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written by reader Many economists predicting crashes.

By newtoinvest, August 14, 2016

I am getting very nervous as many newsletters I am receiving are talking about a huge coming crash. Banks closing, our money no good, food shortages, etc. Has anyone else been reading these, and is there one true source to follow? Last night reading through website re ”Survivng the Final Bubble” and by Charles Hayek appeared credible, also scarey. Any thoughts where to invest income in these times?

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Travis Johnson, Stock Gumshoe

The same predictions have been made consistently every year since the 2008/2009 crash, and were made in the years and decades before that. There is logic in being ready for crashes, or being ready for the US currency to falter over the long term, but there’s not a lot of logic with being overwhelmed with fear over something we cannot control and that is obviously far more complex than the simple and appealing logic of the newsletter ads would have us believe (if it were simple and logical, the economy and the dollar would have crashed in 2011 or 2012 when Porter Stansberry’s “End of America” screed had everyone’s attention — though he, of course, is not the only one who has made similar arguments over the years).

Personally, I focus on my portfolio and what could impact the value of that portfolio, and I keep a larger cash position these days because I’d like to see lower prices before I buy more, and I give my portfolio and my savings some ballast with gold miners and with physical gold and silver in addition to trying to diversify fairly widely across segments of the economy and around the world. Fear is used to sell newsletters, and it won’t do you much good — particularly because they know that “be a bit worried and diversify” won’t get you to buy a $1,000 newsletter, they need to actually make you panic for that.

Someday there will be another nasty crash in the stock market — being prepared for it is reasonable, that means having a plan. What would you do if you woke up and your stocks were all down by 20%? Do you have stop loss orders in effect, do you want to buy as stocks get cheaper, do you want to let it ride because you have other assets that are less volatile? Plans vary widely, because they depend on your risk tolerance and your long-term goals and your financial flexibility, among other things, but you need some sort of a plan so you don’t panic or do exactly what you shouldn’t on a bad day.

Avoiding the market because it will crash someday, or holing up in your garage with some gold coins, ammunition, and freeze-dried food has not been a particularly useful plan over the past 100 years, and over the past five, ten or 20 years, during which all the same logic being applied in those fearmongering newsletter ads has been pretty similarly applicable almost all the time, it would have meant a disastrous opportunity cost as your portfolio would have failed to enjoy the recovery from the financial crisis and the bull market that followed.

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