5 ways investors can prepare themselves in this uncertain markets:
Though Dow Jones is still hovering at its historical high at 18,000, yet we all know it is not sustainable. According to “The Economist”, the current global public debt is at US$59 trillion, US and Japan alone representing half of it. US at US$16 trillion and Japan at US$12 trillion.
Following are ways how we can prepare ourselves on any potential downside risks:
1) Understand the global debt situation we are in today
If you find it too complicated to understand, think simple in three steps.
a) GDP as my income
b) National debt as my debt (housing or credit card)
c) National reserve as my saving.
What will happen when our debt exceed our income?
What happen when we increased our debt and also received a pay cut from our company?
What happen when we lost our job and have no saving?
2) Study into our history
The first free market and tax system was founded about 2,500 years ago. Since then, we have seen the rise and fall of the different empires, and their stories were all very similar, mainly due to greed and war.
What are the similar trends you are seeing in today's market?
3) Understand how interest rate and it’s cycle works
Do you know in the 80s, US interest rate was about 19%, today, about 30 years later, it is at 0.75%.
30 years before 80s between 1940 and 1950, interest rate was also at it's low.
What is the trend of the global interest rate in the next 30 years?
4) Be a good steward of our own money
Most average investors focus on capital gain or yield. A wise investor will always consider on the potential downside risks before projecting the capital gain or yield.
The herd investors think: "Over time, the market will always be up! Isn't it true?" Unfortuantely, even the newly rich ones think the same.
Do you subscribe to this belief?
You are always almost fully invested without much saving or extra investible available fund?
5) Continuous learning and applying
Compare to 20 years ago, we now have many different structured products and derivatives to choose from. This may not be a bad thing especially in these uncertain periods. However, these products are only good when:
a) we understand how it works and
b) know to apply them correctly.
You perceived deivatives as a risky product and you reject learning about it?
You have not much understanding on how to hedge and apply derivatives correctly?
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