The Five-Point Plan to be Successful in Any Market
The trade war between the U.S. and China seems to be expanding rather than shrinking and stocks are bearing the brunt of it.
In an after-market alert last week, Barron’s declared a:
“Recession Alert: All three major stock market indexes closed in the red on Wednesday as trade war concerns and an inverted yield-curve spooked many investors about a recession risk ahead. Chinese newspapers warned in strongly worded commentaries that Beijing is ready to weaponize so-called rare earth metals in the trade war with the U.S.”
For those of you unfamiliar with what the yield curve is, imagine a graph with the y-axis representing the interest rate of different types of Treasury bonds and bills, and the x-axis representing the time to maturity for those bonds. Normally, interest rates or “yields” rise with longer-term bonds: that’s what the “yield curve” normally looks like.
It’s the first time since March that this pricing anomaly has lasted longer than one day. If they persist long enough, yield-curve inversions are considered to be a signal of future recession.
Historically, when that part of the curve has been inverted for 10 days, a recession has followed within the next two years, according to Bianco Research.
The 5 Point Plan
Markets go up, and they also crash. The key is to be prepared for any market, whether up or down.
Unfortunately, most people are not prepared. Most people put their money in a 401(k) and send out a hope and a prayer. This kind of thinking will put you in the poor house.
Here’s how to make money in any market, especially if your primary investments are in a 401(k):
- Know Your Position
The sad reality is that most people don’t even know what their retirement money is invested in. The money gets pulled out of a check, goes to a magical place called a managed investment account, and is moved around by a wizard called a financial manager.
The first step to success in any market is obvious enough, but too often ignored. Know what your money is invested in!
- Know How You’ll Perform
Once you understand what your money is invested in, you need to understand how those investments will perform in a given market.
For instance, if interest rates are hiked substantially, as the Fed seems to be prepping for, there’s a good chance that stocks and bonds will fall—and these make up most investors’ retirement accounts.
Therefore, in such a market, it may be time to invest in real estate before interest rates go higher.
- Get Educated
This means that you can’t just take advice about the market, you have to educate yourself so you can see what’s coming and have time to prepare.
If you don’t plan on investing in financial education, then by all means, keep your money in your 401(k) and let it sit there. It’s safer than moving money without the knowledge of how or why. But if you want to be prepared to make money in any market, you need to understand how to make that money work for you.
- Slowly Pare Back Your Risk
With the proper education, you can see where the markets are going, how your current asset mix will perform in the coming markets, and how much risk you have.
This allows you to make the proper adjustments to minimize your risk and take positions that will perform well whether the market is going up or down.
- Buy in Pairs
Professional investors always buy in pairs. One position is for growth, and the other is for protection. So for instance, if you’re heavily invested in the stock market and paper assets, you want to take an insurance stake in precious metals or commodities.
If you buy real estate, you want to also buy insurance for that real estate. The list can go on and on. This of course takes financial education, but the investment is worth it.
Staying High and Dry in a Recession
There’s an old saying that goes, “It’s a recession if your neighbor loses his job. It’s a depression if you lose your job.”
Very simply, a recession is a decline in a country’s gross domestic product (GDP) for at least two quarters. That means that by Christmas we’ll know if we’re in a recession or not.
In some ways, the coming recession is a product of the physical phenomenon known as precession. Precession is the effect of bodies in motion upon other bodies in motion or more simply, a ripple effect.
While there are many such processional “waves” in the coming recession, one is the lack of integrity in the U.S. monetary system.
The United States has defaulted on its financial promises many times in recent history. In 1934, we defaulted on domestic gold redemption. That year, it became illegal for U.S. citizens to own gold. Instead, the government required Americans to turn in their gold, and they were paid $20 in paper money for every ounce of gold they surrendered.
Once the gold was collected, the government raised the price of gold to $35 an ounce. Talk about a lack of integrity. And in 1968, the U.S. defaulted on silver redemption, taking U.S. dollars backed by silver out of circulation. Finally, in 1971, the U.S. defaulted on international gold redemption.
The tragedy of this excess of money is that most of the world’s workers have to work harder to earn less due to the currencies of the world becoming less and less valuable.
Even if workers get pay raises, the boost won’t be able to keep pace with declines in the purchasing power of money, increases in expenses such as oil, decreases in the value of homes, declines in the value of stocks, and increases in taxes.
When the recession comes, the ripple effect on your financial future will be immense.
Instead of looking to the Fed to save you, I recommend you save yourself by investing in real international money. One way to do so is by purchasing silver. Gold is expensive, but silver is still a bargain even for the little guy.
Editor, Rich Dad Poor Dad Daily