Stock Market Armageddon Returns! How To Invest In A Meltdown

Stock market armageddon seems to happen every 5-10 years. 2018-2020 were extremely volatile years. Who would have thought the stock market would rise to all-time highs during a global pandemic! The best I could do was call a stock market bottom in March 2020. But I did not foresee this!

I'm buying as many rental properties and investing in as many hospitality commercial real estate opportunities as possible. Prices are down as mortgage rates are at 17-year highs. But eventually, rates will fade and demand will return.

I'm hedged with structured products during a stock market armageddon. It provides principal guarantees or downside buffers in exchange for locking up my money for a certain period of time.


Let's say stock market armageddon returns. Here's what you should think about.

* How do you feel about losing money?  If the answer is “gut-wrenching”, then perhaps your risk tolerance is not as high as you thought, and you should lower your exposure to the markets.  If your answer is “It feels so good, baby!”, then perhaps you are short, or should consider investing everything you've got.

* If you lost it all, would you still be OK?  If the answer is “no, I will be begging on the streets”, then perhaps you're over exposed.  I'm willing to lose 30% of my net worth hence my allocated exposure.  It will be painful to lose it all, but I'll manage. The remaining 70% is split roughly evenly between 4% yielding CDs (love you guys), and real estate (making a comeback!). Assess your risk tolerance using Financial SEER.

* Do you have excess liquidity to put to work?  We've seen the markets snap back time and time again. Nobody knows when, but the odds are in your favor that they will. 70% of the time, the stock market closes up. So during a stock market armageddon, I'd continue to buy!  We've got a President who is trying to get re-elected, Bernanke whose got an unlimited supply of money to print, and inflation, the most powerful force in the universe.

More Things To Do During A Stock Market Armageddon

* Reassess your long-term goals.  If you're young, good looking, and employed, you'll be fine.  If you're young, beautiful, but unemployed, perhaps not so much.  If you're old, unemployed, and unattractive, well then I guess there's always the lottery and divine intervention!  When things go wrong, you've always got the excuse of thinking “long-term”.

* Do you have your health, family, and friends?  Money comes last in this equation.  Whenever I lose tons of money, I notice that I tend to exercise more, eat better, and spend more time with loved ones.  Perhaps it's because money lost reminds me of what's most important in life.  Or perhaps when I lose money, the last thing I want to do is think about money.

* Is making 2% better than losing 10% and making 4%?  Huh?  Dividend investors love to say, “It doesn't matter what the market does, I've still got my dividends!  I'll just buy more!” That's fine if you've got an endless pit of money to put to work, but simple quantitative reasoning suggests that making 2% is better.

What I Like To Do During Stock Market Volatility

I'm “dollar-cost structured producting“. In other words, I plan to farm out the free liquidity sitting in my money market accounts and buy the stock market through a structured product once a month.  The first is the 100% principal protection guarantee with a 0.5% annual coupon and 115% participation to the upside of the Dow Jones over 6 years. The second is the 10% downside buffer and 2X upside to the S&P500 up to 25% for 2 years with 0% coupon.

This is additional money to my 401K, which means my networth exposure to the stock market will increase from around 30% to 40% over the coming 12 months.  I'm highly allergic to losing money because it has taken so long to build up the nut. I'm willing to lock up my money and even some upside to know that the money will still be there in the future.

Related: How To Make Lots Of Money During The Next Downturn

Invest In Private Growth Companies

Personally, I like investing in private growth companies. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

Achieve Financial Freedom Through Real Estate

Real estate is my favorite way to achieving financial freedom. It is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. The -32% decline in March 2020 and -19.6% decline in 2022 were the latest examples. However, real estate held steady and appreciated in value then. 

Take a look at my two favorite real estate crowdfunding platforms that are free to sign up and explore:

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and manages over $3.3 billion for over 400,000 investors. Fundrise primarily invests in Sunbelt residential and industrial real estate.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.

I've personally invested $954,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$380,000. 

About the Author:

Sam began investing his own money ever since he opened an online brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered.

In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $175,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.

28 thoughts on “Stock Market Armageddon Returns! How To Invest In A Meltdown”

  1. Buy, buy, buy!

    I’m still in the early stages of my investing journey, so I’m trying to use opportune times like these to purchase discounted, dividend growth stocks. If the market drops some more, I’ll buy some more. I’m just trying my best not to run out of funds in the process…

  2. My 401k/Roth IRA is about 90/10 right now and I’ve had it for 3 years so I’ve seen some pretty big ups and downs and it really hasn’t bothered me. I’m maxing out 401k and Roth IRA so although my portfolio isn’t doing amazing right now, every two weeks I’m seeing an increase in my overall portfolio.

    For younger investors, I think it’s important to focus on the rate of savings. Once you have that locked in, you can start worrying about what funds/expense ratios to invest in. If the guys who do it for a living can’t predict the market, why should I think that I can? I invest all my after tax money in real estate instead of stocks.

  3. Darwin's Money

    I just leave long-term retirement money (most of my stock investments are in 401k/IRA accounts) 100% equities for decades. Chances are that will match or beat most actively managed portfolios, especially by focusing on fees.

  4. I have about 75% of my net worth in the stock market so I’m not doing very well either. But I plan to dollar cost average on my way down, even if it means borrowing money if I run out of my own. My reasoning is every consecutive time the S&P 500 drops there’s an increasing chance it will gain it back some day in the future. So I’m buying in every time it drops by 50 points.

  5. Permanent bear necessity

    Hey dude….like the post.

    I went 40% stock/60 cash from dec-march …went to 95% cash end of April and decided to buy outs on consumer Internet about 4 weeks ago with deep out of money puts for shits and giggles…not giggling now as it went in the right direction and not so deep out of money now.

    May return 3-4x on this when said and done which would add 10% overall return to my stock portfolio on a net basis… But then again I am a RE guy as you know and only 20% of net worth is liquid. Keep buying the MP real estate folks…….come on FB hold up please. RE appears to be one of the few assets that will hold up in this massacre. I think things reverse once Romney is elected and budget ceiling is resolved…min 10% bump by q4.

  6. The good news is didn’t lose any money in the stock market. The bad news is I don’t have the cash to go investing. Spending it all on getting a higher degree to find a job.

    Good lucky to those who got massacred today in the stock market casino.

  7. I’m currently pursuing financial independence and am in the early stages, so this could be my lucky break! If I suck it up and buy value in a bit, things can end up quite well … I ironically was a bit pessimistic about my high bond allocation until the past few days =P. There’s definitely a good amount of reason behind sticking with one’s plan if it was thought out beforehand instead of doing anything rash.

  8. BusyExecutiveMoneyBlog

    I will also add in the spirit of full disclosure that I’ve been looking at couple of long-term unloved value stocks. I don’t like individual stocks as it becomes too emotional, but I must admit a couple of names are ridiculously cheap. No moves though…picking stocks is universally hard.

  9. BusyExecutiveMoneyBlog

    FS, I put 20% of my entire 401K that’s been parked in cash since early May back in the market in a simple S&P 500 index. Today’s downdraft smelled of panic selling, but not of capitulation. What that tells me is that there may be a violent snap back rally of a few % and then another painful leg or two down as more bad data appears. If we get a snapback…I’ll book those gains and go back to cash and wait. If not, I’m comfortable with that 20% in lower than when I pulled it out. For the rest of my taxable assets, I’ve left them right where they are. I’m not interested in creating a bunch of tax events while in this spin cycle.

  10. I’d consider going in on a partnership for buying farmland in the midwest if such an investment exits. If not let’s figure out how to structure one.

  11. I too was hoping others would be greedy. I think the word for that is hubris.

    I can certainly see why dividend investors say they don’t care what the market does. If you plan on never withdrawing money from the proverbial nut, you shouldn’t care. Things get scary when payouts change – then one might actually care about market value. Much like renting out real estate when prices crash but rental income stays roughly the same.

  12. I’m continuing to dollar cost average because I have 40ish year until retirement. I consider these times as a great discount but I know others who are closer to retirement should definitely be worried.

  13. It’s killing me that I had to shell out $3k on car repairs during this slump. I’d love to have put that money into investments instead. I’m only 26, so slumps are a great opportunity for me to get a great deal on funds and stocks that I won’t need for quite a while.

  14. Real Estate! I wouldn’t touch the financial markets with a 10-foot pole (other than the fact that we’re leaving my wife’s mutual funds to do what they will). Partly this is because I don’t have the patience to learn how to evaluate stocks, and partly because there are just such good deals available in real estate with the combinations of low prices, insanely low financing rates, and rising rents. We’re saving up to buy one more rental house before calling a time-out to build up a $50k cash cushion for starting a family.

  15. With no money to invest (I’m in the red), I am just looking at my Roth IRA and 401k go down right now. I’m not sure what I’d do if I had monthly income to invest. Probably chalk it up to dollar cost averaging and keep investing the same amount into whatever vehicle I had chosen. I am only 26, so the market fluctuations don’t bother me much.

      1. I agree that I should have a bit more of a sense of urgency about these things. Honestly, I’ve $500 short a month on the budget, so investing now is impossible. My main hustle is to create more income streams just to make ends meet, then look at investing as soon as possible after that. I’ve been perusing some dividend blogs and the CPA I work for is an active investor (seems to be doing quite well) so I hope to glean from him. I have about 20k in cash to help me survive until I get my income up, but once I do, I’ll be looking at putting some of that coin into the market.

  16. Im right there with you Sam. I sold off my 401k at the peak of the market after moving jobs but then shortly after rolled it over to an IRA and invested in a managed mutual fund account. Im down about 8% so far. Why didn’t I wait to reinvest after liquidating my 401k? I was optimistic and thought that the economy was on the rebound plus I wouldn’t be touching the money for 35+ years so current market conditions were of little concern to me. If I were to do it again I would dollar cost average the investment over the year instead of an all in approach but Im young and can afford to take risks and learn along the way. Long term Im investing in land and building a hobby farm…seriously. I want to be able to support/feed myself and my future family irregardless of how much money is in the bank account. I had a professor in my MBA program that stated that he would only invest in FDIC insured products because stocks were too risky and akin to horse racing. I thought that my professor was overzealous but now Im starting to feel that slow and steady gains win the race so to speak. I have learned a lot this year and hope that I at least break even on my retirement investment by the end of the year which is totally possible in 6 months but I might be overly optimistic as I foresee shit getting worse in Europe as the Greeks make a run on the banks…

  17. I realized a long time ago, I cannot control or time the market. I keep on dollar cost averaging into the market ieven in these shaky times. Luckily, I am not retiring now nor entirely depending on my investments as income in retirement.

  18. Sam,
    Stellar post as usual.
    I’ll be willing to bet that Obama will win again. I always appreciate another betting man, however in this instance we’d be betting for the same thing, so the point would be kinda mute. Here’s $1,000 on Obama.

    As for the stock market…thankfully I don’t have any stocks yet, but the few MFs I own are getting hammered. If I did own stocks now (or for the past 2 months), I’d definitely be a buyer, while staying pat on what I currently owned.

    I like your take on dividend investors…quite funny actually! :)

  19. DebtsnTaxes

    I’m slowly buying. A smart man once said, “buy the fear, sell the greed.” I lean more towards value investing, buying low P/E companies that have a good business model and a solid Forward P/E. Adding fear into the market makes the companies I want to buy even cheaper. Nothing wrong with that. As of now you should be happy with your Gold stocks, gold is up $50 just today.

  20. Liked the post until the structured product part. While not knowing any of the details these instruments automatically raise a red flag. Depending upon the nature and the structure you could be incurring excessive fees, a guarantee that is really an unneeded ceiling on potential gains, and debt exposure to the issuer. Again I don’t know anything about the instruments that you are using.

    1. Roger, I linked to the post. Here you go

      The best investment is whatever works for the individual. In my case, I deeply enjoy a 100% principal protection for the opportunity to receive 115% of the upside of the markets. What I give up is 6 years of liquidity, and the market dividend, which is somewhat offset by the 0.5% coupon. These returns are net of fees.

      1. Darwin's Money

        Sam, as a pretty sophisticated investor, why don’t you just build these yourself with options?

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