Preparing for Economic Dangers and Opportunities

As we went to press with this, we learned of President Trump and Melania Trump’s positive diagnosis. We trust they will make a full recovery. In the meantime, the stock market is likely to be extremely volatile. With the NASDAQ down 2%+ today, the news affirms the importance of being prepared for financial uncertainty—and how equities and other assets may react!

There is a saying, “Pay attention or pay with pain.” This saying is relevant when it comes to finances—especially in 2020. By paying attention, we can not only avoid losses—we can discover opportunities!

When news of a pandemic made its way around the world in early 2020, many investors were caught off guard. They lost large sums of money in the fastest bear market crash ever.

In contrast, others were paying attention! They avoided losses by repositioning assets and reducing risk. Some even benefited by storing cash on the sidelines they could re-deploy when stocks and other assets took a dive.

In the next several weeks, another event has the potential to bring volatility and uncertainty to the markets. Like the upheaval in March, we must pay attention and be prepared.

Election 2020: Will there be a clear winner?

Perhaps more than any other election in our lifetime, this year’s presidential race could be fiercely contested. At the very least, we could have days, even weeks of uncertainty waiting for the process of mail-in ballots to be received and counted. And in the current political climate, things could get ugly.

Both sides seem to be gearing up for a potential disaster. President Trump warns of voter fraud and ballots found in ditches and garbage cans, casting doubt on the integrity of the process. Democrats believe the US postal service has been intentionally sabotaged and worry that Trump won’t leave office if Biden wins. Fingers point in both directions with accusations of voter suppression and other efforts to compromise the vote.

But this post is NOT about politics. Our purpose is to prepare you for the very real possibility of a hotly contested election—and what that could mean for your money. It’s better to be ready for something that never happens than to be caught unprepared. And the 2020 election could end up like Florida’s “hanging chads”—times 100. It could be days or even WEEKS until we know who the next president is. That possibility plus our current economic and social conditions could be a recipe for extreme volatility.

When future conditions are uncertain, both institutional and retail investors tend to flee the market. And when that happens, equities, commodities and other assets can drop unexpectedly or experience wild swings.

Fortunately, you don’t have to participate in the drama! Here is what you can do instead:

#1: Prepare your mindset.

You may feel a desire (or have a professional need) to keep up with the news and current events. But you don’t have to get caught up in fear mongering and the drumbeat of disaster! 

Limit your news checking, preferably to only once a day. (We shared Peter Diamandis’s thoughts about the media in “Bad News, Better News, Good News!”) Never check news first thing in the morning. Rather, have a morning routine that reinforces a positive focus.

Build a resilient mindset through gratitude, prayer, meditation, and focusing on what will move you forward. That could include:

• Reading books from leaders such as Peter Diamandis or Dan Sullivan.
• Listening to TED talks or interviews with thought leaders.
• Reading biographies of how successful people overcame great obstacles.
• Reading or listening to inspirational content that strengthen your faith.
• Journaling about your goals and desires and how to reach them.

It may also be time to adjust your expectations of the economy. If you have made money in 2020’s post-crash bull market, know that more corrections—perhaps sudden and severe corrections—could be ahead. And even if there is no election drama, we’re still just at the beginning of what could be a deep recession.

Now, this doesn’t mean that your personal economy has to mirror the national or global economy! You don’t have to participate in the recession. In ANY economy, there are people who succeed, prosper, and help others. Why not you?

#2: Prepare your body.

2020 has been a stressful year for some. Many have lost jobs or businesses. And many people have been relatively isolated instead of playing sports, going to yoga class, and enjoying gatherings and hobbies.

More than ever, you’ll want consistent routines to help you stay strong and healthy. Now is the time to double down on healthy, wholesome foods. Find exercise that works within whatever current limitations you may be experiencing. If your gym is closed, perhaps you can exercise outdoors, with weights at home, or do yoga online! (We are already doing all of those things, and we love it!)

Your body as well as your mind needs support to stay energetic and resilient, especially in stressful situations. Tools such as essential oils, supplements, and technology that monitors your health and vitality can be valuable. When you feel grounded and energetic, you’ll be best equipped to handle any challenges that come your way!

#3 Prepare your assets.

If you have money in the stock market, this may be an excellent opportunity to reposition—before we’re in the middle of a contested election or a constitutional crisis! 

Using the C.L.U.E. acronym, here are four things to consider when preparing for volatility:

CONTROL. Are your assets at risk? Do they earn predictable returns or are they at the mercy of the financial markets? Do you control your assets, or are they subject to government rules, regulations, potential penalties and/or taxation?

There are many ways to increase your control over your assets, from using strategies to lower taxes and fees to utilizing a self-directed IRA. Another way to increase your control is to invest in non-correlated assets. These are assets that do not rise and fall with the stock market. Non-correlated assets include such things as life settlement funds, bridge loans and mineral rights leases. Some of these investments are referred to as “private lending,” a form of investing that has been around for thousands of years!

If you own assets such as appreciated stocks that you do not wish to reposition (a sale can trigger a taxable event you may not want at this time), prepare your mindset for potential losses. Hopefully, your investment timeline will allow for a full recovery.

LIQUIDITY. Do you have plenty of cash on hand—or assets that can be easily converted to cash as needed? A dozen years ago during the Great Recession, many people discovered their emergency funds didn’t go very far.

You want a healthy portion of your assets in cash or cash equivalents. Liquid assets include savings accounts, life insurance cash value accounts, and bank CDs (although you may be penalized a portion of your interest for the latter). People think of stocks as “liquid” because they can be easily sold. However, their volatility makes it impractical—or costly—to sell when the market is down.

USE. Having ample savings and liquidity is important—but don’t let your cash just sit around! The point in saving it is to USE it when the right opportunity comes along. As Denis Waitley writes, “Knowledge is just like money. It does you no good when you have it, only when you employ it.” 

Is your money locked up, or can you use it when you need it? Too often, people save and invest in different accounts that can only be used for specific purposes (retirement, college, healthcare, etc.) This works great until the unexpected happens—and it always does! This is why we suggest building a multi-purpose financial fund that can be used for any purpose. It provides financial flexibility.

EQUITY. Owning assets is the key to building prosperity. And you want the ability to borrow against those assets—even if you never do.

Real estate may be the asset most commonly borrowed against. (However, it’s worth noting that in 2020, it has gotten more difficult. Many people are finding they can’t just go get a HELOC or home equity line of credit in a recession—especially if they have suffered an economic hardship.)

It is easy to borrow against whole life cash value, and gratefully, there is no need to qualify for a policy loan from the insurance company. Banks will also lend against savings accounts and CDs. The ability to borrow substantially against an asset is a measure of its strength!

#4 Prepare for Opportunity.

In the Chinese language, the word “crisis” is composed of two characters. One represents danger and the other, opportunity. This is a fitting metaphor for volatile times, as danger and opportunity often go hand-in-hand.

Many wealthy people had already pulled their investments safely out of the financial markets when stocks crashed in February and March of 2020. (Wealthy people pay attention.) And then when markets began to stabilize and rise again, they were ready to put their cash to work! There were motivated sellers everywhere and deals to be had in equities, commodities, precious metals, commercial real estate and business.

Warren Buffett uses this same strategy with Berkshire Hathaway. Buffett has more than $100 billion in cash… just waiting for the right opportunities!

In summary, it is good to always be prepared for volatile times. Prepare your mind and body for resiliency. Prepare your money for protection and profit. And prepare for opportunities that will arise—especially if you are ready for them!

Can we help you prepare for volatile times? We specialize in whole life insurance and self-directed IRAs. These are both important strategies for a resilient personal economy!

—By Kim Butler and Kate Phillips