The Path To Finding Better Businesses

The Path To Finding Better Businesses

Reality Check 2017: How Can Americans Survive Another Market Crash

The economic crisis in 2008 prompted the U.S. Federal Reserve to pump massive dollar stimulus into the economy, that shifted pushed bond yields to their lowest point in seventy-five years. This forced many investors to shift from bond surrogate investments like real estate, high-yield bonds, high dividend paying stocks, and levered loans. The proliferation of these products has brought different risks to investors such as expensive valuations, regulatory changes and liquidity issues. The international and U.S. Banks have tougher capital rules introduced by governments, reducing the chance of bank failures in the future.

The average American investors can learn from the lessons brought about by the 2008 economic crisis and they can also be applied today to be able to survive another market crash if it does happen. Be skeptical about the new product you are investing. The 2008 crisis was presaged by credit markets’ record set of innovations. Increased leverage, subprime asset-backed securities, and collateralized debt obligations magnified a contained real estate correction into a wider financial collapse. All with their own risks, we can see many new alternative asset classes, products and strategies. Planning ahead is important so you’re not forced to sell when the liquidity of the market dries up. Avoid being forced to sell securities at sale prices by owning high-quality investments, and utilization of effective and diversified high-quality fixed income investments that are mixed with appropriately priced stocks. It is also important to be aware of the impacts of debt levels because high levels of leverage or debt can adversely affect markets. Provided that you have an adequate financial plan, you don’t have to panic in selling your securities when the outlook is not good. You must still look for warning signs in terms of failure to appreciate investment risk and market valuation.

The 2008 economic crisis serves as a reminder for American investors to embrace investment strategies that can withstand the test of time. Investors must heed the important lessons of history to be able to create a portfolio that can withstand the challenges of tough markets, respect the past and open great opportunities of the future. Consult a fee only financial planner to get a professional advice on the best ways to make investments because of course, you don’t want to invest in a particular company just because of what appears to be net assets. Look at the board of directors of the company as well as upper level management. It is essential to know the person managing the financial aspects of the investment or business you’re planning to venture in. Many companies quickly fail if managers are either less than above board or inept in their dealings. There are many any get-rich-quick schemes or overnight wealth schemes out there that you need to be cautious of.

Comments are closed.