A Serious Warning To All Investors
My concern is that for so many people this is the first time that theyve experienced losses of this magnitude or seen what a bear market or a recession actually looks like because, even though its easy to think this is great, its a black friday sale, i can Lower my cost basis, this is perfect. I would bet that too many people dont fully understand the magnitude of seeing serious life. Changing losses in your account watch years of profits evaporate away in a matter of months and hit the sell everything button because you never expect things to get so bad. And that is what i wanted to talk about in this video, as well as what i believe to be the best strategy moving forward right after, of course, we thank the sponsor of todays video, the like button. Okay, there is no sponsor just because i wanted to get straight into the message of the video. So if you wouldnt mind hitting the like button or subscribing for the youtube algorithm, it would be greatly appreciated, and now with that said, lets begin to start by now. Im sure weve all heard the saying be fearful when others are greedy and greedy when others are fearful. That was a quote by our almighty: investing savior warren buffett, who spoke those words during a shareholder conference in 1986, just a year before the infamous black monday of 1987, where the stock market plummeted over 22 in a single day.
Since then, the market has been no stranger to sudden sell offs that seemingly appear out of nowhere and in terms of what were dealing with today, its fairly straightforward one, fear of a federal reserve rug pull in less than 48 hours on wednesday june 15th. The fed is scheduled to increase rates yet again by an undetermined amount. Up until about a week ago, it was widely presumed that they would be increasing rates by 50 basis points, but now, with inflation having come in significantly higher than expected, theres the concern of a fed rug poll, while the market panics at the thought of an even Bigger rate increase than expected that in turn sends the market down two fear of a recession, its not surprising that during a time like this, consumers spend less they cut back and, as a result, the economy slows down. But an unintended consequence of that is mass layoffs. Crypto.Com, for instance, just let go of 260 employees. A san francisco start off downsized by a fifth of their workforce. Bird reduced their staff by 23 and may was the worst month for startup layoffs since the start of the pandemic. That increases our risk of the economy. Beginning to shrink and when you combine that with rising rates at the same time as record high inflation, its easy to see why people are spooked third fear of stagflation. This refers to the perfect storm of slowing growth, rising inflation and higher employment.
All at the exact same time, this last happened in the 1970s when the fed increased their interest rates to some of the highest levels. Ever and now, some economists are warning that history has begun to repeat itself now. I genuinely do not say this to try to spread fud or try to inject fear into the markets, because its not all bad news which ill get into shortly. But i do think that its important to add context to what were seeing. Because, even though the market appears to be completely random, i do think that its important to prepare for whats about to come so that that way you dont get caught off guard. First, i would make sure to claim your free stock down below in the description when you sign up for public.com, because that could be worth all the way up to a thousand dollars all right im, just trying to lighten up the mood a little bit. So how about this? Why are nudists bad for the stock market, because theyre associated with bear markets get it like bear b? A r e bear never mind anyway in terms of what to do during a stock market crash number one always keep a three to six month emergency fund at all times. I know i sound like a broken record when i say this non stop all the time, but its true having three to six months worth of your expenses saved up in cash at all times is one of the best ways to ensure that you can make it Through stock market drop, this way youre not going to have to sell your investments to pay for living expenses.
In the event you lose your job, your income slows down or something unexpected occurs. Second, diversify your investments throughout as many different industries as possible. Just like tech stocks fell 78 during the dot com bubble or crypto fell 85 in 2018. That could happen to you if youre not properly insulated in the event of a catastrophic market collapse, the more you spread out your money, the more you reduce your risk and volatility, and this is exactly the approach that ive taken. I have 35 of my net worth in real estate. I have 35 in stocks mostly held throughout broad index funds 20 in cash and another 10 spread throughout alternative investments, collectibles and cryptocurrency. That way, if one of them fails, the others should more than make up for it, and if the entire market falls, i still have 20 in cash on the sidelines to keep buying in, even if my income dries up. Third speaking of buying in keep buying. In listen, i know its gut wrenching to watch your investments drop 20 to 50 in value. So then, you buy in even more expecting that youre getting a good deal, but it drops even further and further and further until the point where you just want to give up, depending on what youre invested in you could already be down 30 to 80 percent and Its crazy to think that things could continue to get worse, but study after study shows that the best thing to do is to stick with the plan and keep buying and holding long term thats, because every bear market in history was eventually followed by a bull market.
With an average gain of 158 percent, and if you invest wisely throughout an index fund that tracks the entire market, you wont have to worry about your individual investments underperforming. Of course, that brings us to number four dont panic sell. What ive, seen so many times is that the psychology that causes you to sell when the market is dropping is usually the same psychology that holds you back from investing when the market starts to recover. This is also why its so important not to miss out on keeping your money invested in the markets, because every single day that youre out you could potentially lose a lot of money like fidelity, found that over 40 years, a 10 000 investment in the s p. 500 would have grown to 697 thousand dollars if you just kept the money invested without touching it. However, if you just missed the top 5 best trading days over 40 years, your return would diminish by over 265 000. That really goes to show you that, statistically speaking, just by selling out or trying to time the market, you risk missing out on those best days. That would impact your overall returns. So long story, short dont sell. Next. Fifth: keep a steady income. The biggest risk that i see is that a drop in the stock market could often be associated with a job loss or a reduction in income as businesses and consumers scale back, listen, the worst case scenario isnt.
So much that the market drops, but instead the market drops at the same time you lose your job and have to sell off your investments at a loss to stay afloat. Now an emergency fund would be able to hold you over long enough for your investments to hopefully recover, but if it doesnt, you want to make sure you have a consistent income coming in, so that that way, youre not forced to sell. If you really dont want to now six, if youre extra paranoid hold on to more cash ill admit, statistically, this is not what you should be doing and generally investing your money as soon as possible yields the highest results. But if you want to play it safe and you value peace of mind, then keeping more cash on hand is a way to do that. I usually keep about 15 to 20 percent of my net worth in cash at all times, and even though its a lot, i mentally feel better having a large safety net, even if, in the short term, its losing some value to inflation. The seventh, most importantly, stay at a margin or any leveraged investments. I think its pretty safe to say that youre playing with fire, if you were to borrow money, to invest in stocks cryptocurrency or any other speculative investment. The only exception to this would be a low interest rate mortgage on a cash flowing rental property that you intend to keep long term.
Otherwise, you should probably stay out of debt at all costs. And lastly, eighth, if you need this money over the next three to five years, its probably a good idea not to invest a few years is just not long enough to ensure that youre actually going to make money and, as weve seen throughout history, there have been Multiple times where the market could take all the way up to a decade to recover so the shorter the time frame, you need your money, the less likely you should be invested in something that could drop in price. The reality is, if you could just stick with the above youre, practically guaranteed to make money in the market over a 20 year period, regardless of what it does in the short term. I say this so confidently because in the entire history of the stock market, a 20 year holding period has never once produced a negative result. This means that you could literally buy in precisely at the very top and then not do a single thing for 20 years and still make money thats, because, even though bear markets lose on average 33.8 percent, the bull markets more than make up for it. What so? Many people fail to realize is that youre not just gon na make one investment one time and thats it forever, even though your initial investment might drop youre, hopefully continuing to buy in on a regular basis and lowering your price.
If you see your investment drop and then not decide to buy back in, you could potentially be missing out on some of the best days in the market for that money to grow. And lastly, let me just say this: even though market crashes could be absolutely catastrophic, do your best to change your perspective on how you view this, because riches are absolutely made in recessions. The best opportunities are during a time where no one else is buying in when everyone thinks the market is doomed and when market sentiment is at its lowest point. We last saw this in march 2020 at the beginning of the shutdown in the start of a travel ban, when everyone thought we were entering the next armageddon, then again in 2010, this happened when the real estate market collapsed. Banks went out of business and there werent enough buyers for the homes coming on the market prior to then it was the collapse of the dot com bubble, while hundreds of companies went under im, not saying that, you should wait for these things to happen, but instead Recognize that generally, those are the best times to continue buying in, if you have the means to do so long term anecdotally, i remember starting my real estate career in the beginning of 2008 right as real estate prices had peaked and were about to undergo one of The worst price drops in history from the outside looking in it appeared, though that was probably one of the worst possible times to enter the market and for a while.
I believe that myself, however, even though i certainly question the timing of my entire career, i got ta say going through that recession at an early age in the workforce during a time where everything was dropping in value. Provided me with a unique outlook in terms of how the markets behave, that provided a huge wake up, call that we have to be proactive and take the necessary steps to make sure that youre covered in the event, something were to happen. Looking back, i really believe that were those moments that solidified and reinforced my desire to save as much money as possible live below my means, cut back on unnecessary spending and invest as much disposable income as i can and now 14 years later. Those are the same philosophies that i continue to talk about today. So with that said, you guys thank you so much for watching also feel free to add me on instagram and dont forget that you can get all the way up to a hundred dollars with a free crypto when you sign up for ftx us down below in The description with the code, graham, you may as well do that its pretty much like free money enjoy.