Remember that simple yet timeless law in physics, “what goes up… must come down?” Similarly, the US stock market entered Q4 (the fourth quarter) of the year near record highs but is on track to lose all of its 2018 gains. Whether it is the Federal Reserve raising interest rates, the trade wars going on between nations, or the current midterm elections and their possible ramifications, each one of these headline topics are important contributing factors to the causes of the recent market volatility. Among these important contributing factors are others such as low unemployment and tightening monetary policies, which we will discuss in our next article. Today, however, we focus on solutions that we, Clever Africans, can use to prepare ourselves for a downturn or a recession in the US economy. We believe a downturn is inevitable, so it is in our duty to be prepared.
Noah, a man of God, was tasked with building an ark for shelter and warning citizens about a future flood that would wipe the Earth, at a time where water had never fallen from the sky. He gave this message to the people, yet the people ignored it. Was it raining as he was constructing? No. Everyone else was carrying on with business as usual. They were following current trends without taking heed to the warning signs around them until it was too late.
Similarly we see that stocks have made record highs in the last 10 years and that the US unemployment rate has hit multi-decade lows. Meanwhile, interest rates (what banks pay out to savers and lenders) increase and assets such as gold have trended downward. We believe that we are treading on the shores of a reversal in the upwards economic wave we have been riding since March of 2009. To prepare for possible downturns, we provide four clever recommendations.
- Learn New Skills– Brushing up on your existing skills and learning new ones is a great way to make yourself indispensable no matter the condition of the economy. To get ahead of a potential recession, create new streams of income on the side. Find a solution to problems people have in your own community and monetize your skills!
- Diversify– Have your money spread out in as many investment funnels as possible. For example, they can be assets such as money market securities or alternative assets such as a bank certificate of deposit (CDs), short term U.S. Treasury bonds (1 month to 3 year bonds) or even safe haven assets such as gold, digital assets like bitcoin and other instruments with high return rates and short maturities.
- Invest What You Can Afford To Lose- Investing is important, but you have to survive so you can thrive. Do not use money that you need for your basic needs to invest in financial assets. As a rule of thumb, investors should not get involved in stocks unless they have an investment horizon of at least 3-5 years and preferably longer (10+ years). You should never invest money that you cannot afford to lose. Remember corrections, bear markets, and even minor down days can be destructive.
- Load Up On Cash- During times of a downturn, loading up on liquid assets like cash is essential for at least a few reasons: the ability to purchase stocks and other assets when their price is below their value; to readily have access to funds in case of any emergency situation, or any immediate purchase. Remember,
“Money — actual physical dollars — is considered and asset class and one that barely budges during a crisis. A dollar is a dollar in good times and bad. What that means is that it always outperforms equities in a down market — if stocks fall by 10 percent, cash falls by nothing. Of course, if one’s holding too much cash during a bull market, they’re not making anything, either.” –Bryan Borzykowski, CNBC
King Solomon, known as the wisest man to ever live, in Ecclesiastes 11:1-6 tells us to plan ahead and invest in multiple ventures for we do not know the day in which the harvest may spoil.
THE CLEVER AFRICAN:INVEST IN YOU
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