Last month I wrote a post entitled, “It Feels Like 2007 All Over Again” which describes the sinking feeling of revisiting the Great Financial Crisis of 2008 that started with a residential housing bubble, massive fraud, greedy default swaps and ultimately a near global market meltdown. This time around we have commercial real estate on the verge of huge debt rollover, an overheated stock market, massive inflation, and a bond market totally out of control.
I haven’t written many posts since I wrote that article because I’ve been busy moving money around, executing strategies to protect my investments and making sure I’m ready for a potential market meltdown.
I wish I could go into detail about every move but when you have a stock, bond, and real estate portfolio to manage there are just too many moving parts to go into long detail. What I can offer are some key things everyone should be doing right now.
Inventory Your Investments
The starting point for everyone right now is to inventory all investments. For example, I have several bank and brokerage accounts at various firms. A key activity after getting the inventory is to ensure that you are well under loss limits. For example, most banks are FDIC insured but they only insure up to $250k so it’s best not to have more than $250k in any given bank. For brokerage accounts, the SIPC limit is $500k but a maximum cash insurance of $250k per account. For this reason, I use different firms for my different retirement accounts such as Traditional IRA, 401k, Roth IRA, cash brokerage accounts, HSA accounts and pensions funds.
Build Strategy To Prevent Losses (or Profit From Them)
The next step after building a complete inventory of your financial assets is to ask how you can prevent losses. If you have some stocks that have had a great run up and there is a potential for losses then perhaps it’s time to take *some* profits and sell. If you don’t have to sell any of your equities then looking into buying some insurance through buying put options may be an alternative strategy. If you do sell some portion of your equities, what to do with the money? Right now, US Treasury bonds are paying over 5 percent interest so it’s a great place to stash cash and they are backed by the U.S. government.
What about real estate?
If you have a rental property there are some things that could go wrong in an economic calamity.
Your renters bail – If your renters lose their job and bail on you then you’ll be left with an empty property.
Good Strategy: Ensure cash on hand to cover mortgage (if it exists). Have a pipeline of potential tenant replacements. Be prepared to aggressively lower rent (temporarily).
Bad Strategy: Doing nothing now.
Property value drops – With mortgage rate at a whopping 8% and possibly going higher, it is inevitable that housing values will come down at some point but that may take 18 to 24 months. Housing peaked in 2007 and didn’t bottom until 2009 but didn’t recover to 2007 highs until 2013.
Good Strategy: If you’re not in it for the long haul, it may be best to sell that rental property and use the proceeds to buy bonds or hold in high yield certificate of deposits.
Bad Strategy: Panic selling 2 years from now when all signs were there that some type of mitigation should be put in place.
Ultimately, it’s up to you to do your own homework and decide what investments matter to you the most and what type of actions you should take now before the apocalypse comes rather than act while it’s happening. There are no guarantees that any plans put in place now will be the right ones but not having any plans is a guarantee that things likely won’t go well.