Blog | Paper Assets

How to Bounce Back from a Market Crash

Financial opportunities abound if you know where to look

the online game that increases your financial iq - play now

It’s hard to escape the financial impact of the current coronavirus pandemic: the many stock market crashes over the last few weeks, unemployment rates have skyrocketed, and entire industries (like travel and restaurants) have been decimated amidst “stay at home” orders across the country. The financial bubble we’ve all been living in has definitely burst. Did you prepare for the worst?

A lot of people are facing a crisis right now. If you're one of those people, ask yourself: Will this market crash make you stronger, or weaker? Will you rise to the challenge, and use your creativity and persistence to overcome this immense hardship? Or will you complain, play the blame game, and let the situation get the best of you?

There's a wonderful quote by Albert Einstein that says:

“Let’s not pretend that things will change if we keep doing the same things. A crisis can be a real blessing to any person, to any nation. For all crises bring progress. Creativity is born from anguish, just like the day is born from the dark night. It’s in crisis that inventiveness is born, as well as discoveries made and big strategies. He who overcomes crisis, overcomes himself, without getting overcome. He who blames his failure to a crisis neglects his own talent and is more interested in problems than in solutions. Incompetence is the true crisis. The greatest inconvenience of people and nations is the laziness with which they attempt to find the solutions to their problems."

What role did you play?

Take an honest look at your current financial situation and ask yourself, "How and why did this happen?" The purpose of analyzing what led you to this point is to be objective and learn as much as you can — not necessarily to place blame. Recognize how your own thoughts and actions led you here (as much as the actions of others).

Yes, at first glance your financial struggles appear to be the fault of coronavirus. And that may be why you lost your job or why your 401k has tanked. But what’s the real underlying issue here?

It’s probably that you weren’t financially prepared for any disruption to your finances, let alone this monumental stock market crash. You may have thought you were in a “good enough” position just prior to this pandemic because you had a job and were able to pay all your bills — but, at the end of the day, your income was solely dependent on someone else providing paychecks to you. In reality, at any time you could have lost your job and ended up in a similar situation: unemployed and unable to pay your bills. It’s just that it’s worse now because jobs are even harder to come by and, well, we can’t really even leave our houses right now. How would things be different if you had positioned yourself in a way that would make you immune to a global pandemic’s far-reaching economic effects?

Once you recognize how you got here, next ask yourself, "How can I prevent this from ever happening to me again?" In other words, “How can I prepare for the worst now so that it doesn’t effect me so intensely next time?” The great thing about acknowledging your own contributions to the problem is that you then have the power to come up with a solution and prevent a similar crisis in the future.

Here's a link to a video where Robert and I talk about the adversity we went through when we were broke, homeless, and saddled with bad debt — and what we learned from that time of crisis in our lives.

How to prepare for the next economic collapse

We’ve all heard plenty about the uncertain economy, and though speculation on the future of the economy is running rampant everywhere, no one can predict with certainty what will happen next.

But despite the doom and gloom, those of us “in the know” realize that now can be the best time to pick up good investments at a great price. Of course, that doesn’t mean you should run right out and start buying stocks. The first step before you purchase an investment — whether it’s stocks, real estate or commodities, like gold and silver — should be to arm yourself with some education.

Here are a few things you can do today to increase your financial education:

  1. Read business articles. Pick up a publication like The Wall Street Journal, Fortune, The Economist, or any other magazine that focuses on financial and business topics. Even reading the business section of your local newspaper will increase your knowledge.

  2. Learn the lingo. When you come across vocabulary/jargon that you’re unfamiliar with, look it up. Simply learning the language of investing can speed up your learning a lot.

  3. Window shop. You can look at investments and analyze deals even if you are not ready to buy. You will learn a lot from this process. For example, you can participate in a fantasy stock program where you can “invest” in the stock market with pretend money and watch how well your investment does. You can research real estate on the Internet. You can visit precious metal dealers to learn how the business works and how to be a smart shopper.

There is no shortage of information in our world today, so take advantage of that. Once you’re armed yourself with some financial education, start with a small investment. You’ll still make some mistakes as you learn along the way (which is why starting small is always a wise choice), but down the road you’ll look back and realize this truly was the best of times to invest.

Recession-proof real estate investing

In the months leading up to the coronavirus pandemic, experts were already speculating about the next real estate bubble. Let’s take a gander at recent history: First, there was the 1980’s savings and loan crisis. Then, in 1987, the stock market crashed and the Dow Jones index lost 23% of its value. The next major event was the dotcom bubble and subsequent crash from 1999 to 2000. And the most recent event was the global financial crisis in 2007-08, which was triggered by the subprime mortgage crisis and collapse of the U.S. housing bubble. I’m missing a few smaller ones in between, but those are the true highlights (or lowlights, really).

Since history shows that markets are cyclical, we all suspected that a stock market crash would hit sooner or later. And here it is, right on schedule! But here’s the thing: Robert and I were never worried about it. In fact, we love market crashes. Why?

First, I’d like to suggest you familiarize yourself with the seven stages of a financial bubble, which will help set the stage for what I’m about to discuss. As you can see, booms, busts, and bubbles are very familiar and natural cycles in our economy.

Ok, now here’s the answer you’ve been waiting for: Market crashes can be the best time to buy, because people are so panicked and focused on selling that they’re far more likely to make you a better deal. Robert and I witnessed this first-hand in 1991, when we moved to Phoenix, Ariz., and began buying up properties left and right. Amateur investors wanted out of their financial commitments so badly, that they were actually calling us and offering to pay us to take their properties off their hands. We happily agreed and definitely got the last laugh: We made so much money during this period of time, that we were able to retire by 1994.

Don’t listen to the haters

Although a crash is my favorite time to buy, the market’s immense pessimism also makes it a tough time to do so. Your family and friends, possibly even your financial advisor, will think you’re absolutely crazy and try to prevent you from “making a big mistake.” I remember when we bought gold at $275 an ounce in the late 1990s. The so-called experts were eschewing gold in favor of high-tech and dot-com stocks back then. But we knew we were getting an incredible value. Today, with gold above $1,700 an ounce, I’d say we certainly made the right call. Thankfully we trusted our instincts and followed the strategy that has worked for us time and time again.

People will also be lined up warning that “investing is risky.” However, the important detail to note is that not everyone defines “investing” the same way. Many amateur investors bought into the real estate market when it was hot, prices were soaring, and they invested on the hope that home values would keep going up and up. They probably had plans to flip the property and make a quick $50k. Investing for the purpose of capital gains instead of cash flow is the very definition of risky — and not the type of recession-proof real estate investing I’m talking about.

Experienced investors, like Robert and I, understand the fundamentals of real estate investing. Investing doesn’t have to be a gamble. Good cash-flow investments are based on having a solid financial education. Knowing and following the fundamentals takes much of the risk out of investing. Sure, there’s always some element of risk, but by sticking to sound investment strategies and planning for ways to cover the downside, the risk can be greatly reduced.

I wish you the best of luck as you work to overcome the current economic crisis. Knowing that you can not only be more prepared the next time you’re faced with a stock market crash (because it will happen again!), but maybe even use this economic downturn to your advantage, should provide ample peace of mind and give you an important goal to work toward — prepare for the worst now and reap the financial rewards later.

Original publish date: July 23, 2009

Recent Posts

Three Investment Values
Personal Finance

The Rich Dad Guide to Investing Values: Defining Your Path to Financial Success

It’s important to know which core values are most important to you, especially when it comes to the subject of money and financial planning.

Read the full post
Risky vs. Safe Investments
Paper Assets

Smart Investing: Understanding the Difference Between Risky and Safe Options

What you may think is a “safe” investment, I may see as risky. For example, many financial planners advise their clients to get into so-called “safe” investments — such as savings plans, mutual funds and 401(k)s.

Read the full post
Mastering Money
Paper Assets, Personal Finance

Mastering Money: The Key to Achieving Financial Freedom

Begin the path to making money work for you today, not the other way around.

Read the full post