Bullet Proof Wealth: Seven Strategies for Volatility

These are uncertain times for investors. There’s volatility in the stock market, uncertainty in the housing market, and massive unpredictability in the political arena. Let’s take a look at what’s happening and—most importantly—effective strategies for volatility that will keep you building wealth in any market!

The stock market: We try not to make predictions at all. But we may have been right in August of this year when we asked, “Is Now the Time to Go to Cash? 7 Signs Point to Yes.”

The S & P 500 is down nearly 10% since September highs, a loss of over 1% year-to-date. While the February 5, 2018 loss of 1175 points still remains the Dow’s largest one-day loss, in October, the index tumbled more than 1300 points in two days. In recent months, the index’s chart resembles jagged mountain peaks.

And US stocks are doing better than most. The Shanghai index hit a four-year low in October and has hardly budged since, hovering around 50% of its 2015 high. The Global Dow is down nearly 8% year-to-date.

The housing market: After a long rally, the housing market is also showing signs of a downturn. Many conditions are mirroring the period right before the subprime crash. Home prices have risen substantially faster than inflation, according to TheBalance.com. New home sales have fallen by 22 percent in one year, says The New York Times. And inventory has increased substantially in the last six months, as noted by Seattle Broker Desiree Loughlin in a December market update.

Borrowing standards such as required credit scores have decreased, points out Cato Institute senior fellow William Poole. Unregulated mortgage brokers—not banks—are originating half of all mortgages. And interest rates are on the rise, which typically slows the housing market.

The “X” factors: Why are we seeing more volatility in the markets? Depending on who you ask, the cause could be:

• Brexit woes and uncertainty.
• Tensions over trade.
• The protests in France and other political unrest.
• The continuing push of Democrats towards a presidential impeachment.
• Fluctuating oil prices.
• Rising interest rates.
• Recent bank stock selloffs.
• The threat of a government shut down.
• The reactions of both investors and traders to the above events.
• Or perhaps, as Forbes suggested, it’s just the inevitable arrival of a bear market.

Investors are understandably wary. According to Allianz Life’s 2018 Market Perceptions study, 37 percent of investors are anxious about stock market volatility, most concerned they could not rebuild their retirement savings if large losses were sustained. More than four out of ten fear a major stock crash (42 percent) or recession (44 percent).

The survey was conducted in June 2018—before the dramatic increase in stock market volatility. Unfortunately, the volatility seems to be far from over.

 Where will the markets and economy go from here?

That’s the million dollar question… one that no one can answer with certainty.

An internet search for “economic predictions” will bring you forecasts from notable analysts and fund managers predicting:

• An impending recession… or perhaps, continued growth and low unemployment.
• A real estate crash… or perhaps, just a slow-down.
• Gold and silver could skyrocket… or maybe, precious metals will lose value in further corrections.
• The stock market will crash with losses exceeding 50%… unless it bounces back and keeps climbing.

The guessing game has become absurd! Covering his bases, Hedge fund pioneer Paul Tudor Jones—who predicted the ’87 “Black Monday” crash—forecast a 15% move either way for stocks in a recent CNBC interview.

My prediction is this:

If you follow typical financial advice, you’ll be subjected to greater volatility with less control over your finances.

So what’s an investor to do? How do you protect yourself? Start by practicing the seven strategies below to prosper in any economic conditions.

7 Ways to Build Wealth in Any Circumstance

1. Build your financial foundation before investing.

Your savings represents your financial foundation. If you don’t yet have liquidity for emergencies and opportunities, your dollars should not be tied up in investments such as 401(k)s, IRAs, or other retirement plans. Build your savings first. That will give you the liquidity to do weather financial storms and take advantage of lucrative opportunities that come your way.

Saving before investing also protects the investments you’ll be making. In the aftermath of the financial crisis, Americans pulled hundreds of billions of dollars prematurely from 401(k)s and other retirement accounts, paying penalties and taxes as well as taking huge market losses.

Begin with cash and a savings account for “everyday emergencies.” For long-term savings, consider dividend-paying high cash value life insurance policies for increased privacy, higher long-term returns, and tax-deferred growth within the policy. To understand further how a “boring” savings vehicle can accelerate wealth-building, read “The Power of Liquidity: Capitalizing with Cash.”

Where do BANKS save for a rainy day? You might be surprised!

2. Take control of your income.

The wealthy rarely have only one source of income, and they often have a high level of control over their income. Business owners and salespeople tend to make more than typical employees.

Already have work you love? Consider starting a part-time business on the side. (The potential tax savings alone can make it worthwhile!) You can start a network marketing or referral business with very little time or money, while developing business skills and writing off legitimate business expenses such as travel and entertainment. Even if you are a full-time student or stay-at-home parent, there are ways to earn money on the side, from being a weekend Uber driver to freelancing, consulting, or tutoring.

Real estate investing provides an income stream for many people, and it can be as simple as renting out your home instead of selling it when you purchase your next home. Or perhaps you have a spare room you can rent through AirBnB.com. Take control of your income and bullet-proof your wallet!

3. Always live beneath your means.

It’s personal finance 101, but it bears repeating: You must control your expenses.Americans have a low savings rate compared to people in other countries. This produces multiple problems, such as a lack of adequate emergency funds, which can lead to debt, bankruptcies, and poor choices.

People tend to equate wealth with income. However, just like football, it’s hard to win at wealth if you don’t play defense as well as offense! Controlling your expenses means:

• Knowing where your money is going.
• Having clarity on needs vs. wants.
• Maximizing tax incentives. (See “Slash Your Taxes” for tips.)
• Consistently spending less than you earn.

If you are living paycheck to paycheck, you’re more likely to make career choices based on immediate needs rather than long-term fulfillment. However, if you live beneath your means, you’ll have more options. You might be able to hold out for a better position or take extra time off to be a parent. Living beneath your means also makes you a better investor. You’ll feel less compelled to chase unrealistically high rates of return if you save a higher percentage of your income.

4. Protect your human life value.

The average American earns millions of dollars over a lifetime. Chances are, YOU are your most important financial asset. If a partner, spouse or children would be affected if you were no longer around or able to work, investigate whole life, and/or convertible term insurance and potentially, disability insurance as well to determine how to best protect your income. Your most important assets—financial and familial—are worth protecting.

Need help? Listen to this “Life Insurance 101” episode of The Prosperity Podcast, or contact us directly with questions or for a policy illustration.

5. Diversify outside of the stock market

We all understand the concept of not putting all your eggs in one basket. Yet too often, investors (and their brokers) interpret this to mean they should simply diversify their stocks. Being truly diversified means investing in different asset classes, not simply different types of stocks or mutual funds. If you are invested even in broad indices such as the S&P 500, you’re setting yourself up for pain.

“No BS Money Guy” Todd Strobel points out the reason why those invested heavily in the stock market feel a need to diversify… They don’t have confidence that their main strategy is one that will perform reliably for them. Therefore, investors put their money in various financial vehicles in which they have more or less confidence, hoping that if one fails, another will succeed.

Asset Allocation. People focus on stocks (equities), bonds or annuities (fixed income) with perhaps bank accounts or CDs (cash and cash equivalents.) We prefer alternatives for growth, income, and cash. (These are detailed in our ebook you can download for free, Financial Planning Has Failed.)

Don’t neglect the asset classes that have helped people build substantial, sustainable wealth long before the financial planning industry even existed:

• Investment real estate—especially cash-flowingreal estate, residential or commercial—can be excellent for increasing cash flow as well as decreasing taxes and building net worth.
• Want steady cash flow without the responsibilities of being a landlord? Become a private lender and put your assets to work.
• Permanent life insurance policies—particularly dividend-paying, high cash value whole life insurance—is an asset that has stood the test of time. Although not classified as an investment, life insurance offers compelling benefits for investors looking for a place to grow, store and leverage cash.

6. Invest in non-correlated assets.

The unpredictable stock market violates the principle of maintaining control of your investments. Instead, put your dollars into non-correlated alternative investments that won’t roller coaster ride with stocks. Uncorrelated assets can produce excellent returns and are also valuable as a “hedge” for mutual funds you may already own.

One of our favorite alternative investments is the one that pays no attention to politics, economics, interest rates or financial markets whatsoever! Perhaps that’s why Berkshire Hathaway, Bill Gates, major brokerages and pension funds have put large sums of money into life settlements. (Learn the basics here, and for further information, email us and ask about life settlement funds.)

Avoid saving or investing in anything where your principal is at stake or where “roller coaster ride” volatility is the norm. We agree with Rule #1: “Never lose money.” Keep your money in your control.

Just because the big banks and brokers don’t sell something is not a reason to disqualify it. Get more information and ask questions, and make informed decisions rather than simply relying on conventional advice that presents limited choices.

Last but not least…

7. Guard your mindset as well as your money.

It’s not just our portfolios that can suffer from political conflicts and economic upheaval. Stay positive, be grateful, and focus on the things—and especially the people—that matter most to you.

Stress can take a powerful toll on our mental, physical, and emotional health. We have a higher capacity to succeed in our careers and businesses when we don’t allow ourselves to become bogged down with negativity and drama. For these reasons and more, THINKING from a prosperous mindset is the first of our 7 Principles of Prosperity?.

In this podcast, listen to Kim Butler give tips on “How to Create an Abundance Mindset.”

Bulletproof Your Wealth!

Partners for Prosperity helps people build “Wealth Without Wall Street.” Our solutions enable clients to be confident their money is working for them… regardless of which direction the stock market charts are heading. Contact us today for investment strategies for volatility—or any economy.

Want to learn more? Download our complimentary Prosperity Accelerator Pack. You’ll receive my ebook, Financial Planning Has Failed, which details the exact strategies we use with our clients.