Reality Check 2017 – Can the Average American Withstand Another Market Crash?

No matter where you turn, the news is not good. It seems as though every market analyst is foretelling another crash even worse than those of 1929 and 2008 which led to the Great Depression and the Great Recession, respectively.

In fact, just watching how some of the richest people in the nation, the key players as it were, are moving their wealth around, there could be some ring of truth in the prospect of an even greater crash than anything the world has yet to experience.

Should this be the case, and if there is another, even greater crash than anything we’ve known before, can the average American withstand another far-reaching financial crisis? Whether or not we face yet another crash, it is not too early to look at what history is teaching us and how we can begin preparing for such a catastrophic event.

man hands on head market crash

How the Top 1% Are Preparing

Oddly, it only takes looking at a few of the wealthiest Americans to see that they each have a different take on what may transpire later this year or early 2018. Read any headline on any given day and all are foretelling some kind of ‘Doomsday’ event. Some believe it will be a market crash of historic proportions and others believe that a grave pandemic will sweep the world. In either case, markets will plummet and only those who took the initiative to prepare may weather the storm.

When you think of the top 1%, who comes to mind, but Warren Buffet and Bill Gates? Each man has his own defense in place, but both men are preparing for such an event in totally different ways. Warren Buffet is holding true to form as one of the greatest investors ever to have walked the earth. Buffet believes in having cash on hand to be deployed as needed should stocks fall through the basement and Gates is reported to be preparing to bunker down in the basement. Rumors have it that Bill and Linda Gates have actually built high-end bunkers at each of their properties that are self-sustaining and can house the couple and their staff through a lengthy pandemic if need be.

So, on the one hand, you have what many consider to be a more pragmatic approach, that of Buffet with a doomsayer prophet on the other hand predicting a viral pestilence of catastrophic proportions such as the world hasn’t known since perhaps the Black Plague. Perhaps the best advice would be to take a closer look at what Mr. Buffet is doing because without money, no one can survive for long in a world where everything has a price.

Keep a Diversified Portfolio

If you look closely at what Warren Buffet is doing, you’ll see that he is preparing for a massive redeployment of investment should the need arise. That is perhaps why he is keeping massive amounts of money on hand. It would be wise, at this particular time, to seek out a fee only financial planner to discuss a diversified portfolio of investments. Mr. Buffet understands the markets and if one fails, it doesn’t necessarily follow that all will come tumbling down. His portfolio is widely diversified and it is this strategy that brought him to his current standing as the third richest man in the world. With Bill Gates of Microsoft fame in first position and Amancia Ortega (Inditex fashion group) in second position, two of the top three are Americans who can teach us much about riding out a financial storm.

Ready to Buy When Opportunity Presents Itself

Getting back to Warren Buffet’s investment strategy, it is said that his reasoning is fairly straightforward. He has repeatedly been heard to say that fluctuations in markets are normal. No, a crash isn’t ‘normal’ but the same opportunities will arise. When one market falls, there will be opportunities to go in with investment capital when other investors are hesitant to take the risk. He has been known to capitalize on moments like this and it is, in this way, that he has amassed such great wealth.

Buffet also is not known to bounce around the markets with every slight movement. Since he sees these little bumps and occasional hills as normal, he is known to ride through a bit of turbulence. However, what he is doing is liquidating some assets to have an abnormally large amount of cash on hand to seize the opportunity in the event of the crash, which is being predicted with greater certainty than even a few months ago.

As 2016 drew to a close, Buffet’s Berkshire Hathaway had a reported $86 billion in cash ready to be deployed if an opportunity arose. This is his way of preparing for another catastrophic fall and it is an investment strategy that has brought him from meager beginnings to a point where he can proudly boast being the third richest man on earth. This would be a wise strategy for any investors looking to weather another mammoth market crash in the event market analysts are accurate in their assessment of upcoming events. Work with your financial planner now to begin investing wisely, but keep cash back on hand to use if opportunities arise like those that earned Buffet and others like him a sizeable fortune.

Avoid One Hit Wonders

One of the biggest mistakes an investor can make is to overlook a company’s history. This is going to be especially important if there is another, even greater crash. What you are looking at is a company’s stability in being able to replicate processes that have prompted major growth. Too many times acquisitions and mergers ‘look’ like a company has grown to great heights, but that is a house of cards that can quickly come tumbling down. Seek out, rather, companies that have grown by providing a product or service that can be replicated again and again over time.

This is something you should also be discussing with your financial planner so that you are on the same page. You do not want to invest in a company because of what appears to be net assets. It is more important to closely inspect what those assets are and if they were earned or bought (as in acquisitions and mergers). If the bulk of a company’s holdings are from acquired assets, it would be best to look elsewhere for investments. What can be acquired quickly can be lost just as rapidly and that is something you should avoid at all costs.

Integrity of Key Players

While you might think there is only one Bernie Madoff and that he has been caught, tried and convicted, there are thousands more just like him out there. Ponzi schemes are a dime a dozen and if you are not careful, you can find yourself holding the short end of the stick – a very short end. From real estate to technology, there is always some fraudster out there looking to cash in on your hard earned money. If you listen to no other bit of advice, heed this one carefully. Always investigate the key players. There will always be some telltale sign that things aren’t as they seem and if it seems too good to be true, chances are it probably is.

Also, look at a company’s board of directors and upper level management. Who manages the financial end of a business you are going to invest in? A good company can be quickly ruined if managers are either inept or less than above board in their dealings. There are plenty of get-rich-quick schemes out there and even if there is a historic crash looming just over the horizon, don’t fall for any scheme that promises overnight wealth. It rarely happens that way. Again, let’s refer to Buffet and Gates. Their rise to wealth didn’t happen overnight.

Warren Buffet invested wisely and Gates had a product that could be replicated over time. Each of those two factors, as enumerated above, should lead you to wise investments. Keep money on hand to buy if an opportunity arises and only invest when there are sound reasons for doing so. Whether you are building a bunker to avoid pestilence, or are seeking a diversified portfolio, the key is to know what you are doing and why you are doing it.

Crash or No Crash – Only the Vigilant Survive

If you were a betting person, how would you wager, crash or no crash? Perhaps it is best to look at what the top 1% are doing. Bill Gates is preparing for one kind of calamity while Warren Buffet is hedging his bets by keeping plenty of cash on hand. In either case, both men are probably leaning towards troubled waters ahead so it might be wise to keep an eye on the road. What are they doing? Does it seem like those with ‘insider information’ are giving you a clue as to how to invest in your own future? By doing your homework before speaking with your financial planner, you will have a better idea on how you want to prepare for your own financial future. The truth is, crash or no crash, only the vigilant survive.