The world is getting crazy, we are witnessing of potential outbreak of coronavirus who can it become a global pandemic . For long period of time I wanted to write about this topic and now I have the chance to do it. On this article I will talk about coronavirus is not the subject of this article.
Since with the end of 2008 global financial recession when the global economy has started to recover many individuals so called financial gurus and planners came out with articles and theories that a new financial crisis is imminent . Regarding me I never wasn't intrigued when will be the next financial recession and what are the facts that have triggered financial crises. As person I always I am interested on personal development, how to improve my services, how to create good products and how to solve real world problems. With the beginning of 2020 many of economic articles have the headline "
2020 Economic recession or market crash" , but this headline I've seen in 2015, 2016, 2017 and nothing happen , I don't blame them this kind of content is getting a lot of interests and clicks.
Reading and analyzing what those people are saying I can draw some conclusions, I consider is very hard if not impossible to make predictions economic recessions or market crash. Of course I'm worried about some financial indicators, I'm worried about real estate and stock market that are at record high and make me feel a little bit prudent about my actions. However I admit I like this situation when a lot of hysteria is produced by media in general the psychology is playing an important role here. I remember what Warren Buffett said years ago: "
Be fearful when others are greedy ,by greedy when others are fearful" this statement is very representative for me and my philosophy of investing.
Back to our topic I have few simple questions to ask to those who make this claim that we are heading to a new economic recession:
- When exactly the new economic recession will start ?
- What exactly will happen ? (major bankruptcy the new Lehman Brother)
- How can we protect ?
Those are few simple questions that I want to ask for those who make this statement. As you can see is very easy to make this affirmation but extremely hard to respond efficiently to this questions.
There are also people who come out with some strategies to protect more efficiently during market crashes. We will analyze this in the following moment.
1 Save money
This is one of the stupid idea that I ever heard. What are the reasons why somebody work and save money. Back in the past in 1971 the US president Richard Nixon took off the us dollar after the Gold standards. This one dangerous economic decision ever took. From that moment the us dollar become debt.
Why somebody work and save money if FED can print as much money they can ? , by the way today US National debt is about 23 trillion $. This situation will not apply only on US, almost all central banks are printing money. If you look to ECB (European Central Bank) , Bank of Japan have low interest rates and in some cases close to negative. To invest your money in to a saving account with this conditions is not a wise move.
2 Sell your assets
Is perhaps the most common financial advise given by so called financial planners .
What are the reasons why somebody sell their assets ? It is well know successful people own assets, you can become wealthy if you don't own assets. As Robert Kiosaky said in his book "Rich dad poor dad" rich people don't work for money. One of the advise that is giving by financial planner is " Sell your assets , keep money in cash and wait for new crash to come and buy new assets. This statement is partial true but not 100 % and I will explain why.
Imagine you have an asset ( real estate property) and you decide to sell that property today, you get an amount of money and you decide to put that money in a saving account hopping that one day a new crash will come and you can buy another asset at discount price. For those who believe this is a good strategy I will come with an different argument. The Great Depression started in 1929 was one of the longest and deepest recession that mankind faced. In the last century we faced many recession but those which had a big impact I can enumerate Dot.com bubble started and 2000 and subprime mortgage crisis that has started in 2008. As we can see the crisis which a huge impact on real estate was the 1929 crisis and 2008. Back to present you decide to sell the real estate property and keep your money in a saving in the hope that recession is imminent and you can buy another one at discount price. As you can see the difference between to major economic recession is 79 years. What makes you think that we are in the economic recession. The economic recession dose not start from year to year or from five to five years. In our example you need to wait another 79 years to market to crash to hope to buy an asset at discount price ;))). It is not a smart strategy you miss a lot of opportunities if your are not holding that assets and getting monthly rental income. That source of income can compound over the time.
In conclusion economic crises are part of our life. Mankind has faced this from centuries. We should not fear them . With a little knowledge and skills, those crises can be handled, after all
What is wrong if we are in recession ? . Recession means opportunities and that is the most important thing
