It’s hard to believe that 2011 has passed so quickly and that 2012 will soon be here. Now is a good time to look back over the past year and assess your finances. Did your choices this year put you in better or worse circumstances? Do you have the information needed to make wise decisions in the next year? Are you prepared to protect your financial future?
Chapter 14: Making Preparations and Taking Action
The ultimate effect of deflation is to reduce the supply of money and credit. Your goal is to make sure that it doesn’t reduce the supply of your money and credit. The ultimate effect of depression is financial ruin. Your goal is to make sure that it doesn’t ruin you.
Many investment advisors speak as if making money by investing is easy. It’s not. What’s easy is losing money, which is exactly what most investors do. They might make money for a while, but they lose eventually. Just keeping what you have over a lifetime of investing can be an achievement. That’s what this book is designed to help you do, in perhaps the single most difficult financial environment that exists.
Protecting your liquid wealth against a deflationary crash and depression is pretty easy once you know what to do. Protecting your other assets and ensuring your livelihood can be serious challenges. Knowing how to proceed used to be the most difficult part of your task because almost no one writes about the issue.
Preparing to Take the Right Actions
In a crash and depression, we will see stocks going down 90 percent and more, mutual funds collapsing, massive layoffs, high unemployment, corporate and municipal bankruptcies, bank and insurance company failures and ultimately financial and political crises. The average person, who has no inkling of the risks in the financial system, will be shocked that such things could happen, despite the fact that they have happened repeatedly throughout history.
Being unprepared will leave you vulnerable to a major disruption in your life. Being prepared will allow you to make exceptional profits both in the crash and in the ensuing recovery. For now, you should focus on making sure that you do not become a zombie-eyed victim of the depression.
The best news of all is that this depression should be relatively brief, though it will seem like an eternity while it is in force. The longest depression on record in the U.S. lasted three years and five months, from September 1929 to February 1933. The longest sustained stock market decline in U.S. history lasted seven years, from 1835 to 1842, and featured two depressions in close proximity. As the expected trend change is of one larger degree than those, it should be a commensurately large setback, but it should still be brief relative to the duration of the preceding advance.
Taking the Right Actions
Countless advisors have touted “stocks only,” “gold only,” “diversification,” a “balanced portfolio” and other end-all solutions to the problem of attending to your investments. These approaches are usually delusions. As I try to make clear in the following pages, no investment strategy will provide stability forever. You will have to be nimble enough to see major trends coming and make changes accordingly. What follows is a good guide, I think, but it is only a guide.
The main goal of investing in a crash environment is safety. When deflation looms, almost every investment category becomes associated with immense risks. Most investors have no idea of these risks and will think you are a fool for taking precautions.
Many readers will object to taking certain prudent actions because of the presumed cost. For example: “I can’t take a profit; I’ll have to pay taxes!” My reply is, if you don’t want to pay taxes, well, you’ll get your wish; your profit will turn into a loss, and you won’t have to pay any taxes. Or they say, “I can’t sell my stocks for cash; interest rates are only 2 percent!” My reply is, if you can’t abide a 2 percent annual gain, well, you’ll get your wish there, too; you’ll have a 30 percent annual loss instead. Others say, “I can’t cash out my retirement plan; there’s a penalty!” I reply, take your money out before there is none to get. Then there is the venerable, “I can’t sell now; I’d be taking a loss!” I say no, you are recovering some capital that you can put to better use. My advice always is, make the right move, and the costs will take care of themselves.
If you are preoccupied with pedestrian concerns or blithely going along with mainstream opinions, you need to wake up now, while there is still time, and actively take charge of your personal finances. First you must make your capital, your person and your family safe. Then you can explore options for making money during the crash and especially after it’s over.
As the subtitle implies, this book is designed as a guide for arranging your finances prior to any future deflationary depression, whether one occurs now, as I expect, or not. Although I want this book to have value beyond the present situation, some of the specifics of my suggestions are time-sensitive by nature. If you need to know today where you can find the few exceptionally sound banks, insurers and other essential service providers, if you want to locate the safest structures in the world for storing your wealth, whether in paper monetary instruments or physical assets such as precious metals, you will find the answers in these chapters. Yet over time, the best institutions and services today might be long gone, and others may have taken their place. For a few years at least, we will post free updates to this information at www.conquerthecrash.com/readerspage. But if you read this book 50 years from now, you may have to do your own research to fit the investment options and service providers available at the time. Nevertheless, the general nature of your goals should be much as outlined herein.
Most people do not have the foggiest idea how to prepare their investments for a deflationary crash and depression, so the techniques are almost like secrets today. The following chapters show you a few steps that will make your finances secure despite almost anything that such an environment can throw at them.