What the caterpillar calls the end of the world, the master calls a butterfly.” — Richard Bach
We are currently in an extremely volatile period in American history. COVID continues its tyrannical hold over our lives, political parties continue to bitterly feud, the financial markets are extremely volatile and inflation continues—at least so far. This is all very disconcerting and can be extremely stressful when you start thinking about your future, your goals and your investments. These conditions make it hard to be confident about your money moves. Follow these important rules to gain confidence and prosper!
Rule #1: Don’t panic! Despite the belief that our country is in crisis and chaos now rules, economic turmoil really isn’t all that abnormal. I started investing in 1981. I survived and thrived during many periods of economic and political uncertainty. You can as well.
Examples:
• 1980–1981 Oil Embargo
• 1990–1991 Savings and Loan Crisis
• 1999–2001 Dotcom Bubble Burst
• 2007–2009 Great Recession
• 2020 Economic Downturn
During each of these crises, some people were on the news predicting financial market doom and gloom. Each time, we were told this crisis is “different” and could very well result in the destruction of our economy. Despite these predictions, I made money by following the proven strategies in this article.
Rule #2: Don’t let popular politics overly influence your investing. From CNN to FOX News, the political channels predict gloom or doom depending on whose guys and gals are in control. The political parties have always been at war. Being at odds with each other is nothing new—although they seem to get along just fine when the cameras are off. I have actually seen family members sell off all their investments based on who was elected president! This, of course, resulted in tragic opportunity cost losses and missing out on huge gains in wealth. For the record, I have made money (to varying degrees) under every political administration since I have been investing.
Presidents During My Investing Tenure:
• Ronald Regan
• George H. Bush
• Bill Clinton
• George W. Bush
• Barack Obama
• Donald Trump
• Joe Biden
Rule #3: Don’t buy into the doom and gloom predictions. Gloom, disaster and financial ruin stories feed upon our darkest fears, and this well-worn strategy is very effective! Fear sells everything from newspapers to dubious investment products. Actual ruin only occurred in the past if you panicked and sold everything to investors who capitalized on your panic and scooped up your discounted investments.
Joe Smith (who predicted the Great Recession in 2006) now predicts an even worse economic disaster just ahead! You can protect yourself by buying this gold or this no-money-down real estate investment plan!
Gold, like every other commodity, goes up and down in price. Sometimes it rockets up and then falls precipitously back to Earth. From the 1920s to present, gold has returned about 5% over time—comparable to bonds’ rate of return at best. The situation is similar for real estate. You can certainly get rich by investing in real estate. The return on real estate investing over the long haul is comparable to the S&P 500 return, about 10% annually. Just be aware that real estate, like every other commodity in the world, has wide swings up and down in value. Sometimes there are big real estate market gains and later big real estate market crashes—which is why a diverse portfolio still remains your best tool to building significant wealth over time. I invest in both gold and real estate, but I do them through a commodity mutual fund and a real estate investment trust. They total about 8% of our portfolio of investments.
Rule #4: Reduce your debt risk and make sure you have an emergency fund. I have covered this advice previously; no need to rehash it here. You know what to do! If not, read the prior newsletters.
Rule #5: Don’t let fear interrupt your investment plan. Keep investing and stay the course. If you receive credible information the world will end tomorrow because a meteor will strike earth and destroy all life on the planet, remain on your investing plan! Much later in life, we learn that most crises were temporary and usually passed without too much damage.
Rule #6: (If you are one of my regular readers, then you knew this is coming and here it is.) Rebalance your investment portfolio back to your chosen mix. If you become concerned, this still remains one of the best ways to weather virtually any economic turmoil.
These steps will give you the best chance to remain confident and prosper, even during uncertain times.
— Larry Faulkner
