Late last week global markets took a big dive. It started in Japan with the Nikkei dropping close to 20% and quickly spread to Europe and North America.
Many were taken aback by the sudden drop that seemingly came out of nowhere. But if you bother to read this blog then you’d know that the entire global financial system is on thin ice.
I’m not trying to be a doomer and gloomer but I think it’s important for investors, especially us retail investors, to understand that there are very serious risks out there and have been for a while.
Last week we found out that the wise old sage Warren Buffett dumped a lot of his big holdings in Apple and Bank of America and has a record amount of case (nearly $300 billion)!
After a decade long journey in dividend investing, I made a choice in 2021 to focus on deleveraging and diversifying my financial world so that I’m insulated as much as possible from a lot of the major risks out there.
I’m not really afraid of a stock market correction. Those come along pretty regularly. What I am concerned about is something much bigger. It involves the Global Government debt, deficit spending, Central banks buying up government debt under various QE programs etc. This spills over into the purchasing power of currencies. So get ready for a weak Canadian dollar.
Against this backdrop it’s important to remember the lessons of history. The worst recessions and depressions happened when there were concurrent asset bubbles…like the ones we have now in stocks and real estate. Some analysts believe the global bond market was in a bubble that is still correcting in the face of inflation that we haven’t experienced since the 1970s.
So that’s the bad news. The big question is how can the average retail investor prepare/protect their hard earned nest egg?
This is the big question that I’ve been grappling with for a few years now. These are my thoughts and what I did.
First, the most important thing is to get out of debt, including mortgage debt. For years I heard how it’s better to forgo making extra mortgage payments and invest instead. That was until interest rates rose rapidly and people began raiding their investments to pay the monthly overhead.
I once read a quote by financial commentator Jonathan Chevreux that said Financial Independence begins with a paid off home. And I think he’s right. I can’t express the peace of mind that comes with being completely debt free. That should be an overriding goal for everyone on the road to financial independence.
Second, as investors we are now able to earn nearly 5% relatively risk free in interest accounts, short term bond funds and money market accounts. It’s been 20 years since we were able to do so. I don’t know about you but I’m fine parking some of my money there while shit hits the fan in bloated asset markets.
Third, I believe we are facing a 1 in a 100 year economic storm that could take down global currencies and result in some kind of a financial reset. For this reason I believe every investor should have some kind of a hedge or insurance policy in the form of Gold.
Finally, after having some form of insurance by doing the preceding 3 steps, I am slowly buying up beat up dividend stocks that should do well over the long term.
Diversification is our friend and it’s definitely not the time to bet it all on bloated asset markets. It’s hard to build substantial wealth and easy to lose it in these treacherous times.
It’s time we all take a realistic look at the current financial and economic landscape and prepare as best we can to meet any eventuality. This means doing things that the bank’s financial advisors would tell us not to do. But who cares what they say. They’re nothing more than mutual fund salesmen!
Save, Invest, Build Wealth and Prosper
In case you’re wondering here’s where we park our money and some financial services that we use (please note these are affiliate links where we receive small compensation for signups and sales):
For our precious metals and coin capsules, we use Silver Gold Bull because they price match and offer fast, insured, delivery.
We also own some crypto currencies like Bitcoin and Ether through Shakepay. If you’re interested in buying some here is our referral link to Shakepay and get $10 to try it out. We buy Bitcoin on Shakepay and transfer it to a Ledger cold storage wallet to keep our crypto secure.
For our Daily banking we use Tangerine because they offer incredible products and no-fee banking.
For investing we use Questrade because it offers incredible value with low cost stock purchases and free ETF purchases. If you haven’t done so already, check out my Questrade Review to see why it’s the best deal around. Get $50 in Free Trades when you signup for Questrade through this link.
Please note: this page contains affiliate links. As an affiliate, this blog receives a commission for each sign up for Tangerine, Shakepay, Borrowell, Questrade, Amazon, Silver Gold Bull and Bluehost.