During the last downturn, I lost about 35% of my net worth in about six months. I don’t plan on doing that again. I want to share how we can make lots of money during the next downturn, which is happening right now in 2020.
Losing 35% is not as bad as the S&P 500 losing ~60% during its worst period, but it still hurt like hell due to the speed and absolute dollar amount of the loss.
At the end of February 2020, the S&P 500 lost 10% faster than any other 10% correction in history. The the S&P 500 proceeded to collapse by 32% in March as the coronavirus pandemic grew. As a result, if we are equity investors, we must be extremely vigilant in guarding our net worth.
Realistically, my target net worth growth scenario during a recession is to stay flat – neither make nor lose money. This is the first rule of financial independence. But my blue sky scenario is to actually try and make lots of money as the world collapses all around.
Here’s how I plan to do it and how you might too if you’ve accumulated enough money or are planning to retire within the next five years.
How To Make Money During The Next Downturn
1) Be OK with no longer making money.
The first step to making money during the next downturn is to be OK no longer making money during an upturn. In other words, you must methodically sell off risk assets like stocks and real estate the longer we go in the cycle.
It hurts to miss out on gains, but missing out on gains is the only way to not lose money. Your goal is to time your asset allocation so that you have the least amount of risk exposure when the cycle turns. The problem, obviously, is that nobody knows when the cycle will turn.
To get a better idea of where we are in the cycle, it’s important to study history and make an educated guess.
Bull markets last on average about 97 months (8 years) each and gain an average of 440 points in the Standard & Poor’s 500 stock index. By comparison bear markets since the 1930s have an average duration of only 18 months (1.5 years) and an average loss in value of about 40 percent.
If we are to say the recovery began in 2010, then 2018 is the 9th year of the current cycle. With the Fed starting to tighten, valuations close to all-time highs, and earnings growth slowing down, we can conclude it was logical to start taking some risk off the table in 2019.
As the bear market is here in 2020, we must be OK with no longer making money. We must also accept no longer making as much money in our businesses and in our jobs. This acceptance will help with your mental health.
Related: How Much Investment Risk To Take In Retirement
2) Be at least neutral when the cycle turns.
Remember, even if you move to 100% cash or CDs, you are still going to make a guaranteed ~1.70% on your money each year based on today’s risk-free rate. You must weigh your guaranteed return against the possibility of missing out on further gains or the possibility of losing money.
One of the best online money market accounts by CIT Bank is right now yielding 1.7%. That is fantastic compared to the 10-year bond yield at only <0.7%. This is a positive arbitrage savers should take advantage of right now.
If you have already made over a 200% return in the stock market since 2010, is it so bad to only make 1.7% a year instead of potentially 8% a year if you have to take more risk and potentially also lose 10 – 15% a year? Of course not. Having cash, bonds, and CDs is all about capital preservation not about making lots of money.
If your property equity is up 500% since 2012, do you really want to pay three more years of property tax, mortgage, and maintenance expenses if prices might stay flat or go down 20%? These are some of the questions you should ask yourself.
3) Take some risk and go net short.
The only way to make a lot of money in a downturn is to take risk. This means losing money if the downturn never comes.
The easiest way to short risk is to buy an ETF that goes up when the underlying index it tracks goes down. Here’s a list from ProShares which includes leveraged short and long ETFs to really juice your returns or blow yourself up.
You can also short individual stocks as well if you feel you have an edge and want more direct exposure. The stocks that usually get hammered the most during a downturn are high beta stocks with weak balance sheets and no earnings.
In other words, small cap names in the biotech and tech sectors often go down the most because their valuations are all based on speculative terminal values. Such companies will be relentlessly attacked on the short side as speculation grows they will go out of business.
Company Balance Sheets Matter
If you’re a loss-making company with no moat like Uber, you will die if the downturn lasts long enough because the capital markets will be shut to any fundraising. This is why shorting the Russell 2000 small cap index (TWM) is quite popular in a bear market.
On the other hand, cash-rich, mega capitalization companies that have a long history of paying a dividend tend to go down the least. Think about names in the utilities space and consumer staples space like AT&T or Proctor & Gamble. They are not only highly profitable, but also have enough cash to last them through years of unprofitability. Thus, given we know the average recession lasts only 18 months, many investors seek relative safety by buying utility or consumer staple stocks.
Beware, if you short a high dividend yielding sector or stock or treasury bond ETF, you will be forced to pay that dividend.
Related: The Proper Asset Allocation Of Stocks And Bonds By Age
4) Go Long Volatility
You can also go long volatility by buying a volatility ETF such as VXX. During the early 2018, 10% sell-off in the S&P 500, the VXX doubled from $25.68 to $50. The same thing has happened with the August 2019 sell-off Just beware that going long volatility for the long term is a losing proposition due to a thing called “decay.”
The chart below is a 5-year history of the VXX. Notice how the price was $1,090 back on August 1, 2013. Today it’s only at $33 for a 97% loss! In other words, you can only go long volatility for brief periods of time (less than a couple of months) before the structure of the investment drags you down.
Related: It Feels A Lot Like 2007 Again: Reflecting On The Previous Peak
5) Go Long US Treasuries
When the world is collapsing, investors tend to seek the safety of US Treasury bonds. Two of the most common ETFs to buy are IEF (iShares 7+ Year Treasuries) and TLT (iShares 20+ Year Treasuries). Buying TLT will give you more upside and volatility given longer duration bonds are more sensitive to interest rate changes.
Notice how TLT spiked from $92.83 on Oct 1, 2008 to $119.35 on Dec 1, 2008 (+28.6%) during the depths of the financial crisis. There have been several more 20%+ trading opportunities since 2008 due to geopolitical risk, policy risk, and further stock market sell-offs.
It’s interesting to note that even if you had bought TLT at its high during the crisis, you’re back to even today while earning a steady ~3% annual yield.
As of 2Q2020, the bond market has had a tremendous run with TLT now tremendously outperforming the S&P 500 year-to-date. The next time you look down on bonds, don’t. It’s nice to earn lower risk returns.
Related: The Case For Buying Bonds: Living For Free And Other Benefits
6) Go Long Gold
Gold is a hard asset that also tends to do well during a downturn. Even though gold generates no earnings and provides no dividends, it’s a commodity that can be traded. The more dire the economic situation, the more valuable hard assets become.
The largest, most popular gold ETF is GLD, followed by IAU. As you can see from the GLD historical chart below, it did phenomenally well from Oct 1, 2008 up until early 2012 (+170%) before fading as the bull market took off.
If you invest in gold for the long-term, it’s important to understand global demand and supply dynamics, and take a view on the US dollar since gold is denominated in US dollars. Gold is an imperfect hedge.
7) Go Long Yourself
The people who don’t lose their jobs in a recession are those who are too valuable to their firms. Therefore, build enough skills, client relationships, and internal goodwill to be forever employed. You are likely your largest money maker.
Going to business school part-time was one of my best money makers because not only did I build new skills, my firm felt they had invested too much in me by paying 85% of my tuition to just let me go. They wanted their three years of indentured servitude in return for tuition assistance.
Besides getting more formal education, you should put some time aside each week to exercise your creative mind. Maybe you’ll write a counter-cyclical book, or come up with a song that earns royalties, or start a website that earns advertising revenue about your favorite hobby. These extra engines could blast you off into financial space.
Thanks to Financial Samurai, my overall net worth has outperformed the S&P 500 and San Francisco real estate since it began in 2009.
The Easiest Way To Make Money In A Downturn
Shorting the market long term is a losing proposition due to population growth, ever-growing demand, dwindling supply, and inflation. It’s the same concept as renting long term.
If you want to short the market, you must be disciplined to short for only a short duration of time. It could be only one week if you are buying volatility or at most two years if you are shorting the S&P 500. During this shorting time period, you will likely lose money as your timing will be imprecise.
As a result, many investors looking to hedge against a downturn build a portfolio of longs and shorts and rebalance their net exposure whenever they feel more bullish or bearish. But in such a scenario, you might lose on your longs and shorts as well.
Given you can mistime the market in both directions and none of the investments above are perfect hedges, the easiest way to make money during a downturn is to go long cash or cash equivalents.
Consider Risk-Free Investments
Again, you can earn a risk-free 1% in an online money market account with CIT Bank, compared to earning only <0.7% with a 10-year bond yield. This is by far one of the best risk-free arbitrage opportunity everyone should take advantage of right now.
Making a guaranteed return of 1.3% may not seem like much, but it will feel like a fortune when the S&P 500 is correcting 3% a day!
The other obvious way to make a guaranteed return is to pay down debt or refinance your debt. Don’t let your lenders make money off you while the world is falling apart. Make money off yourself. The very least you should do if you have mortgage debt is to refinance it ASAP with interest rates falling to all-time loans.
Refinance Your Mortgage To Save
Also check out Credible, my favorite lending marketplace where pre-qualified lenders compete for your business. It takes under three minutes to get a quote. Mortgage rates are now at all-time lows, so it’s best you take advantage and refinance to improve your cash flow!
If you can concurrently build outside income sources while you de-risk, then all the better.
Consider Diversifying Into Real Estate
With interest rates collapsing in 2020, another defensive way to make money is to diversify into real estate as real estate becomes more affordable. Given real estate provides utility, has sticky rents, and is a tangible asset, investors have flocked to real estate for shelter during difficult times. This is what happened after the dotcom bubble burst in 2000.
Instead of leveraging up to buy a single property, it’s probably better to avoid concentration risk and diversify into REITs or real estate crowdfunding. Fundrise is my favorite real estate crowdfunding platform that’s free to sign up and explore.
The Fundrise platform portfolio has consistently outperformed stocks during down years and times of volatility. If you like less volatility and more stable returns, Fundrise is something to look into. Take a look at the performance record below.
Look At Individual Deals
CrowdStreet is my other favorite real estate crowdfunding platform, specifically focused on investing in commercial real estate in “18-hour cities” that have faster demographic growth, lower valuations, and higher net rental yields. We’re talking about cities such as Charleston, South Carolina and Memphis, Tennessee where cap rates are 3-5X higher than 24-hour cities like San Francisco and New York.
Thanks to the rise of remote work and working from home due to the global pandemic, it only makes sense that more and more people will relocate out of expensive cities with high density and into lower cost cities with lower density. This is a multi-decade trend that is being take advantage of by savvy investors. CrowdStreet is also free to sign up and explore.
I’ve personally invested $810,000 in 17 commercial real estate properties across the country after selling my main single family rental for $2,745,000 in 2017. It feels great to diversify and earn income passively. Just make sure you read all the material and understand what you are investing in.
Continue Investing For The Long Term
For those of you who are under 40 or who have at least 20 years of work left in you, you might as well keep taking risk based on a more traditional asset allocation model. Stay disciplined with your dollar-cost-averaging approach.
Long term, investments such as the S&P 500 and real estate tend to go up and to the right. When you combine not spending money with long-term compounding, you will likely get rich beyond your expectations.
For those of you who have enough money to be happy, taking excess risk is unnecessary. Once you’ve made your money, the key is to keep it.
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Updated as of 3Q2020. The stock market fell off a cliff in 1Q2020 and has rebounded nicely as of 2H2020. Let’s hope things continue to improve.
One problem I’ve had with a lot of the advice here is that it often requires you completely selling out of all of your positions. It’s sort of silly to have money tied up in an S&P 500 index while simultaneously snorting the market. You are essentially betting against yourself.
And selling your long positions causes tax issues and missed dividend payments.
I always preferred just to ride it out. My net worth may suffer but eventually it always bounces back.
Most of those market timing strategies listed above can end up doing more harm than good if your timing is not impeccable. Selling all your long positions to buy shorts after a 20% drop is more likely to lose you even more.
Hello there,
I was wondering when this post originally went up? There is an updated date of 5/2020 but there are comments dating back to 2018. This would answer my questions about the fact that if I had come across this type of information within the last 6 months this would have provided lucrative guidance to move my 401k to the short options from your graph. Upon analyzing the TWM Ultra short, had I moved the distribution I initiated in January 2020 it would have over doubled in value in mid March. Have I completely missed this opportunity now?
Given the S&P 500 and many stocks have rebounded by over 30% from its March 2020 lows, we’re in a tricky situation now. The market is discounting a lot of recovery and a quick recovery in 2H2020.
After the rebound, I think a wise move is to de-risk. Let’s thank our lucky stars the market didn’t tank further.
I do believe there’s a 30% chance we re-test the lows. The more likely scenario is that we remain rangebound 2,600 – 3,000 for the rest of the year. But it is possible we reach new all-time highs with so much devastation around us due to these reasons.
Seems relevant article for today’s market. There are some pretty good arguments against holding these… read one at etfcom titled “dont-buy-and-hold-leveraged-etfs” and was curious your thoughts on “timing” if these leveraged ETFs are not made to be held.
Or… just stick to the same investment plan you have always had and rebalance as needed. Keep investing monthly if you are able.
People.who get crushed are those who didn’t keep a safety net during.the boom years and are forced to sell.
Trying to time the market is a fools errand.
Thousands.of studies have confirmed this.
The only days that.matter are the day you buy and the day you sell. Most sell at the bottom and buy at the top.
“Trying to time the market is a fools errand”. vs “The only days that.matter are the day you buy and the day you sell.” ?
Virtually no one can consistently predict when the market will go up, or go down- therefore trying to time it is foolish. Many many studies show this. Warren Buffet admits as much.
Reading:
The Intelligent Investor
A Random Walk Down Wall Street
Bogleheads Guide to Investing.
Rich Dad Poor Dad
The only day that matters is the day you buy and the day you sell… What is meant is the fluctuation of the value of a security between these two dates is irrelevant to the return.
Asking what you would do: My son & daughter-in-law have NYS 529 age based accounts for 11 year old, 9 year old, and 6 year old (Vanguard adjusts risk by age) – didn’t start early so totals are @ 7K, 4K, and 4K.
Would you continue regular contributions as always or go into much more conservative choices the plan offers until you feel this downturn is ending (I know market timing is a gamble- but considering better to go back to age based with less loss when we “think” market is recovering).
Additional beliefs and thoughts: at least 6 months or more of rising unemployment in country’s future due to Covid-19- big unknown. stocks: heavy industry will be hard hit for extended period as well as discretionary purchases, not to mention hotels, restaurant chains and ?
I’m contributing regularly to my children’s 529 plans. Your kids have 7-12 years before college. Your odds are in your favor that the stock market will be higher by then.
Read this article as well: How To Predict A Stock Market Bottom
Hey Sam,
Would you recommend a 529 plan or a Roth IRA for saving for a child’s education? Or both?
Rather then a 529 plan, purchase a rental property. I purchased a 3 bedroom condo for $75,000 in Boca Raton when my kids were born 18 years ago. I put down $10,000 and mortgaged the rest. Rent covered all fees and gave about $100 in profit each month. As rental rates went up and mortgage balance went down, I put the profits towards paying off the mortgage which I was able to do so after year 12. Fast forward to today. The condo is free & clear, value is $200,000 and rents collected are $1800 per month. Bottom line is that its sending two of my kids to college for all four years and it only cost my $10,000 for my initial investment. The 529 plan would pay for about 1/4 given the same investment cost.
Love the article. My thoughts exactly. Admittedly, I was 2 full years early, but it’s paying off now!
New to the blog here, but really enjoying the content. I especially like the idea of shorting companies that have their values entirely determined by Terminal Values or what I like to call (Hopes and Dreams). When the well runs dry, so does lenders tolerance for such ventures.
I still would like to acknowledge that as educated a guess one can make, there is still no certainty on future economic growth or general market conditions. While assets are overpriced now compared to historical norms, it wasn’t until a looming pandemic sent investors running for the door. The opposite can be said for times in which productivity is improved with autonomy, AI, distribution networks, and much more. Being so, for my measly 23 years of age I will be playing in the high and low tides that come with the financial markets for the foreseeable future (30+ years)
Even so, at what net worth does it become best to diversify into asset classes like real estate or perhaps should this even be part of my portfolio construct from the get go. I’ve always liked the idea of have a larger degree of control on my returns and to buy at equal to or better returns than the historical rate of return of the S&P 500 makes it even more appealing. Thoughts on this?
I am sure I am not the first person to suggest this…in the last downturn my 401k really took a hit. Now it did come back…but it took a few years. Wouldn’t it make sense for this year where everyone is predicting a downturn…move the 401k money to cash or cd or anything that isn’t connected to stock (if possible) wait for the drop and than dump all the money back in. It always comes back so why not sell high…and buy low? I am not a pro at all…just looking for some thoughts.
Sure, if you time it well, you will win. But timing well is impossible to do long term. Probably best for most to just hold on and keep on buying during a downturn.
My spouse has the exact same idea/question as David. If we were to sell majority of our portfolio (90% stocks) and just hold it in cash this year, anticipating a recession; When it hits, we will have the cash to buy back into when it’s at a low & potentially make a really nice profit.
Now, on the other hand, I have the long term mindset and say let’s just hold on and ride out the ups/downs (we are in our mid 30s). I have been trying to explain to him why this is a bad investment strategy – but at the same time, he has a valid point – and why not sell high (right now) and buy back when the market crashes? I guess I need more reasons why (or why not) do what my spouse and David think is a investment strategy?
Nobody knows the future. Taxes are a pain and being in your mid-30s is pretty young.
Only you will know your risk tolerance!
Check out: Financial SEER: How To Properly Assess Your Risk Tolerance
Lauren,
I agree with your spouse. I wish I had done my research into how to protect a portfolio during a recession. But I think I’ve learned my lesson and hence why I’m on this site.
I don’t agree with many of the financial advisors out there that tell you to ride the wave (up or down). I prefer riding the highs, cash out when the market is volatile, and wait until the market hits a low point. Figuring out the lowest point is the million dollar question. But you don’t have to be too greedy. If you check the major indices and see they’re 15/20% down, would you be mad if you got in and they still fell down another 5-10%? I wouldn’t because I would have bought at a 15/20% discount.
There are tools that you can look at to view technical indicators (moving averages, RSI, MACD, etc) that definitely require some expertise. That would allow you to get in a better discount. But even without that, you can look at online charts of the indices (yahoo finance, finviz.com, stockcharts.com, etc) and you can kinda spot the bottom. You’ll see a v/u shape that will be hard to miss sometimes.
Many financial articles only barely scratch the surface of stock market investing. In order to cash out at the right time, you need to have automatic “trailing stop loss” orders to sell if your securities drop 3 or 5% or whatever you’re comfortable with. There is a catch if you have mutual funds. Those don’t trade like stocks and their prices are set daily. So you can’t setup automatic orders. But you can still monitor your mutual funds and set alerts to notify you when they’re going down. Actually, a better fix to the mutual fund issue is to switch to ETFs since they trade like stocks but have the same risk level as mutual funds because they invest in baskets of stocks like MFs.
This is my theory. I could be wrong. But I’ve put it to practice with some of my stocks and have cut my losses already. So I do think it’s working.
Lastly, I’d recommend taking some courses and doing more research. Udemy.com has great courses for under $10-$20 each. It’s the best money I’ve ever spent.
Plus, as soon as the Coronavirus starts to fizzle out in the summer, the market will likely continue to soar. Then, Trump will get re-elected for another surge. A lot of money still to be made in ‘20/‘21. Would be a shame to miss the rebound. But the discount is great!
I hope the coronavirus truly does fizzle. I’ve been buying to get neutral stocks all week, and it’s hurting since we’ve since 3 consecutive 3%+ downturns.
I’m underweight stocks because I bought a new property with cash. But I want back into stocks! It kinda feels good to get a second chance and building a decent equity position.
What do you consider a decent equity position when re-entering the market? What type of equity would you consider a good long term investment? Small cap index?
Agreed. But doesn’t your strategy above rely on market timing? In my experience about all you can do is start reallocating buckets. Ie- I’ve been dollar cost avging bond funds over to stocks the last 2 wks. Will i win short term? Doubtful. In 5-10 yrs? Hopeful. In 20 yrs? Pretty certain
Yes. But everything is market timing if you think about it.
Achieving financial independence sooner, rather than later was always super important to me because it is a hedge against an early demise.
True. Any thoughts on what Carona will do to Real Estate? I keep thinking it will run out of steam….. Just keeps gaining. Sure feels like a bubble…. Ppl overpaying for poor homes, sellers so confident they just say “offers due by____” alot of it feels even worse than 2008. And i live in MI! NOT CA
I’m writing a post on it.
I thin the coronavirus increases demand for larger homes and real estate in generally over stocks that have simply gone POOF overnight.
But if the S&P 500 goes down more than 30% and stays there for longer than 6 months, people will start hesitating about real state and probably reduce real estate demand.
I like real estate crowdfunding for this reason. You can invest in smaller amounts and not have to go all-in, and often with a mortgage.
I went all cash six months ago. I watched things keep going up. But I didn’t doubt myself for one reason…the market stopped making sense. Valuations were too high. Retail investors were running up prices of stocks because they identified with the dope smoking ceo and his hipster existence rather than the soundness of the company. Tesla worth more than Ford, GM and Chevy and the millions of units they produce each year versus a few hundred thousand cars Tesla puts out? And those companies not very sound in and of themselves because of pension obligations?
When it stops making sense, I go out. Enron never made sense to me. Being outbid on houses by people with no jobs and four kids didn’t make sense until the market crashed and you learned why. (That person never made a single payment but lived large for a year and a half before taking cash for keys.)My neighbor with five cars and a hundred k wardrobe and no job…didn’t make sense until you find out during the divorce it was all a house of credit cards. People tweeting about the money they’re making on Tesla stock between classes? That’s a sure sign it as about to come crashing down.
When it stops making sense, when the punters fall in and start bragging about all the money they’re making, when the fed is printing money so the Ackerman’s of the world can do nothing more than buy companies and jack the price of products rather than add value, (which was also Enron’s play) when gold is down precipitously when it should be above $2000 an ounce….it’s not making sense. Something is at play that we are not going to be made privilege to. Bail and wait it out until things start functioning rationally.m P.S.
You will not know when that time comes if you’re watching the money honeys and hunks on the tele.
Hope you trusted your gut, went all cash in January, and plowed some of that into the vix which you sold last week.
We CAN predict the future. Toxic money, like toxic people, usually devours itself and brings down the economy-Coronavirus or not.
Very cool. One of the biggest reasons why I’m bullish on the U.S. economy is because I have never met anybody online who has lost money. They either went all cash before the downturn, shorted the market during the downturn, or went all-in and bought stocks before the bull market began and held on until selling at the top.
There is more money out there than we know. Which is why I think it’s important we always stay humble and practice Stealth Wealth.
The cruelty in your comment doesn’t suit you. But I’ll try and address your comment rationally without facetiousness, though I doubt you’ll allow it to be posted.
I did lose money. I lost money sitting in cash while everyone else was making money in the market. I was out half the year the vanguard 500 went up more than 20 percent.
Sorry it makes you angry I didn’t stay all in when valuations were at an all time high. I don’t have the stomach for it and there were a lot of respectable people out there who were warning it was inexplicable. I know I can’t weather the losses, so I am happy not cashing out at the top.
I have never shorted the market except this year when I took a lot of time to see how the VIX works.
I work for a living. I come from a family that works for a living. Perhaps the reason you remained bullish on everything is you’re living in an area that is perpetuating the fantasy that insane valuations are justified for profit-less companies and average homes that average salaries can’t afford.
You are old enough to have witnessed several of these cycles now-especially since they all follow the same pattern…evaluations divorced from reality, a black swan event, wealth redistribution.
Got to love it when people come here to brag they went all cash before the market meltdown while most people lost a lot of money.
Jadon is an a-hole.
Very good article!
However, what do you think about what Ray Dalio says regarding debt monetization? He claims that the central banks will start buying treasuries with freshly printed money and this will cause inflation in first reserve currencies (USD, EUR etc).
If we go long cash before a recession, are we safe against such a debt monetization scenario or we should add more gold as a hedge like for instance 85% cash & cash equivalents, 15% gold?
I am not interested in taking any risk in the financial markets right now, so the no risk approach seems very good for me right now. But aren’t risk-free assets risky themselves in a way in which money might be devalued against both assets and consumption goods?
Ray Dalio is like a broken clock. He’s only right twice a day. Stick with the fundamentals and don’t worry too much about all of the doomsday scenarios that are out there. Good asset allocation tied to your risk tolerance and investing for the long-term have worked pretty well over time. I’ve been investing for 40 years and held together through all of the ups and downs in the market and the net result has been pretty solid over the long haul. The trick is to keep your nerves and emotions in check, both through the ups and downs of the market. Every time I try to get cute and think I’m so smart, I usually get burned. People have different opinions about “buy and hold”. I have no problem with taking a little risk every now and then but buy and hold, for the most part, has been good to me.
I moved some money to the sidelines the week before last and I will want to get that money back into the market and catch some of the upside when things turn back around. However, I would like to see some corporate downgrades announced for Q2 and projections for the rest of the year and I’d also like to see some stability in the coronavirus spread before beginning to leg back into the market. I don’t know where the bottom is in the latest slide but I do know there is not enough information available yet to keep us from sliding a little further.
I don’t mean to preach; I’m just trying to offer some insights to my own personal experiences.
Aloha Sam, I noticed this model spring up as a slightly different take to real estate peer to peer lending methodologies. Look at what one company is doing. Worthy Bonds are offering partially secured backed asset accumulation for a flat 5% dividend payout to personal lenders.
I understand that this strategy had significant risks to chase the additional 2 basis points (since you can still find CD’s paying 3%) but is it worth it in your mind?
Mahalo for your response on Worthy Bonds.
This was a good article. Thanks, Sam.
I’m planning on (at least the option of) an early retirement in ~12 yrs, so I will just wait to get in the market until the sooner of 3-4 yrs (by mid-2023) or whenever it seems we’ve had the appropriate correction.
Just keep on saving and keep on diversifying your investments throughout that time. 12 years is a pretty long ways away. It is good to have some fire power to Invest if that downturn does come.
Sam,
When coming across this article and reading about the leveraged ETF’s I did some more research and discovered beta slippage if held on for too long. Assuming the market will perform the way it has been in the past (+7-10% yearly) would it be possible to buy and sell UPRO (3x leverage) every single day and bypass the effects of beta slippage. Obviously this would be a hassle to do every day but theoretically is this possible?
Thanks!
Andrew
Senior
Grand Canyon University
There will probably always be slippage. But the worst thing you can do is try to trade every day. You will not only lose to the commission cost, but time and cost. It is impossible to Trade every day successfully
Some good insight in this article – most people do not know that you can make money on capital appreciation on long-duration treasury bond ETFs during a recession.
You should caution people on investing in those ulta-short ETFs. They are designed to decline in value over time and should only be used for short periods of time. People need to be very cautious when using these types of securities as they can lose 50%+ in any given year if they just leave it invested.
gold is the way to go if u are looking at ria long term 5years i purchased gold at 1242 some 25 months ago with the profit from THE TRUMP SERGE about 250k now have a look at the ira amazing ill put that above any market gains. the market has little or zero effect on the economy in middle class. proven by TRUMP he has give the power back to the middle class. now 8.75% of the middle income have savings accounts. economy downturn you kidding me. TRUMP TRUMP all the criers are CHINA investor s downturn in retails check wallmarts P&L
The Recession is coming in 2 years just wait.
Perhaps you guys can advise on my current situation? WWYD? I am the Trustee of $550,000 cash. My brother & I are beneficiaries. No one needs the $ to live.
My Navy retirement starts in 5 years (41 yrs old). I have about 4 low-end RE investments that will be paid off in 5 years (projected $600/mo each), 1 ‘normal’ rental, $50k in Roth. My brother is FDNY and retires in 10 years (40 yrs old).
I am thinking about lending approximately $250k of 550k to local RE investors (standard $30k loans per person). Return is roughly 12% and secured by the home.
The other $300k is the problem. Personal Capital wants to do the standard Stock/Bond portfolio. Financial Managers sell products. I don’t think I could stomach a 30-40% drop in the market at this time.
Should I position myself to enter the market after the predicted crash? Should I enter now? CDs? This article had some great options. But we’re pretty young. I’m OK with investing this $300k chunk as a long term investment, but obviously don’t want to lose a huge chunk out the gate.
Dont do it unless you actually know your in the money, people these days are quick “GIMME GIMME GIMME” they just take because its easier then to give