“Only I have no luck any more. But who knows? Maybe today. Every day is a new day. It is better to be lucky. But I would rather be exact. Then when luck comes you are ready.” – Ernest Hemingway
Last week was a rough week for the stock market. After the Dow plunged over a thousand points during a trading day most investors, including myself, proverbially shit ourselves. However after the Dow had it’s meltdown and the market starts to rebound most will lose their focus; yet, what if I told you last week was just the tip of the iceberg? A storm is coming and you need to be prepared to weather that storm. In today’s blog I’m going to make some market predictions for the years to come and more importantly explain some practical investment options you have to not only save your wealth, but how you can create more:
Start Saving – The best way to prepare for a market downturn is to start saving your money, because those with it are going to score big. We know the best time to invest in housing, and stocks is when the market is collapsing. As people are feverishly taking their money out of the market trying to save their losses; that is when you are going to strike to pick up stocks and other investments at a discounted rate. It’s easy to forget that we have been in a bull market for the past 10 years. However, what goes up must come down. So if you’re thinking about making a big investment now; I would really consider to think about that investment. In a few years your money and liquid cash might be able to get you much further.
Welcome Back Interest Rates – Here’s what we know: interest rates are going to rise. The Fed has to raise them to fight inflation. Right now with rates sitting at just above 4% we still have it really good. However when those rates start to get to the 5-6% range we will see some changes in several markets. The housing market will probably take a generally big hit. Higher rates will more than most likely deter home buyers, and as a result will make the rental market considerably strong around the country. So what does that mean? It means if you were thinking about selling your investment property, you might want to hold on to it for a few more years as rents will increase. On the flip side if you were thinking of buying a home, now might be a good time to do so to avoid higher rents, and capitalize while interest rates are still moderately low.
We will also see student loan interest rates go up as well. This is going to result in a sticky situation because there are many who already have issues paying back student loans. Higher interest rates may make the probability of default more likely; which is never a good sign.
Yet, rising interest rates aren’t always a bad thing. With increased interest rates we will see the return of investment vehicles such as bonds and CD’s (welcome back!). For the past 10 years the best investment vehicles to rely on has been real estate due to low interest rates, and the stock market due to consumer confidence. Bonds and CD’s are a wonderful way to tie up money and watch it grow over 5-10 years. Those with liquid money can really cash in with this investment vehicle by making interest rates work for them!
Patience – The next financial collapse that we see will involve a much larger portion of the millennial generation. During the financial crisis of 2008 many of us were still attending high school or college and certainly didn’t have money to play with in terms of investments. For the instant gratification generation, it will be extremely easy to see how our patience plays out when timing the market. My prediction is that in the next 3 years we start to see more market declines. Not to be a real buzz kill, but the next financial crisis will be worse than the financial crisis of 2008. Why you might ask? Well I have a strange feeling that student debt is going to play a big role in how the economy responds.
Whenever I see “loan forgiveness” or lengthy deferment programs; I cringe. The reason I view loan forgiveness as signs of a weakening economy is because the financial institutions aren’t getting paid. I get it “banks have enough money, why do they need yours?” Well just like the 2008 financial crisis was brought on by careless lending in the housing market, the next financial crisis could very well be brought on by careless lending for student loans. If loans aren’t being paid back due to increased interest rates, lack of jobs, or a decrease in wages; the economy will certainly feel that.
Conclusion – Financial meltdowns are inevitable. However individually and as a society we need to roll with the punches that the market might have in store for us. The best we can do is always be preparing and protecting our assets and hard earned money. Always assessing our risk and evaluating the market conditions is a great start. We know the financial dip of the stock market last week was just a taste of what’s to come. By taking the above steps you can start to plan and hopefully get a sense where the market might be headed in the upcoming years. Where do you think the market is going? How do you plan to prepare for a market decline? Share your thoughts and comments below! We’d love to hear them!