It’s exactly during the good times where we need to be more disciplined in our finances, because we never know when the bad times will return.
With market volatility back in 2015, it’s pretty clear that everything isn’t peaches and cream. US leading indicators have turned downwards, unemployment figures have stopped improving, and people are wondering whether Europe will be like the US, but much worse. If you’re American living in America, look at the bright side of things: the US dollar is strengthening, and the 10-year yield has declined to 1.7%, which is leading to lower rates yet again! The 10 year yield and all its glory really is the most beautiful figure to watch. It can tell the story of everything and anything.
The USD will always be a global safe haven currency, no matter how hard we try and mess things up. It’s good to see that we aren’t the only basket cases as investors sell the Euro faster than they can say tapas! What’s going on now is that money is shifting towards US assets, namely the property market. Combine an asset shift with cheap debt, and rental yields above the current risk-free rate of return (3.1%), you realize why smart money is moving into the US property market again. Only a minority will agree with the attractiveness of the US property market, and therein lies the opportunity.
During bad times, it’s always good to re-evaluate your finances. I’m not convinced the bad times are back and am actually quite sanguine about the economy. All the same, here are some suggestions just in case things get ugly for longer.
TOP 5 THINGS TO DO WHEN THE BAD TIMES ARE BACK AGAIN
1) Know where your money is. It’s important to have an idea of where every single dollar of your wealth is allocated. In a bull market, perhaps suddenly you find yourself with 50% of your net worth in the stock market vs. a 35% comfortable allocation. The best way to get a snapshot of your assets is to list everything out in an excel spreadsheet manually. Re-evaluate, re-balance, re-consider.
2) Consider being contrarian and don’t confuse brains with a bull market. Was there a reason you’ve been holding 30% cash in the stock portion of your portfolio? Perhaps the reason was exactly for times like this? It’s generally never good to panic in either direction. Imagine capitulating the morning of Tues, May 25th when the Dow was down 290 points only for the market to be up 110 points the next day? Oopsie! You will immediately notice the mass media start talking about double-dips, recessions, and Armageddon scenarios when markets fall. Meanwhile, just last month the media was talking roses. Frankly, nobody knows where the markets are going in the short-run, but in the long run, the bias is generally up.
3) Get in earlier and leave later. In other words, work harder at your job and show that you are an indispensable team player. I can promise you that every manager thinks about cost cutting as soon as we have 10% downward movements in the markets. The manager’s goal is run a profitable business units and layoffs are always on the back of their minds. Your manager thinks about a future of “what ifs”, and so should you. Buckle down, be outstanding. You can’t control the markets, but you can control how great you are.
4) Prepare for the worst, but keep faith things will be OK. Preparing for the worst means ratcheting down your expenses and getting rid of inventory. Inventory can include your mountain of books, clothes and your 3rd TV with accompanying 3rd cable box. Expenses can be that $200/month gym membership you never go to or else you’d be thin. Preparing for the worst also means looking for a new job and developing side incomes just in case your main source gets expunged. If the worst comes, you’re ready, and if things are just business as usual, you’re pumped! When you prepare for the worst, there’s only upside!
5) Look around and realize today is just like yesterday, which will be just like tomorrow. If you didn’t have a media stream telling you the world is ending, you’d never let financial losses affect your well-being. Your happiness is all in your mind. You have the power to choose to be happy. It doesn’t cost much to touch base with family and friends or go for a walk in the park. Too often, we close inwards and worry about how we’re going to retire comfortably during market turmoil. Things come back. They always do.
Remember to focus on things you can control and let go of things that wiggle and squirm. If you choose to let fear enter your mind, you might as well use it to fuel new creation. Downturns are exactly the time to start something or do something better. Cherish meltdowns and embrace the challenge!
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Updated on 2/8/2015. The stock market is close to all time highs. Stay vigilant and don’t forget to rebalance!