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Financial collapse?
I'm extremely bearish on the US dollar and stock market and am wondering what other people think about how to prepare financially for the medium term future. I don't there's any other way you can cut it: there's a debt crisis and, worse yet, I don't think the US will be able to convince bond buyers that they're serious enough about the issue to avoid a debt spiral. The fact that gold has cracked 4000 (almost 4200 now, with BofA setting a 5000 target) seems to suggest that central banks are similarly pessimistic about a financial collapse. What do y'all think about where things are likely headed?
The most important thing is to try to avoid panic or being emotional about it. I'm of the "hold index funds for a long time and don't look at them often" camp, Boglehead-ish. If you have a few days, try reading A Simple Path to Wealth, by JL Collins. While there's a chance we could see a 1929-level crash, there are enough market protections in place to prevent that from happening (most likely, nothing is certain). My stuff is at Fidelity and I hold FZROX and FZILX in a 60/40 ratio in my retirement accounts and VTI and VXUS in a 60/40 ratio in my taxable account.
Regardless of what you choose to do, the book is a good read and really helped me understand what was going on with things like bonds, for example. It's also good at providing a roadmap for what to hold and where as you approach retirement and have to deal with required minimum distributions.
Don't panic!
John Bogle (founder of Vanguard)'s Little Book of Common Sense Investing is also a good, short and simple read which makes a similar recommendation.
Tune out the FUD and invest broadly and for the long term.
I saw a couple news reports earlier this year that multiple investors downgraded the US, like meaning that US debt wasn’t as reliable as it once was, making US debt worth less.
Thats my understanding of it, anyway. Is that accurate?
If its accurate, it seems to me that the rest of the world will continue to move away from using us debt as a banking solution, making the US dollar comparatively worth less and less, and its not going to happen in one single panic but over a lifetime of high inflation that increases at such a rate that any us currency you save today for retirement will be worth fractions, even with interest, by the time you need it.
So, should we be putting money into foreign stocks?
Stocks are considered a hedge against inflation much like bonds are considered a hedge against deflation.
The Bogle approach to owning whole market index funds (that are “self-cleansing”) provides weighted ownership of huge multinational corporations. JL Collins argues that is sufficient international exposure. The US Total Market funds at Vanguard are VKSAX or the ETF version, VTI.
You’ll see “VT and Chill” because VT is Vanguard’s Total World Index ETF. It’s basically a combo of VTI and VXUS, which is Total Ex-US Stock Index ETF. It traditionally has underperformed VTI but has done very well this year, in no small part due to the performance of European defense companies and the US not providing as much support to Ukraine.
Anyhow, the global economy is almost infinitely complex and still extremely tightly bound to the US Dollar. While China and other countries might like to divest of US Treasury Bonds, they will harm themselves and the rest of the global economy greatly if they dump them. They know that. So do other countries.
My personal opinion is that the global economy would be healthier without complete USD dominance. It may shift in that direction, so pay attention and rebalance as needed. This is leaps and bounds easier if you’re just rebalancing between VTI and VXUS. It’s like 30 minutes of paying attention once each year or so. Or, “VT and Chill” gets you there.
There are tax advantages to holding VXUS and other Ex-US ETFs and funds, like the foreign earned tax credit. That will help determine whether you want those in a retirement account or taxable brokerage account.
I’m not a financial advisor, so do your own research etc etc.
I'd start here to understand better:
https://en.wikipedia.org/wiki/List_of_countries_by_credit_rating
Of note, the US is still, by far, the largest economy with a rating that high in the S&P list. Obviously in the Fitch list the EU is comparable (20t gdp to 30t gdp) and close, but it's not like the US is just garbage now.
The concern of course is that the downgrade is a sign of losing inertia and the start of a trend so it COULD continue to get worse, and that's possible.
That said, it's just as possible we turn things around or stabilize somewhere near where we are now. Betting that your money is going to be safer in foreign markets is fine, but foreign markets rarely have the uhh...history/fundamentals the US market has had, and still does have AND many foreign markets do not allow outside investment in the same way.
The US market is the way that it is in part because it's so reliable. There's not some other magic 'oh its like the US but not with issues' market. China and India are HUGE economies but with a much worse track record internally AND don't much like straight up foreign investment. Europe itself has had some very volatile history and is much smaller. On some levels that's because they don't want what comes with it, and on some levels its because they just haven't been as good at doing it.
A saying i've heard (roughly) a few times in my life is that "no matter how poorly the US does, they tend to do less poorly than most of the rest of the world". It's FAR from perfect, but it's why these solutions aren't so easy.
Oh and it's worth noting that the biggest holders of the US debt....is the US. It's a complicated subject, but for obvious and non obvious reasons that's unlikely to change.
Best thing I would advice is to decrease debt and lower spending, because that's always a good idea. Live smaller, learn to cook, buy less, keep using what you have for longer, (edit: learn how to) grow food or hunt/fish/forage if you can. I realise that most people rent and there's not much one can do to further decrease rent. Feels bad
un-informed investments muttering
Not advice: just muttering. I recently moved my investments to "more cash less equity" conservative funds, but I'm expecting them to take a beating still. If my investment horizon is less than 15 years i would move them completely to cash only. Also moved them away from US markets, towards ex-china ex-HK Asian Emerging but that's more my beef with USA/China as a Canadian/Hong Konger than investment outlook.Edit: sorry for editing. But I want to say that the US economy isn't going to collapse and become (say) Zimbabwe or reduce to bartering sticks for eggs. There's 400 million people collectively dreaming this dream, and the entire world is heavily tied in to their massive massive finances and military might. The US and the world overall will survive the next panic, just like it has done for 2000 and 2008. I would only really worry if I were heavily leveraged, if I had no savings, or if I were retiring/retired. Otherwise, be frugal without being a miser, and it'll be tough but okay.
As someone with chickens, a hobby garden, and experience hunting big game, none of those things will save you money compared to buying eggs, vegetables and meat from a grocer.
It’s also a lot of time and effort you have to put into it. I remember my father, who grew up in rural Mexico, would constantly say “the end times are coming we need to stock up on chickens and grow our own food.” And I would always ignore this cause it was never possible, also he didn’t actually want to take care of any of that stuff.
You can save a lot of money on fruit and vegetables if you go about it the right way (e.g., don't build raised beds — just grow in the ground like your granny did). It's not a realistic option for many people, however, depending on their climate and soil.
I did a lot of research on this a while back and found that chicken/duck feed ended up costing more than eggs from the store. Foraging breeds can cost less, but none can live on foraging alone.
Our area has hawks, eagles, and coyotes. All of our neighbors have dogs, so we’d also need to rebuild our fence. Given all is that and setup costs, I determined that we can’t even afford to do it right now.
Oh I absolutely agree they are money sinks, the value is more in knowing how to do those things as a hobby and getting to know other people who also know. Ditto bee keeping and beer/wine making.
It’s interesting to note that while you’re right in that the best way to weather the coming storm is to be prudent, there are a number of safeties that may not work during such a storm. This means that theoretically, the best “selfish” way to weather the storm to come, especially if today you have significant debt and you are certain we are headed to collapse, is to increase spending and bankrupt yourself, clear debts, and start fresh.
:) I always thought the repossession people come take your stuff when one declares bankruptcy? I've heard of people going bankrupt and never quite understood how they recover from having nothing + having no credit
Depends on the country, state, situation. There are things that cannot be repossessed. There are also things that are very difficult to sell which you may no longer want or need. Of course if one were to do something like this on purpose they would have to study the optimal way first ;)
Decrease high interest debt, to be specific. Not all debt is a bad thing. In fact, I think an argument can be made that debt is good to have in a high inflation environment.
Yeah I wouldn't get rid of say, mortgage on a reasonable size house just to rent. But consumer credit card debt for sure. And the mortgage on that third investment condo or the twice a year lake front cabin maybe
Well, I don’t think you’re exactly wrong.
On the other I have felt that way since before Covid as have many others. Knowing a crash is coming and knowing when and how is much much harder.
Personally after going back and forth on it I’m mostly focusing on being employed and staying stable. Keeping my savings up as much as I can and trying to get my feet under me long term.
Hedging safely is extremely hard, especially if it’s the level of collapse you’re talking about. Doing stuff like buying gold can just as easily backfire (especially if it’s a historically unique collapse), foreign currency is its own gamble/problem, and specifically the bond market collapse scenario throws out a lot of other options like, well, bonds.
Maybe someone smarter than me has a better idea, but if shit really his the fan I’m not sure what more you can do than be stable and diversified (liquid/savings/simple investments)
I've been bearish on Canadian real estate for 20ish years and I've been wrong for 20ish years. "Markets can stay irrational for longer than you can stay solvent." Even if prices crash to 20% of the current prices (government will 100% NOT allow that to happen) it's still a crazy amount of increase since the 90s. Meanwhile, one still needs a place to live come heck and high waters.
I agree with you: hug a job, don't gamble on number stock/margins/options/meme stock. Best strategy this whole time is still be frugal, be employed, and do whichever buy/rent/live at parents makes more financial/mental health sense.
Yeah I got a place after thinking that after they finally raised rates things would change…. and they didn’t.
My dad brought up that people had felt much the same about the Bay Area(where he lived for some time) and obviously that’s another “never looked back” market.
It’s worth trying to be savvy but at some point that means recognizing you don’t know what’s going on and even if you did probably don’t have the means/leverage to play it.
I don't quite understand all the advice to be frugal and pay down debts. However slim the odds might be, people outside of the prepper community are rationally discussing the potential for a US financial collapse. If that happens, all that money you're saving isn't going to be worth anything. You need to spend that money today on tangible goods that will always have value. You need to rack up your debts, buy all that stuff on a credit card, and overextend. In a hyperinflationary scenario, where today's $100 is worth next week's $20, that means today's $50,000 in credit card debt will be worth $10,000 next week, which will be worth $2,000 the week after, etc.
I'm not saying that's a good idea, but it is something I've been pondering for a few months, and honestly kind of regretting making a big push to pay off credit card debt last year. It's kind of a way to short the economy. If you're right, you acquired a bunch of free stuff to use in the post-money apocalypse. If you're wrong, you're buried in debt for life lol. And just like the stock market, the big players will always beat you.
I think the rationale is. Economy bad means there's more job layoffs, meaning you have a greater risk of losing the income you're relying on and don't know when you'll be able to secure employment again.
This would not be the first time. Plenty of people thought financial collapse was coming in 2000 due to Y2K panic.
There are many many degrees of financial collapse. The kind you're discussing would be more akin to the great depression, and STILL probably be worse by description.
And that's the trick. What qualifies? What will always have value? What keeps long enough and is easy to stockpile. What will people care about should such a serious collapse happens. Further, if kept, what can you actually afford to sell and defend in this nearly apocalyptic collapse, where people WILL be desperate?
I mean this is just how every "timing the market" strategy works. "Just do the thing that would be crazy good if you're right..and just don't be wrong like the millions of others who are". Further you seem to assume debts wouldn't adjust for inflation. It is very possible they could, especially if the debt is ultimately held in a foreign bank/currency.
The odds you will regret paying off that credit card debt are slim to none. Credit card debt is brutal, and trying to be liquid "just in case" is only taking down your total earnings. If the economy gets fucked up so badly, whatever extra cash/assets you would have had from not paying it is going to make basically no difference. The main factor will probably just be if you're lucky enough to be in the right place at the right time to get through it, not if you have $100-100,000 more in assets.
Congrats you've discovered gambling? Probably easier to bet everything on a roulette wheel or a sports bet, and about as likely to end well.
That's not really true about the stock market and that's why the market is, generally, such a common investment. If you think you're some brilliant day trader, yeah, you get wiped out basically every time, since a huge part of even having a chance to succeed is having the liquidity to weather storms, and most don't. If you follow index's and blue chips it's pretty easy to see decent ROI. For example: https://www.macrotrends.net/2526/sp-500-historical-annual-returns
To be clear i'm not trying to be snarky as I suspect it might come off that way. I do think there's a lot of people who feel the way you do, but there's a lot more to all of this on just about every side of the issue.
It's not about expecting collapse when cash is completely useless (won't happen); it's about training to be happier with a little less (always beneficial).
As a bit of a tangent: I don't know about you but most of my liquidity isn't cash. It's numbers on a digital bank account.
Why does it matter? Because in an unprecedented economic collapse it'll be a lot easier for, say, a morally and financially bankrupt government to take a look at how much people have in there and find a way to take it.
I find it very hard to gauge what form my assets should be in if I want the best protection against a crisis, because I assume whatever the crisis, if one takes place, it will be very different from anything that humanity has faced before.
Gold is indeed tricky, since you can't do a fundamental analysis on gold like you can a stock or even a bond. So, there's no way to extrapolate the "meaning" of a given price level of gold and assess whether that's rational or not. I bought some gold about a year ago, which has turned out well, but I'm hesitant to keep buying more. There's also a strange dynamic where, if people start viewing gold as the safe investment instead of treasuries, then the dollar is even more likely to crash. Maybe simply bracing for impact (reducing debt, holding assets with immediate utility, avoiding unnecessary expenditure if you're not at least upper-middle class) is the best strategy? Perhaps dividend stocks are worth buying, since PE ratios tend to be lower and there's less weird market psychology/irrationality fueled by stock buybacks?
I feel like we’ve seen constant waves of “the economy is about to crash” pretty steadily since 2016 after Trump was first elected. Even during Biden’s presidency. We actually even entered a recession in 2022. Did you feel it?
I’m not going to say we’re not about to see a crash happen. But I’ve always seen “experts” predict it and it never coming to fruition. Obviously you should save money when you can, just normally try to build up some cash reserves in case things go south for you. But this isn’t something you have to keep worrying about.
Back in March we were gloomy about tariffs and I recall that there was someone on Tildes who sold all their stock. Since then the S&P 500 is up 12%. So I hope they changed their mind?
Market timing is very hard. The market is up enough that maybe taking some money off the table makes sense, particularly if it helps you sleep better at night or you might need it in the next five years.
But also, maybe consider that you probably won’t time it correctly.
You have to be very very careful with logic like this in both directions.
Yes they missed out on 12% gains assuming they did nothing else with that money.
However are the avoiding potentially losing further down? Lets say a crash finally happens tomorrow, and it's 30ish %. So you lose the 12% you gained and you lose an additional 15+% than if you'd pulled out during the tariffs.
You are EXTREMELY unlikely to time the market even to the year of an event. People had been worried about 08 for 5+ years. Those who pulled out a 3 years before, likely, were better off than those who rode into 08.
Except...that depends on if you needed to pull out during 08. If you could continue to let it ride, and didn't have to pull out your funds, then it wasn't really a problem because yes, you recovered.
This is the key thing to all stock investment which is also knowing your time frame. If aforementioned posted pulled the money out, but otherwise was planning on leaving it there for another 15 years, yeah it's probably foolish. Any economic activity that makes pulling out for 15 years a good move, likely changes the game so much you have bigger problems, just leave it alone as you're unlikely to beat the market.
However if they say have some large purchase to make or are going into retirement or have another area to reinvest in, then pulling out before it goes up 12%, but possibly avoiding a future crash, is more than fine.
So in short, you have to be very very careful with the "oh look at what I missed" logic (yeah..fomo) because it works both ways. They might have buyers remorse right now, but if in the next 2 years shit hits the fan you have to ask yourself, "if i let it ride past the tariffs, would i have let it ride into the ground".
Each collapse in 2001 and 2008 started with a bubble popping and lead to interest rates dropping, bailouts and loans into the hundreds of billions, and rampant inflation. The cause of 2020 collapse was different but the result was the same.
Magnificent 7, AI companies, chipmakers, and the US gov itself are now in a biweekly circle jerk of multibillion dollar investments among themselves to keep the stock chart lines going up. How long can that keep going? At some point, to paraphrase Sam Altman, "someone will lose a phenomenal amount of money." Cue the bubble popping, bailouts, interest rate cuts, and more inflation.
There will probably be a correction, but the real fear is being mostly in cash during a time of rampant inflation. It's not that prices are going up - it's that purchasing power is going down.
I'm not necessarily expecting a full-on collapse, but I'm pretty bearish, too. I got very nervous about the economic outlook in February, so I sold off my US-based investments then (I'm a US citizen, but I don't live in the US and don't have the mindset that the US is the only market). I reinvested them in non-US ETFs, weighted somewhat toward European defense because I think (fear, more like) that this particular industry is going to see more action and development over the next few years.
I had a lot of savings in both US dollars and Australian dollars, and I was worried that either or both currencies might undergo excess inflation, so I also invested a big chunk of my savings in a gold ETF. It's nice that gold has risen in value, I guess — but to me, this investment is just a hedge; any extra money I make off the top is a bonus. I do not intend to sell those shares until I'm far more confident in the world economy than I am now, which will be well after gold peaks in value.
There will be dips, especially if there's a sudden economic shock, but I don't think we are near gold's peak yet (however, take my opinion with a grain of salt; I'm not an economist). If I had to gamble, I'd say we're still a few years away from the world economy stabilizing enough that people/institutions/governments are broadly unconcerned about currency devaluation and start moving away from gold again. (Anecdotally, I live in a region that had a gold rush in the 1850s/1860s, and a lot of gold mining companies are starting to spin up here again. This seems pretty bullish on gold's value over the next several years.)
Apart from that, I invested in areas that would help me save money in the near-term future (some bulk purchases, looming home/car repairs, thorough medical and dental checkups, etc.). Ever since, I've been focusing on keeping my savings high and my expenses low so that I can coast a good, long while if I lose my job.
I'm still just as pessimistic about the economy today as I was in February, but I am personally feeling a lot better now — way more prepared for what may come.
What are safer investments if this came to pass? Gold for sure, Are bonds safer than cash? What about other currencies, or are all those currencies valuations linked together? What about crypto, ugh?
Ammo. When a Democrat gets elected to fix this mess, everyone will panic about gun control passing and you can sell what you bought for twice the price per round!
That's really creative, I hadn't heard about the ammo shortages, it's hard to wrap my head around that. It makes it sound like a shady industry with conspiracy theories fueling prices, lol
While conspiracies about made their way around the gun world during that time, it was just the same sort of panic buying you saw with TP during Covid, mixed with most plants not increasing their output (due to a combination of union agreements and the expense of adding new production lines).