified. Yes, stay out of the ridiculously bloated stock market right now. Yes, wait to buy real estate until the crash occurs.
But don’t go all Alex Jones / Glenn Beck and start screaming that we’re all gonna die, or get our homes confiscated by the government, or that all the banks will collapse tomorrow. Yes, the next recession will probably be bad. Really bad. Overly harsh recessions are what happens when society embraces big government. But none of that end of the world stuff will happen (or is at least extremely unlikely).
My advice remains the same: Get your ass out there and make your money now. Work as hard as you can. Take advantage of this temporary fake-good economy before the crash. Take advantage of these great-for-me-but-horrible-for-America temporary Trump tax cuts before the next Bernie Sanders becomes president. Keep most of your money as cash hedged by gold. Then wait for the next crash to come, then invest into things like stocks and real estate so you can buy low, but not before then.
And don’t freak out. Millionaires are made during crashes. You could become one of them.
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What are those signs in your view?
I love this.
I’m looking to buy a condo soon, but first I’m biding my time waiting for the crash.
I’m patient, I got no problem staying in my apartment for 1-5 years more just to wait for a sweet deal. As far as my financial health is concerned, I’m practically pro-recession.
Is it worth pulling all or most of your money out of stocks particularly index tracker funds now then and keeping the cash to buy during the crash?
Advice from the likes of Ramit Sethi is to keep it there long term and it all balances out. Not sure what you think of that?
It’s only a few thousand I have there anyway but would rather be on my game with it
Hahaha that picture the day after the Genoa bridge collapse. Brilliant!
I’m guessing you are talking about the Turkish drama. It’s true the current situation is similar to ’97, with possible ramifications all over the world. But guess what. That barely affected the USA (unless you were an Economics Nobel Prize winner turned hedge fund manager)!
It’s a matter of the non-dollar world. USD is king and is not going down any time soon, no matter the deficits.
The only problem I see in my argument is that stocks are already more expensive than at year 2000. So of course don’t even think of buying for the long-term here.
Yeah I’m thinking the next big crash should happen somewhere between today and 2024 or so. It looks like the interval between big crashes has ben kinda-sorta getting longer lately, though it depends on how big one defines a big crash.
My very uninformed layperson’s speculation is that there is a convergence of emergent technologies and manufacturing/farming methods (at a near global level, not just in limited niches) that might considerably delay/prevent/minimize economic crashes after the next one. In other words, the next crisis probably coming somewhere in 2018-2024 ish may be very hard, but there’s a chance that the rebound will be so steep that it’ll “iron out” the next dip, so to speak. It may not be worldwide, ie it doesn’t necessarily go against the prediction of western collapse, but it means that (A) the rise of non-western powers could mean that overall the world economy itself may become much more resilient after the next crisis even if the West is fucked by it, (B) those emergent technologies may simply neutralize the ill effects of stupid economic policies.
Ancap, communist or anything in between, 21st century tech is making wild economic experimentation more viable, within some limits.
If we truly transition into indoor zero-soil farming with near-zero land demands/environmental impact AND introduce space mining in the coming decades, all this rah-rah-rah about economic collapse will become meaningless because resource shortage itself will become meaningless. We just need more advocacy and funding going into these things.
A few different things. Softening real estate market in some regions, lengthening of time houses are on the market, a recent spike in inflation, a huge GDP quarter, etc, etc.
If your goal is to keep your money in the stock market for 40+ years, then fine. Regardless, my goal is not to “balance things out.” My goal is to never lose money.
Actually I wasn’t, but yes, that could very well be a factor too.
Let’s say you have $300K in index funds. Your base cost is $100K which leaves you sitting on a $200K gain which is liable to a 40% capital gains tax.
Your $300K index fund then becomes $220K cash. What then to do with this cash? Invest in another asset class or remain in cash to reinvest when index funds are cheap again?
Assume that you want to hold the fund for say another 10 year period before drawing down annually as income, maximising your tax allowances.
What % drop in the fund would be required in order to remain ahead when the stock market tanks?
What would be the best strategy to adopt in the above scenario?
I would work with your accountant and find a way to roll that money other into some other safer, non-stock asset without incurring that tax (like a 1031 exchange, etc).
If you like. I personally would never invest in the American stock market since I don’t see the point in investing in a collapsing empire, but that’s me.
There is no way anyone can answer that question since telling the future is impossible.
I also would never load all of my investments into one asset class, particularly stocks.
I’m based in the UK, so I’m not familiar with 1031 etc. (I used USD in my example because I assume most of your readers are US based).
I agree that to put all your assets into one asset class is not the smartest thing to do. I operate 3 businesses, 2 real estate and 1 professional / retail, all well established over 25 years and profitable.
I do have stock market exposure via Vanguard and Fidelity funds (world funds), which were passive investment vehicles which I trickled business profits into over the last 10 years.
I suppose my question was apart from selling into cash, crystalising a gain, paying the tax and starting again with the cash (which is devaluing with inflation), is there perhaps another strategy which other posters have used which would put the balance of risk into the most favourable position?
My philosophy is that I decide on some portfolio that I want to have and then either stick to it or continue working towards it. If I need to work towards it I would use the gains to purchase the investments I am missing and if I already had the portfolio I wanted I would keep the ratios the same – so if suddenly have extra money from one investment vector I would redistribute it accordingly.
What would your opinion be (worst case scenario) on how far a world index fund would drop (% wise), when we have the depression?
70% top to bottom.
American stocks would have to lose 2/3 of their value just to get back to average. If they fell 40% after that they would be at 20% of the starting point (0.6*0.33=0.2). That is an 80% drop to get to the depths that other brutal bear markets have reached (’32, ’42, ’74, ’82) . Let’s say somehow a “world index” would behave better. That’s why I say 70%, which is substantially better (you end up with 30 cents on the dollar instead of 20).
Source: Hussman Funds
Of course, you should not wait for an absolute collapse. Just start putting your savings little by little once stocks get back to normal and enjoy the dividends (which, still, requires a drop that many people find unfathomable).
Here’s my simple solution, it’s not fool-proof by any means but it’s easy and simple.
1) Don’t live in an over-populated area. Live in nature, somewhere not too far away from other people but not in the city either. There should be a hospital no further than 1-2 hours away from you. Henry David Thoreu did the same thing, some people think he was a survivalist, he wasn’t.
2) Grow potatoes, carrots, and onions/leeks, and have chickens for eggs. You can get all your nutrition requirements from eggs and potatoes alone, leeks/onions serve to prevent insects from eating your crops. All stews have the same base more or less: potatoes, onions, and carrots.
3) Build a pump well so that you have your own water supply, and invest in some solar panels which are now dirt cheap
4) Read the book “your money or your life” on living frugally and dividend/etf investing, and like Caleb said invest in gold. I don’t buy things I don’t use, I rent them instead for when I want to use them. Buy things you NEED, rent things you WANT.
5) Depending on your countries homicide/violence rates, perhaps get a gun or two.
6) Don’t fill your mind with garbage, instead empty out your mind with meditation, specifically jhana meditation (check out the book by Leigh Brasington, called Right Concentration) which will show you how much energy you waste on non-sense on a core deep psychological level.
7) Don’t waste time and money on non-sense. I travel 3-5 times a year to nice places like canary islands, the alps, riva del garda, etc. I eat good food, I go mountain biking, beaches, sailing, etc.. I am content with life and I have no problems with anyone or anything. When I’m not traveling I’m doing the same activities around my area. I don’t depend on anyone for anything.
1.BD,Based on your instict,even if you may be wrong ,when do you think an economic crash may happen?
2.You said that any person who is 50 years old should be a milionaire,you dont have that age,but i bet you are one already.How much do you think you will lose in an economic crash in the future ,or you will become richer(in percentage)?
3.If you had the wealth that you had now and the investment portofolio that you have now,in the year 2008,how much do you think you would have lost,in percentage?
In the case of an economic crash,what do you think will be best for an 19 year old who will enter the labour market right then,to go and work in the western world,or to stay in his 3rd world country(where the salaries are 80% less in general than an western country)?
In this article, you linked “Always cash hedge investment with gold”.There ,a reader asked you what newsletters do you use in your research.And you said :” I will answer that but not yet. I’m setting up a resources page here where I will link to all of the stuff I use, but I want affiliate setups before I do that. “.In the future will you put the affiliate links with what newsletters you follow or not?
Off topic,but do a part 2 of Sampson and the wizard.Or create something similar like that ,or create a new book as valuable as the alpha male 2.0 book.
How about private pensions based on stocks – this is long term of course so does it make sense to keep putting money in this? There are tax benefits for doing so, so it seems like it is not a bad idea to keep investing a decent/modest amount here?
What will be the effect on dating and especially attitudes and behaviors of women? I can imagine that probably those men who are doing more or less okay ish in harsh times can get easily women left and right. This will be the time where providers will get laid super easy with no techniques or game.
Ah, yes. I have my eyes on Housing Starts, which plunged unexpectedly on June and have come up as bad for July today (and the June figure was revised down). If they don’t recover by the end of the year, 2019 won’t be nice!
You’re asking questions I can’t answer without a detailed layout of your life and financial situation. I would recommend talking to a fee-only financial planner or joining my SMIC program and getting some personal coaching.
Sometime between now and the next four years. I could be very wrong though.
I will likely make more money in a crash than I lose, since many of my investments are ones designed to do well in a crash (but aren’t doing that great right now).
I’ve been preparing for a crash for a very long time.
Zero, or maybe at very worst, 5-10%. I likely would have made a profit (hard to say with things like cryptocurrency, which didn’t exist back then).
No change for you. Get out of your third world country and get into Asia or the Western world and start working hard.
That’s on the to-do list but it will be a while.
I would love to but I can’t figure out a profit model that will make that worth my time. It’s extremely difficult to make money selling a $9 book with no other back-end.
Ohhhh…. just wait two more weeks and watch my blogs…
It depends on A) the tax benefits, B) any possible matching, and C) any guaranteed returns, if any.
Correct, but that only applies to Alpha Males. The vast majority of men are betas, and they won’t be helped at all, regardless of how well they do financially.
I was getting ready to purchase a small apartment (mostly for tax reasons) and I’ve halted that. I’m waiting patiently for the next real estate collapse before I buy. C’mon, real estate! Crash! You can do it!
There is of course the argument that there is no real estate “market” only a mortgage market which is controlled via interest rates and the availability of house purchase products.
Very easy to orchestrate a crash via drying up of mortgage offerings and increase of interest rates if that is what the elites want.
If you are aware of the movie The Big Short is shows how easily manipulated the market is and how real economic apocalypses can be delayed, potentially in a lifetime albeit not indefinitely.
In fact, there is nothing real about real estate. If you would really own a property it means your word is law there and it cannot be legally taken from you, however, this is not the case.
So what we have is provision of temporary shelter, controlled through debt, whilst weakening the soul.
Its hilarious than that people are so attached on “owning” a house (which they don’t REALLY own in most countries) and even going into debt in order to achieve this. What is hard to believe for me is that this all happens despite all the economical – political situations and warnings and people are “settling down” and building houses like everything is fine and will continue being the same for the next 20-40 years. When I mention that is not a good idea because I expect a huge economic collapse in a few years or civil war in those countries people are even surprised. I don’t understand this – have these people not been reading any news in the last 5 years?