Protecting Your Personal Assets During a Downturn

The subject of this article is our financial health and protecting our personal assets during a crisis such as we are now facing. While we don’t know quite yet what all the after-effects of this market crash will be, we can work towards a better fiscal identity for ourselves, and in turn our families and communities. 

Unprecedented times

We are now navigating through uncharted waters in our global economy. On the March 9th news that the US would be infusing gargantuan amounts of cash into the economy, the Dow still continued its downward spiral. Just a week before that, following a Fed rate cut, markets crashed as well. Now, oil markets are in turmoil, the Coronavirus is just beginning to spread in the US, and every major market globally is down. The effects of China’s month+ long shut down and the break in the supply chain and travel industry have yet to be fully realized. 

With the US Fed already having wheeled out its primary tools, it appears that we’re in for a long market recovery. There’s no doubt there will be a recovery. But what it looks like and how long it will take is anybody’s guess.

The decade long bull run in America, fueled largely by inflated stock prices, stock buybacks and a government unwilling to reign in growth and corporate greed, is at an end. 

Wall Street Journal Homepage March 11, 2020

FUD is creeping in

But it never helps to cry doom and gloom, even though uncertainty, fear, and doubt are king right now if you look at the news or social media. Certainly, it can never hurt to prepare yourself for the worst in a practical and humanized manner. 

Before we begin, let’s first nail down what we mean by personal assets. Everything that you own that has value can be considered an asset. Most assets are more tangible. For instance, you can hold money, or knock on the door of your home, they’re physical. Others are intangible, like the inventory or cash receipts from your business, or the copyright to a song. 

Personal assets can be distributed into different asset classes, which include:

  • Cash or cash equivalents (CD’s, savings, etc.)
  • Real estate
  • Equities (stocks)
  • Fixed income bonds issued by corporations or governments
  • Precious Metals
  • Commodities such as wheat and oil
  • Futures and derivatives

As you can imagine, some of these assets are more liquid than others. During times of financial distress, people may want to have more liquid assets for helping to pay bills and fund unexpected needs. 

On that note, let’s get to our tips for protecting your personal assets in times of trouble. 

Please be aware that this is not financial advice, everyone’s situation is different. These are basic guidelines designed to aid you in your own research.. 

Tips for protecting personal assets in a financial downturn

Low Risk Investments

As an article from Millenial money describes, low-risk investments that also have the potential to provide higher yields can help investors hedge risk during a downturn. Such investments include bonds, some stocks, CDs, and high yield savings accounts.  

APY’s for 5-year CDs in the US are hovering around the 2% mark, not really fulfilling on the promise of high yield investments anymore. Especially with an expected dwindling in the USD’s value after cash infusions hit the markets. Still, in times of uncertainty, low-risk investments can steady your portfolio and help keep you on course. 

Low risk investments may be better as a long term, risk-adverse investment strategy to help insulate a diverse portfolio. During a crisis, they are there when you need them.

Stick with your investment plan

Whether you have a systematic investment plan (SIP) set up or you do dollar-cost averaging with stocks or cryptocurrency, now is not the time to bail. If at all possible, keep with your plan now to accumulate assets at the lower prices likely to extend during a recession.

The India Times/Economic Times suggests that when it comes to personal asset protection, it’s important to keep up with dollar cost averaging or your systematic investment plan. Especially for those in the beginning and middle stages, this strategy helps investors to accumulate more units of shares, stock or virtual currency during a downturn and at lower prices.

Pay down debt / reduce liabilities

Bankrate suggests that a downturn may be a good time to pay down debt. Mortgage and other lending rates typically will reach an all-time low during a recession. They go on to explain that going after high-cost debt first can help prepare for an impending downturn. This means paying down credit card debt and other high-interest loans.

“It’s crucial that you pay down any outstanding debt — more specifically, high-cost debt, such as your credit card balance — to create some breathing room in your budget.” 

It’s interesting to note that mortgage loans first took off during the 1930s. Back then, buyers needed 50% down and the loan term was often 5 to 7 years. Leading up to the mortgage debt bubble and the 2008 recession, the 30-year fixed mortgage rate was around 6-7%. It was lowered in the aftermath of that financial crisis. But even though the stock market grew rapidly since then, the Fed never adjusted the rates back up again. In fact, right now mortgage rates are at an all-time low

Today’s 30-year fixed mortgage rate is 3.660% (3.850 APY). It could be a time to pick up some real estate at record low-interest rates. Uncertainty in the markets now, however, requires that we proceed cautiously with long term debt and less liquid assets.

Lowering interest rates is essentially what quantitative easing is all about. During a recession, it represents one of the primary tools used by the Federal Reserve to regulate the economy.

Begin researching cryptocurrencies

As of late, bitcoin’s reputation as an uncorrelated asset has been taken to task. Bitcoin’s price has had some major dips along with the global, traditional markets. And its most recent, and unprecedented, crash shows how volatile the world market is. But there’s still a lot to be said for bitcoin and the 5000 other cryptocurrencies that are now floating about the internet:

  • Bitcoin is a more secure form of money that is not ruled by any CEO or a government, it’s value rests on supply and demand.
  • There are over 5000 cryptocurrencies that have been created over the last few years. Every one of them is available globally and 24/7. How we think of money has to change and cryptocurrencies provide a new way.
  • Bitcoin has a predetermined cap hardcoded in; there will never be more 21 million coins so inflationary tactics as we see with fiat aren’t at play with bitcoin.
  • Bitcoin and other cryptos are global and cross borders seamlessly, peer to peer. Additionally, there is no need for any 3rd party in order to transact in bitcoin.

What about altcoins?

When it comes to other cryptocurrencies, HedgeTrade CEO and Co-founder Dave Waslen believes many are at a unique market position:

“Many crypto and blockchain startups (like ours) work remotely from all over the world. Not only is our staff distributed, but also everybody’s individual skillsets. As an industry, we’re able to continue to put our heads down during this (and any other) tumultuous or bear market. While the markets are falling all around us, we’re still here making improvements and building the best social trading app possible, fueled by the HEDG token. Since we’re also a predictions marketplace for cryptocurrencies, volatility is already ‘priced in’ so to speak. And while Fortune 500 companies and institutional banks are reeling, we’re able to continue building on the infrastructure that will hopefully solve a lot of the problems that contributed to this crash”

While cryptocurrency prices have fallen like never before in reaction to the world liquidity crisis and evolving pandemic, they still represent the foundation of a new system of money – one that embraces open finance and financial inclusion. Cryptocurrencies like HEDG provide an alternative to traditional finance that involves game theory, an ecosystem that benefits all participants, and a system of accountability. While these are all new financial concepts to most people, the more they learn about these fascinating forms of money, the more it becomes clear that this is our future.

Tighten your budget

If you’re a beginner to budgeting, The Balance offers a helpful guide to getting started. To add to that, here are a few suggestions:

  • Generally, you can eliminate non-essentials such as going out to eat, travel vacations, and technology upgrades. This can be done in the short term until the worst is over, or as a long term savings strategy.
  • Food is often the biggest budget item for families. Cut down by buying in bulk, something that also helps you keep a store in case a quarantine hits your area. Growing a garden or participating in a community garden can also go along way toward food security and is inexpensive to get going.
  • Consider going without web subscriptions such as Prime, YouTube Premium, or Netflix. You know you can go a few months without them, and when things are feeling more financially secure, you can start right back where you left off. The extra money can be stashed away or invested.

Prepare for the unexpected

As we see markets continue to plunge after the FED cut the rate by 50 basis points and promised tons of newly printed money, nobody is certain what to expect. Extra caution now may help your situation in the near future. And it cannot hurt to prepare for your salary to take a hit. As one of the most important personal assets, going without a paycheck for any amount of time due to quarantines can have significant negative effects. Try to prepare for the event of not working for a few weeks as much as you can:: 

  • Have extra groceries (non-perishable) and bulk essentials to prepare for the case of quarantine. 
  • Be ready to stay home and get well if you come down with COVID-19. Buy cough drops and whatever cold and flu remedies you use now, just in case. 
  • Make arrangements to work or study from home
  • Consider taking on some online gig work to supplement your income and give you a lifeboat should things get worse. 

Educate yourself or improve your skills

In a recession, as much as anyone hates to say, you may be out of work. Or during this Coronavirus outbreak, you may be faced with an extended stay at home. Many governments will be assisting their citizens during this time. For instance, Italy will be paying mortgage payments for its citizenry and the US is vowing to increase unemployment benefits.

So this time off may be a perfect time up your skills. You could learn how to something online, like graphic design, or even sign up for a class that will help you position yourself in the work you love to do. MIT, one of the world’s leading technology hubs, offers its complete curriculum online, much of it for free. Harvard also just announced that to help people prepare for the effects of Coronavirus, they will be moving all classes online in March 2020.

Another view of personal assets

In addition to thinking about your personal wealth in terms of money, we can also consider less tangible assets that are not related at all to money. Think of your health, your family and circle of friends, rewarding work, and many other factors that make up a fulfilling life. These are things that are valuable to you and can also be disrupted during times of economic upheaval. On that note, we offer a few tips for protecting these other kinds of personal assets.

Be grateful 

There will always be someone worse off than you, and there are always things to be grateful for. If you’re feeling stressed or worried, take a few moments to think of ten things in life you are grateful for right now. It could be anything, for example, “I’m grateful for…

  • having two legs to stand on.”
  • having the love of my family.”
  • being able to have food on the table.”
  • the blue sky and bright sunshine.”

Practicing gratitude daily helps to cancel out the damaging slew of negative images we are subjected to on social media daily. According to both Forbes and a Harvard study, practicing gratitude can improve your psychological, physical and mental health. It enhances sleep patterns, boosts self esteem, and helps you have more empathy for others.

Help someone

And speaking of empathy, our last tip is to be helpful. Reach out and offer your ear to someone who is stressed, join local volunteers, send a friend in need some money or bitcoin, and be a do-gooder. Because in the deepest and darkest of times, those deeds will help us all find hope

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