bull and bear

The Five-Point Plan to Be Successful in Any Market

Making money in bull and bear markets

In 2002, I predicted in my book Rich Dad’s Prophecy, that the biggest stock market crash in U.S. history would happen sometime around 2016. I also predicted that there would be a smaller crash before that, sometime around 2007 and that terrorism would increase. While I don’t know whether my prediction of the biggest crash in U.S. history will come true in 2016, the other two predictions have already happened. I hope the big crash doesn’t occur because if it does, a lot of good people will lose a lot of money.

But I do know that markets do crash. I also know that even Fed Chair Janet Yellen thinks that the stock market is overvalued today.

Markets also go up. The key is to be prepared for any market, whether up or down.

Unfortunately, most people are not prepared. Most people put money in a 401(k) and send out a hope and a prayer. This kind of thinking will put you in the poor house.

Last week on The Rich Dad Radio Show, I talked with Matthew Kerkhoff of Dow Theory Letters and Rich Dad Advisor Andy Tanner about how to make money in any market, especially if your primary investments are in a 401(k).

The following are five insights drawn from that discussion.

1. Know your position

The sad reality is that most people don’t even know what their retirement money is invested in. The money gets pulled out of a check, goes to a magical place called a managed investment account, and is moved around by a wizard called a financial manager.

The first step to success in any market is obvious enough, but too often ignored. Know what your money is invested in!

2. Know how you’ll perform

Once you understand what your money is invested in, you need to understand how those investments will perform in a given market. For instance, if interest rates are hiked substantially, as the Fed seems to be prepping for, there’s a good chance that stocks and bonds will fall—and these make up most investors’ retirement accounts.

Therefore, in such a market, it may be time to invest in real estate before interest rates go higher.

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3. Get educated

This means that you can’t just take advice about the market, you have to educate yourself so you can see what’s coming and have time to prepare.

If you don’t plan on investing in financial education, then by all means, keep your money in your 401(k) and let it sit there. It’s safer than moving money without the knowledge of how or why. But if you want to be prepared to make money in any market, you need to understand how to make that money work for you.

A great place to start is by reading Dow Theory Letters, Andy Tanner’s Blog, and the Rich Dad Blog.

4. Slowly pare back your risk

With the proper education, you can see better where the markets are going, how your current asset mix will perform in the coming markets, and how much risk you have. This allows you to make the proper adjustments to minimize your risk and take positions that will perform well whether the market is going up or down. And it leads us to the final point.

5. Buy in pairs

Professional investors always buy in pairs. One position is for growth, and the other is for protection. So for instance, if you’re heavily invested in the stock market and paper assets, you want to take an insurance stake in precious metals or commodities. If you buy real estate, you want to also buy insurance for that real estate. The list can go on and on. This of course takes financial education, but the investment is worth it.

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Original publish date: June 02, 2015

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