April 8, 2022

How to Sail Through Choppy Waters

Patrick Mayles
Forbes & Seeking Alpha Contributor

Preparing for the Next Crisis 

Well, we had about a month to catch our breath after the Omicron spike, before Russia invaded Ukraine and the world got scary again. The past five years or so have been some of the most disruptive in recent history, but the economy has mostly managed to somehow stay afloat. As cracks start to show, people are now, with good reason, questioning how long before another financial crisis hits.

While World War 3 is (hopefully) not on the horizon, the war in Ukraine is already rippling through the economy, particularly the energy market. As we’ve seen in the past, surging energy prices are a major red flag for recession, as is the inflation we’ve seen in the past year. In light of these factors, it pays to prepare, so let’s cover some simple ways to stay strong in a tough economy. 

Inflation: This Year’s Boogeyman 

The potential for World War 3 is terrifying, but a much more immediate threat to your finances is the steady rise in inflation. If a financial crisis hits in the near future, surging inflation will likely be a big part of it. While prices often fall during a recession, we’re seeing a combination of factors similar to the ones we saw during the Stagflation days of the 1970s. That means an economic slump coupled with soaring prices. If you’ve been to the pump or the grocery store in the past month, you likely know what we’re talking about! 

Inflation can complicate our plans, and make saving feel like a loser’s game. With a little strategizing though, you can protect your funds from getting eaten away by a falling dollar, euro, or whatever currency you save in. The key is to invest in a diverse array of appreciating assets like equities, real estate, and gold, as well as gaining some exposure to other countries’ economies. 

Rule #1: Just Keep Saving

With alarm bells ringing and prices rising on everything from gasoline to gummy bears, saving might be the last thing on your mind. However, the only way to empower your financial future, no matter what’s happening in the world, is to grow your savings. Not only does this provide a cushion if things get tougher in the future, but consistently saving, and putting that money to work for you, will always benefit you in the long run. 

Now More Than Ever: Diversify! 

In good or bad times, a successful investment strategy requires diversification. When it comes to hedging against surging inflation or a financial crisis, more diversity is always better. While your stock investments should be diverse, you should even start thinking about putting some money in other countries’ stock markets, as well as buying into different asset classes when you can. Real estate is a great hedge against choppy waters, because it’s a tangible asset and people will always need somewhere to live. 

From real estate to equities, the American market has gotten very expensive. However, stocks and properties in other countries look like a bargain in comparison. Look into investing abroad as a way to protect yourself from a home-brewed financial crisis, and to tap into tomorrow’s high-growth markets. 

Gold: Your Grandpa’s Favorite Hedge

Gold is a tried and true way to protect against a troubled economy. While not particularly exciting, this asset is especially safe, because people flee to hard assets when things look scary. You can invest in a gold ETF through any brokerage, or even buy physical gold. Remember that while gold is a useful hedge, you don’t want to miss out on better opportunities by parking too much money here.  

Crypto: Tomorrow’s Safety Net? 

Anyone with a casual interest in finance, or even a Twitter account, has likely heard of Bitcoin and other cryptocurrencies. These digital currencies are still in their early days, but could offer both high returns and, potentially, protection against the devaluation of traditional money. Consider allocating a small amount of your monthly savings to crypto, perhaps 2-10% depending on your risk tolerance, in order to gain some exposure to this high-yield, high-risk asset class. 

Stay Calm, Keep Saving, Cover Your Bets

Those are the three key pieces of advice we give to anyone worried about the economy. The year is off to a scary start, from the unlikely but sobering prospect of global war to surging prices, but much of these things are simply out of our control. What we can control is how we protect ourselves. 

Buying a diverse array of assets, as well as investing in other countries’ economies, will go far in protecting your nest egg and providing some much needed peace of mind. 

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