Blog | Paper Assets, Personal Finance

Get Your Financial Crisis Action Plan Ready

The world is on the verge of a true economic crisis. You can’t avoid it... but you can get ready for it with a financial crisis plan.

This is one of those unique posts that is very timely with what is going on in the world. I wrote this after Kim and I hosted a ZOOM call with Andy Tanner, my stock advisor, and our partners at Rich Dad World. If you want to watch the actual call which goes into a lot more detail about our financial crisis plans than this blog you can click here to watch the whole thing for free.

For brevity, I am writing this in my words, but understand that I am paraphrasing what my advisors have taught Kim and me.

 

Old School Money

Go to school, get a job, work hard, save money, buy a house, get out of debt and invest in a long term and a well-diversified portfolio of stocks, bonds, mutual funds and ETFs is the only plan for a financial crisis you get from so-called experts. The problem is, anyone following that advice is now toast because this whole thing is going down like the Hindenburg.

In 1999, I wrote Rich Dad’s Prophecy because I wanted to prepare people for the massive financial crisis headed our way. I wanted to warn people and teach them how to prepare for and profit from it. Unfortunately, I predicted the biggest crash would come in 2016 but I missed it by four years. It came in March 2020. And I don’t think the economy is coming back. I think the world has been changed forever.

The prophecy is finally coming true. And the reason it took till 2020 not 2016 is because back in 1999, I did not foresee the desperation of Wall Street, the US government and the Federal Reserve Bank. I had no idea they might create quantitative easing, which basically violated the rules of the economy of the Federal Reserve Bank.

The printing of trillions of dollars in the last few months means that savers are losers. Why would you save money when governments are printing money? Saving money is losing money because the dollar is beginning to lose its purchasing power (i.e. value) drastically.

We are definitely going into a massive recession, possibly a depression, and quite possibly an economic collapse. That's how dangerous things are today.

If you’re reading this blog it means you are preparing yourself and gain a solid foundation to survive this financial crisis. I'm going to give you an overview of what real financial education is, not that FAKE stuff they feature from Wall Street.

Investing long term in the stock market is a suicide mission, especially after March of 2020 because the biggest crash did come and it's still crashing. It’s still getting bigger. The real crash — the one you probably heard nothing about — started actually in September 2019. That is when the shadow banking system crashed.

The Death of the Shadow Banking System

So what is the shadow banking system? Basically it’s a hidden system where banks loan other banks money for very short periods of time, like 24 to 48 hours, so their books can look good. It’s a buddy system where the interest rates and loans are very inexpensive and cheap.

But the shadow banking system crashed in September of 2019 and suddenly the biggest banks in the world like Deutsche Bank, the hedge funds and all those huge financial institutions ran out of money. There was not enough money in the world to cover, or hide, their debt and so the shadow bank loans soared from super cheap interest rates to 10%! A huge and sudden inflation.

What that means is that the markets had no confidence in our banks or financial institutions. The banks and financial institutions didn’t have faith or trust in their fellow banks and institutions. When I saw that, I knew our economy was coming down, I just didn’t know the exact date.

To make it even more crazy, at the same time that the banks were raising the interest rates on the biggest banks financial institutions, the interest rates for the consumer and the public market were dropping.

So the big banks are raising interest on their fellow banks, because they didn’t trust them, but at the same time they were giving the peasants outside of the system, you and me, cheap rates to buy investments and stocks. This drove the stock market to all-time highs.

So if you remember, in December of 2019, just five months ago, the stock market was at an all-time high, and the unemployment was at record low 3%, but everybody who was a professional investor knew it was all about to come crashing down.

Now everyone else, the common people who never received any financial education, took those cheap interest rates and jumped into the stock market. Basically, the professional investors got out and all the suckers rushed into the market.

Then suddenly… the Coronavirus panic hit, right when the Fed and all the powerful bankers knew the internal banking system was collapsing. They needed a scapegoat, an excuse. Enter Coronavirus.

So the masses now think the real crisis is a Coronavirus crisis. I think it’s a smokescreen, a diversion from the financial crisis we’re in the midddle of. I’m not trying to be controversial or even a conspiracist. But, I think it is very possible the virus is a smokescreen for the real collapse. The question is, how far is this collapse going to go? I don’t think the crash is over. I think it’s just starting

I suspect that this crash will be the biggest in Earth’s history. We are on the edge of depression right now. And the last depression, which started in 1929, lasted 25 years. So if this depression is much larger than the Great Depression, how long do you think it will last? Does the old advice of investing for the long term still make any sense?

Real Estate Crisis Management Action Plan

We need to accept that we have entered a brave new world. I know this is scary. My job is to disturb you, because nothing is worse than somebody being comfortable in a crash. And I think we’re at the beginning of a major financial collapse.

I know a lot of you are interested in real estate. Just a few days ago, Kenny McElroy, who’s our Rich Dad Advisor on real estate and my investment partner, walked me through his thoughts. We had a long talk about what is going on today. So I just want to share some of his insights and what we’re doing today when it comes to real estate.

Currently Kim and I own roughly 7,000 apartment units. When the crisis hit, we were worried about the ability for our tenants to simply pay the rent. Many of our renters are out of work, struggling and scared. It’s a terrible time for many of them. In April, our rents overall were down only 7%. 7% of the people did not pay rent. In May it decreased to 23%. So there’s a lot of unknown. What’s going to come in June, July, August, September?

In real estate investing there are two principles that we have followed from day one and are still applicable today.

Real Estate Investing Principle #1

One of the key principles we’ve always followed is that employment drives real estate. With so many people out of work, and Ken McElroy predicting 50% of small businesses within shopping malls will be out of business, we have to start thinking about different locations.

For example, take Orlando, Florida. Disney World is shut down. Thousands of jobs are gone. Las Vegas, same thing. It's a ghost town. Look at Houston. Oil prices just dropped. That’s a problem as they are going to have even higher unemployment than the rest of the nation.

Airbnb and VRBO vacation rental by owner are gone. If you need to travel, that’s very difficult. So where is the opportunity in real estate today? What is the bright side, if there is a bright side? Where is the opportunity?

Employment drives real estate. So we need to keep a very close eye on new employment sectors as they evolve and are created in this new world.

To watch this discussion and get more details, click here.

Real Estate Investing Principle #2

To recap, principle number one is that employment drives real estate. If you can find a place that is crisis proof in regards to their jobs and employment then you need to investigate that area’s real estate opportunities. You take your investment dollars and you go where people are working. If people are moving, then you better move too.

The second the principal is do not go after the high end properties.

We do not invest in high-end properties because when a crash happens, when a correction happens, the first people that are going to downsize are those in the high-end units and high-end houses. These high-end renters are now going to move into what we call the “B class” properties, middle of the road properties. People will be forced to downsize but these people still have to have a place to live.

When talking with Ken, who also runs our property management, we understand how good this strategy works in these times. Where many landlords are concerned about their tenants paying rent, and worse yet abandoning their apartment, we are in a very good situation. Following this principle has saved us from losing very few renters.

Now, there is more to it than just buying correctly, however. You, as a landlord, are partners with your tenants. You must see them as humans, and during this time, a lot of humans are in need. So we have taken action to show our tenants that we are there for them and to help them through this time.

For example, Ken and his team have been very, very smart. They are giving hundred dollar vouchers each month to help our tenants. We are also working on payment plans to keep people in their homes even if they are out of work. We made the decision to not evict anyone. We want people to get through this and we’re helping them get through it with payment plans, vouchers and similar ideas.

Those two principles still apply today, but we have never gone through a financial crisis like this before. So we still don’t know how it's going to turn out.

If you want to know more about principles one or two, go here to listen to the full conversation raw and uncensored.

Supply and Demand Issues with AirBnB and VRBO

Another thing we are about to see during our financial crisis is the increase in real estate supply.

Airbnb and the VRBO vacation rentals there are going to struggle and possibly go out of business. So, pretty soon, there’s going to be in flux of inventory. And that means there is going to be a great opportunity if you know what you’re doing.

But, if you don’t have the financial education first, then please do not part with your hard earned money by putting it into something because you just read this ‘hot tip’ or it sounded like a good idea. Get your financial education first. Remember what rich dad taught us, a bad investor can ruin even the best deal and a good investor can turn around even the worst deal.

Start very, very, very small because you’re going to make mistakes. Even with all of the success we’ve had, we still make mistakes with everything we do. So, start small, this is the time to start preparing for when those opportunities come up.

Financial crisis plan: business opportunities

Businesses that we see doing well are those around camping. Also, the “do-it- yourself” businesses like Home Depot and Lowes. A lot of digital businesses are also being born to teach people how to do things for themselves.

Regional warehouses. Everybody wants speedy delivery. So regional warehousers are looking for properties to warehouse their goods and services.

The point is, we are in a unique place where we have no idea where we’re going. But the best thing we can do is pay attention to what’s happening. Look for the opportunity and how you can invest in it. There’s always an opportunity starting your own business.

Use this window of time wisely

It’s also important to note that this is not a race. This crash could last for decades. Don’t rush into an investment without getting educated first. The most important thing at this time is getting financially educated and learning new things. This is a time to start studying with your families, studying independently, and playing the CASHFLOW, the board game with your family or online.

It has been so encouraging and rewarding to see people use this time to learn and study and grow themselves. It’s been amazing, and if you are reading this blog, then that includes you.

Financial crisis plan: stock market opportunities

The question everyone is asking right now is, “What should I do?”

Markets go up and markets go down. Unfortunately, if a person is on autopilot, if they still have a job that throws money into a 401k, then they will soon find they have lost control. They have no control over whether their 401(k) goes up, or it goes down. It’s like being in a poker game.

When you’re at a poker game, there’s often people who show their hand. And I will tell you, when you look at March and the resulting carnage from this crash the market really showed it’s hand. It really showed what it feels about the values of the stocks inside it. And it was not flattering.

The only thing that stopped matters from getting worse was the Federal Reserve pouring in trillions and trillions of dollars into the market.

And so, when you try to figure out what is coming in the future, you have really two choices. You can either have a mindset of a victim, of a helpless worker ant, and say, “tell me what to do,” or you can say, “No, I want a mindset of control. A context of education.”

Right now, everyone is asking me what to buy. Do I buy gold? More real estate? Which stocks should I buy? People will ask me, “What are you buying?” Well, I wouldn't recommend my mother do what I do because my mom doesn’t know what I know and it’s far too complex to explain in 20 minutes.

They should be asking me, “What should I study?” What you have to do is to invest in your level of education.

There will be a post coronavirus world starting now. I’m not an expert on that stuff. I really don’t care. It will come. It will go, whatever it is.

Conspiracy or not. What I do know is that there are 30 million people that don’t have a job. What I do know is Neiman Marcus isn’t going to make it. What I do know is JC Penney can’t pay their bills. And what I do know is about 40% of small businesses are not going to make it.

There’s no reason for the stock market to be as high as it is right now with those types of numbers and those types of problems. So when the market came down really hard in March, I feel like the market showed its hand, that the only thing that’s propping this up is the Federal Reserve.

It is going to be a very interesting journey in the post-coronavirus world to see what lengths the Fed will do to try and keep the stock market going. How much money will they print? I don’t think we’ve seen the end of the money printing.

To hear Andy’s thoughts about the stock market and the post Corona world you can click here to listen and watch the actual call.

We are going to find out what is going to happen in the post-coronavirus world. So, my recommendation isn't to buy stocks or to buy bitcoins, or gold or any of that. My recommendation is for you to realize that now is the time for you to get as smart as you possibly can.

We are in the Information Age. But right now, I feel we are living in the MIS-information age and it’s a great opportunity to get smarter. When I see something on Facebook or something in the news, I now have to train myself to say, “Well, do I believe that or not.” I’m very skeptical about everybody. And what everybody says. What do I really know about and what do I not know about?

So, in a world where people can say just about anything, it’s your financial education that’s going to see you through. I think it’s the best investment that I have.

So that’s really the question, “What do I do now?” Do I go the ‘advice route’ or do I go the education route? That choice is up to you.

You can spend your time watching Netflix until you’ve watched all those movies or maybe you read a book about investing or real estate or stocks or taxes. Maybe you could take an online course, or get an investment coach. That is what I would say in the post-coronavirus world, the people with the education will be the ones that survive and thrive.

And who knows what’s real and what’s fake? A lot of people are acting on opinions that are not facts. You need to get the education. You need to discover the facts for yourself, otherwise you're going to be operating on opinion and you're going to be setting yourself up to be the victim of the next ‘hot tip’.

I'm anti-ignorance. The whole concept of the 401(k) makes me crazy because it sells the notion that all I have to do is go to work, get a job, and put money in here. I can stay ignorant about money.

But, at the same time, investing your own money, without education is probably even more dangerous. If you don’t know about stocks, is it smart to invest in stocks? No! If you don’t know about real estate, is it smart to invest in real estate? No! If you know nothing about business is it smart to invest in business? No!

That’s why I love the CASHFLOW game. The CASHFLOW game is a simulation. If you want a first step, that’s where I would start. In this world of MIS-information and FAKE teachers, the CASHFLOW board game does not have an agenda. It does not have an opinion about the Coronavirus. It just teaches you investing in many different ways.

If we are right, then being prepared is more important than predicting right now. And what I would say to those guys who tell you to buy now and hold is, “Good luck to you.”

Let me explain.

After the 1929 crash, the market stayed flat for 25 years. 25 years! So if you're 70 years old and you hold for the long haul, you’ll be 95 years old before you see anything. Does that sound like a solid financial plan to you?

Choose your teachers wisely when making your financial crisis plan

I’ll tell the story of going to Sunday school. I was about seven years old and my Sunday school teacher asked me why were the three wise men considered wise? I didn’t know. All the kids were guessing, while the one had frankincense, one had myrrh, and one gold. They were not wise because they were rich, they were wise, she said, because they sought the best teacher.

That is what wise people do, they seek the best teachers. I don’t trust most financial planners. They are not teachers. I’m sure they’re good guys, but they are sales people. They are just trying to put food on the table. They are not rich. Should you take advice from them?

Learning from real teachers is easier today than ever. It is a new world in terms of how people are delivering information via Zoom. I've never done so many Zoom calls and Zoom webinars in my life.

So just think about that. It’s a brave new world. But if you keep doing what your mommy and daddy did you’ll probably suffer hard times.

One thing I hear all the time is, “I wish I had a rich dad when I was growing up.” And while I am grateful for everything I learned from rich dad, he did not make it easy. My rich dad was my coach. He wasn’t my teacher, because when I came back from Vietnam he said, if you want to learn about real investing and using debt, you have to learn about real estate. So I asked him, “Will you teach me?” and he replied by saying, “I don’t teach. I’m an investor. Go take a real estate course.”

So, in 1974, I saw an infomercial on learning how to invest in real estate with nothing down. And since I had nothing, I figured this was perfect for me. So I took this nothing down real estate course. And a few months later I bought my first property for nothing down that changed my life.

If you can buy something for nothing. You really tap into the power of that space between your left ear and your right ear called the brain. Now, Andy can invest with nothing. Kim can invest with nothing. Ken can invest from nothing. I can invest with nothing. That is the real power of financial education.

That’s important because, as you are reading this, did you say to yourself, “I’ll invest when I have money.”

But life happens. Emergencies happen. You never have money.

Having no money was the best thing that happened to Kim and I. It forced us to get very, very creative and plan for when we found the investment, how to get the money to buy the investment. That was the real financial education.

Taking a leap of faith like that sounds scary. I bet your thoughts just overran your mind. That is why most people need a coach. I did. Having a coach, a real teacher helps a lot.

Your best assets are your brain, your guts and your heart. Listen and watch the actual call uncut and uncensored here.