The economic outlook appears to be quite dire in the aftermath of Brexit and an increasingly interdependent global economy. Plenty of renowned economists are predicting an economic crash later this year or at some point in the near future. However, you do not have to resign yourself to the prospect of a massive financial loss if such a crash scenario unfolds. Be proactive by following the advice set forth below and your finances won’t be susceptible to a sharp economic downturn.
Spread out the Risk
Investment diversification is critically important in your quest to protect your savings against an economic crash. Do not invest all of your money or even the majority of it in stocks. If the economy crashes, the stock market will suffer a massive dip that might last for years. Aside from options trading, stocks are the riskiest way to invest money. Invest in precious metals like gold and silver, strategic metals, commodities, bonds, real estate, annuities and even cash value life insurance. Some crash-weary investors are going as far as investing in jewelry, art, stamps, and trading cards.
When selecting stocks, spread out your money across risky stocks, stocks that present minimal risk and stocks in between these extremes. This way, if an economic sector crashes particularly hard, your portfolio won’t be completely devastated in one fell swoop.
Cash is Still King (even if its declining in value)
The dollar is losing value, no question, but right now, it is still a necessity for day to day survival. But banks are insolvent and underfunded, so keeping your cash in a bank is no longer the safe option it used to be. Though your life savings certainly won’t fit in your wallet, you can keep a considerable amount of cash in a safe on your property. Leaving your cash in the bank poses an element of risk as a “bank run” by the masses will limit access to your funds. Move a good chunk of your money to cash or cash equivalents before the crash occurs and you will have the opportunity to get right back into the market after prices dip. Or, “sit” on your cash and wait for the market to settle itself out before re-assuming risk.
It is prudent to invest a sizable portion of your money in guaranteed instruments. These investments won’t crash when the market dives. Those who favor short-term investments should opt for Treasury securities and bank CDs. Those who are investing for the long-term will be better served by indexed or fixed annuities. Each of these guaranteed investments will provide a better return than T-bonds. It is also possible to assume slight to moderate risk by investing in “callable” corporate bonds, CDs and preferred stocks.
Bet Against the Market
If you anticipate a massive market decline, like most of us, consider shorting overpriced stocks. Those who are unfamiliar with options trading should study up on “put” options. This style of options trade empowers an investor to profit when a particular stock decreases in a specific period of time.
Some weary investors will even buy put options on the stocks they own to hedge their bets. This way, if the market crashes in the short-term, they will get some (or more) of the money back that they invested in stocks when their outlook was bullish. It is even possible to “short” indices as well. Such an action is prudent if one can’t pinpoint specific stocks that are likely to suffer massive price drops during an economic crash.
Consider Using the Prospect of an Economic Downturn as a Chance to pay Debts
If you have debt, it might prudent to pull your money out of the stock market and eliminate or decrease your debt obligations. Paying off debt with your cash will reduce your market risk and boost your credit score. Perhaps more importantly, paying down debt will improve your morale. Nobody enjoys the black cloud of debt hanging over their head. The bottom line is that you will greatly regret a failure to pay your debts in the event of a market decline that devours your savings. The peace of mind that comes from eliminating or significantly reducing debt just might prove to be priceless.
Buy Gold, Silver and Other Precious and Strategic Metals
When the economy falters, there is almost always a rush to gold, silver and other precious metals. These metals are viewed as “safe havens” that are not susceptible to economic and political turmoil. Gold will likely be valuable centuries or even millenniums into the future. Gold is necessary for space travel, many types of jewelry, industrial devices, medical equipment and even some consumer products.
The value of gold and silver are almost guaranteed to rise or at least stagnate in the event of an economic crash.
Strategic metals are critical in industry, so even in down times they tend to move up in value. For more information on strategic metals and how they will help you survive an economic downturn, click here.
Do not wait until the crash happens to move some of your money to gold and other precious metals. Make the move in the months before you anticipate the crash and you will be able to take your profit off the table before other gold investors sell.