Value Investing Strategies. PART 1

Value Investing.

By ADAM HAYES.

What Is Value Investing?
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors actively ferret out stocks they think the stock market is underestimating. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond to a company's long-term fundamentals. The overreaction offers an opportunity to profit by buying stocks at discounted prices—on sale.


Warren Buffett is probably the best-known value investor today, but there are many others, including Benjamin Graham (Buffet's professor and mentor), David Dodd, Charlie Munger, Christopher Browne (another Graham student), and billionaire hedge-fund manager, Seth Klarman.


KEY TAKEAWAYS.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Value investors actively ferret out stocks they think the stock market is underestimating.
Value investors use financial analysis, don't follow the herd, and are long-term investors of quality companies.
How Value Investing Works
The basic concept behind every-day value investing is straightforward: If you know the true value of something, you can save a lot of money when you buy it on sale. Most folks would agree that whether you buy a new TV on sale, or at full price, you’re getting the same TV with the same screen size and picture quality.


Stocks work in a similar manner, meaning the company’s stock price can change even when the company’s value or valuation has remained the same. Stocks, like TVs, go through periods of higher and lower demand leading to price fluctuations—but that doesn't change what you’re getting for your money.

Just like savvy shoppers would argue that it makes no sense to pay full price for a TV since TVs go on sale several times a year, savvy value investors believe stocks work the same way. Of course, unlike TVs, stocks won't go on sale at predictable times of the year such as Black Friday, and their sale prices won’t be advertised.

Value investing is the process of doing detective work to find these secret sales on stocks and buying them at a discount compared to how the market values them. In return for buying and holding these value stocks for the long-term, investors can be rewarded handsomely.


 Value investing developed from a concept by Columbia Business School professors Benjamin Graham and David Dodd in 1934 and was popularized in Graham's 1949 book, The Intelligent Investor.
Intrinsic Value and Value Investing
In the stock market, the equivalent of a stock being cheap or discounted is when its shares are undervalued. Value investors hope to profit from shares they perceive to be deeply discounted.


Investors use various metrics to attempt to find the valuation or intrinsic value of a stock. Intrinsic value is a combination of using financial analysis such as studying a company's financial performance, revenue, earnings, cash flow, and profit as well as fundamental factors, including the company's brand, business model, target market, and competitive advantage. Some metrics used to value a company's stock include:

Price-to-book (P/B) or book value or, which measures the value of a company's assets and compares them to the stock price. If the price is lower than the value of the assets, the stock is undervalued, assuming the company is not in financial hardship.

Price-to-earnings (P/E), which shows the company's track record for earnings to determine if the stock price is not reflecting all of the earnings or undervalued.

Free cash flow, which is the cash generated from a company's revenue or operations after the costs of expenditures have been subtracted. Free cash flow is the cash remaining after expenses have been paid, including operating expenses and large purchases called capital expenditures, which is the purchase of assets like equipment or upgrading a manufacturing plant. If a company is generating free cash flow, it'll have money left over to invest in the future of the business, pay off debt, pay dividends or rewards to shareholders, and issue share buybacks.

Of course, there are many other metrics used in the analysis, including analyzing debt, equity, sales, and revenue growth. After reviewing these metrics, the value investor can decide to purchase shares if the comparative value—the stock's current price vis-a-vis its company's intrinsic worth—is attractive enough.

Margin of Safety.
Value investors require some room for error in their estimation of value, and they often set their own "margin of safety," based on their particular risk tolerance. The margin of safety principle, one of the keys to successful value investing, is based on the premise that buying stocks at bargain prices gives you a better chance at earning a profit later when you sell them. The margin of safety also makes you less likely to lose money if the stock doesn’t perform as you had expected.

Value investors use the same sort of reasoning. If a stock is worth $100 and you buy it for $66, you’ll make a profit of $34 simply by waiting for the stock’s price to rise to the $100 true value. On top of that, the company might grow and become more valuable, giving you a chance to make even more money. If the stock’s price rises to $110, you’ll make $44 since you bought the stock on sale. If you had purchased it at its full price of $100, you would only make a $10 profit. Benjamin Graham, the father of value investing, only bought stocks when they were priced at two-thirds or less of their intrinsic value. This was the margin of safety he felt was necessary to earn the best returns while minimizing investment downside.

Markets are not Efficient.
Value investors don’t believe in the efficient-market hypothesis, which says that stock prices already take all information about a company into account, so their price always reflects their value. Instead, value investors believe that stocks may be over- or underpriced for a variety of reasons.

For example, a stock might be underpriced because the economy is performing poorly and investors are panicking and selling (as was the case during the Great Recession). Or a stock might be overpriced because investors have gotten too excited about an unproven new technology (as was the case of the dot-com bubble). Psychological biases can push a stock price up or down based on news, such as disappointing or unexpected earnings announcements, product recalls, or litigation. Stocks may also be undervalued because they trade under the radar, meaning they're inadequately covered by analysts and the media.

Don't Follow the Herd.
Value investors possess many characteristics of contrarians —they don’t follow the herd. Not only do they reject the efficient-market hypothesis, but when everyone else is buying, they’re often selling or standing back. When everyone else is selling, they’re buying or holding. Value investors don’t buy trendy stocks (because they’re typically overpriced). Instead, they invest in companies that aren’t household names if the financials check out. They also take a second look at stocks that are household names when those stocks’ prices have plummeted, believing such companies can recover from setbacks if their fundamentals remain strong and their products and services still have quality.

Value investors only care about a stock’s intrinsic value. They think about buying a stock for what it actually is: a percentage of ownership in a company. They want to own companies that they know have sound principles and sound financials, regardless of what everyone else is saying or doing.

Value Investing Requires Diligence & Patience.
Estimating the true intrinsic value of a stock involves some financial analysis but also involves a fair amount of subjectivity—meaning at times, it can be more of an art than a science. Two different investors can analyze the exact same valuation data on a company and arrive at different decisions.

Some investors, who look only at existing financials, don't put much faith in estimating future growth. Other value investors focus primarily on a company's future growth potential and estimated cash flows. And some do both: Noted value investment gurus Warren Buffett and Peter Lynch, who ran Fidelity Investment's Magellan Fund for several years are both known for analyzing financial statements and looking at valuation multiples, in order to identify cases where the market has mispriced stocks.

Despite different approaches, the underlying logic of value investing is to purchase assets for less than they are currently worth, hold them for the long-term, and profit when they return to the intrinsic value or above. It doesn't provide instant gratification. You can’t expect to buy a stock for $50 on Tuesday and sell it for $100 on Thursday. Instead, you may have to wait years before your stock investments pay off, and you will occasionally lose money. The good news is that, for most investors, long-term capital gains are taxed at a lower rate than short-term investment gains.

Like all investment strategies, you must have the patience and diligence to stick with your investment philosophy. Some stocks you might want to buy because the fundamentals are sound, but you’ll have to wait if it’s overpriced. You’ll want to buy the stock that is most attractively priced at that moment, and if no stocks meet your criteria, you'll have to sit and wait and let your cash sit idle until an opportunity arises.

One-Third.
Value investing guru Benjamin Graham argued that an undervalued stock is priced at least a third below its intrinsic value.

Why Stocks Become Undervalued.
If you don’t believe in the efficient market hypothesis, you can identify reasons why stocks might be trading below their intrinsic value. Here are a few factors that can drag a stock’s price down and make it undervalued.

Market Moves and Herd Mentality.
Sometimes people invest irrationally based on psychological biases rather than market fundamentals. When a specific stock’s price is rising or when the overall market is rising, they buy. They see that if they had invested 12 weeks ago, they could have earned 15% by now, and they develop a fear of missing out. Conversely, when a stock’s price is falling or when the overall market is declining, loss aversion compels people to sell their stocks. So instead of keeping their losses on paper and waiting for the market to change directions, they accept a certain loss by selling. Such investor behavior is so widespread that it affects the prices of individual stocks, exacerbating both upward and downward market movements creating excessive moves.

Market Crashes.
When the market reaches an unbelievable high, it usually results in a bubble. But because the levels are unsustainable, investors end up panicking, leading to a massive selloff. This results in a market crash. That's what happened in the early 2000s with the dotcom bubble, when the values of tech stocks shot up beyond what the companies were worth. We saw the same thing happened when the housing bubble burst and the market crashed in the mid-2000s.

Unnoticed and Unglamorous Stocks.
Look beyond what you're hearing in the news. You may find really great investment opportunities in undervalued stocks that may not be on people's radars like small caps or even foreign stocks. Most investors want in on the next big thing such as a technology startup instead of a boring, established consumer durables manufacturer. For example, stocks like Facebook, Apple, and Google are more likely to be affected by herd-mentality investing than conglomerates like Proctor & Gamble or Johnson & Johnson.

Bad News.
Even good companies face setbacks, such as litigation and recalls. However, just because a company experiences one negative event doesn’t mean that the company isn’t still fundamentally valuable or that its stock won’t bounce back. In other cases, there may be a segment or division that puts a dent in a company's profitability. But that can change if the company decides to dispose of or close that arm of the business.

Analysts do not have a great track record for predicting the future, and yet investors often panic and sell when a company announces earnings that are lower than analysts’ expectations. But value investors who can see beyond the downgrades and negative news can buy stock at deeper discounts because they are able to recognize a company's long-term value.

Cyclicality​.
Cyclicality is defined as the fluctuations that affect a business. Companies are not immune to ups and downs in the economic cycle, whether that's seasonality and the time of year, or consumer attitudes and moods. All of this can affect profit levels and the price of a company's stock, but it doesn't affect the company's value in the long term.

July 25, 2020

how to protect your finances against market crashes

How to Protect Your Finances Against Market Crashes.

Economic expansions don't last forever, and eventually, the country will enter another recession. When it does, you need to protect your investments so that you can weather the storm. Assess how exposed you are to stocks and decide whether to diversify your portfolio with safer investments. Also clean up your balance sheet by reducing your debts, which will allow you to survive the recession that accompanies a stock market crash.

Method 1 Changing Your Investments.

1. Check your current investment allocation. You might have no idea what your retirement fund is currently invested in. If not, log into your account and print out the current allocation of investments, which should include the following:

stocks or stock mutual funds, bonds,real estate,money market accounts.

2. Identify why you fear a market crash. The economy goes up and down with some regularity, and when the market crashes stocks suddenly become cheaper to buy. For this reason, you might not want to diversify your portfolio. Instead, you can leave your investments as they are.

However, you might want to reduce your exposure to risk if you are nearing your retirement age or have just entered retirement. A major stock market crash could seriously cut the amount of money you have to live on.

Your tolerance for risk might also have changed. If so, then you can diversify your portfolio so that you are comfortable with your investment mix.

It’s impossible to predict exactly when the next recession will hit, so you shouldn’t move money in and out of the stock market hoping to get out just before things turn south. For example, it looked like the U.S. stock market was about to crash in late 2015. Since then, the Dow Jones Industrial Average has increased more than 20%.

3. Consider holding money in a savings account. The easiest way to protect your investments is to get out of stocks and move the money to savings accounts. Consider the following options:

High-yield online savings accounts. These accounts will only earn about 1-2% annually, but this amount is higher than most banks offer. Your cash is liquid, so you can access it if needed. Furthermore, your deposit will be protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 USD.

Money market accounts. These accounts are like bank accounts but with potentially higher returns. You can write checks against the money market account. Open with your bank or with a company like Scottrade or TD Ameritrade.

Certificates of Deposit. Banks and credit unions sell "CDs," which you can buy for a set sum. You are prohibited from accessing the money until the CD matures, but you will earn interest on the investment.

4. Invest in bonds. Bonds are debt. Companies, as well as governments, issue bonds to raise money, and bonds are a safer investment than stock. Consider putting more of your investment into bonds, such as the following:

Municipal bonds. State and local governments issue bonds to raise money, and in return the bonds are exempted from income taxes. You can typically earn 3% annually on bonds. They are a low-risk investment, unless the city government is on the verge of bankruptcy.

U.S. savings bonds. These bonds are very safe. With a Series I bond, you get a fixed interest rate, and your return is linked to inflation. With the Series EE bond, you earn an automatic rate of return each month.

Treasury Inflation Protected Securities (TIPS). The U.S. government offers a fixed interest rate as well as inflation protection that’s triggered every time inflation increases.

Image titled Protect Your Finances Against Market Crashes Step 5

5. Consider annuities. An annuity is a contract with an insurer or financial services company. You make a lump sum payment, and in return you are provided with a fixed sum of money for a specific amount of time. There are several varieties of annuities, which can protect your investments in case of a market crash. For example, fixed-indexed annuities can protect your principal.

Annuities are safer than stocks, but they do have some risks. For example, the company you bought the annuity from could go bankrupt. In that situation, you will no longer be paid. You can protect yourself by doing thorough research and only buying an annuity from a company with the highest rating.

The value of an annuity can also erode with inflation, though you can buy annuities that will protect against inflation.

6. Find safer stocks. Not all companies are the same, and some are safer investments in a down economy than others. For example, you might want to get rid of low-grade stock, such as companies with a lot of debt or businesses in speculative fields like biotech that have not yet produced strong profits. In a market crash, the value of these companies will decline.

Instead, look to high-quality stocks which tend to hold up better. These companies have stable earnings and low debt.

Also consider stocks that pay dividends. Check if you can invest in a dividend exchange-traded fund.

7. Change your contributions. If you’re not yet in retirement, you should consider changing the allocation of your retirement contributions for the last few years before you stop working. Direct your contributions toward safer investments, such as those discussed above.

Changing your contributions will not change the allocation of investments already in your portfolio, so consider diversifying it.

8. Diversify your portfolio. When the market is good, riskier investments such as stocks perform well. But when the market crashes, you can expect stocks to perform poorly. Accordingly, you might want to diversity your portfolio and move some money out of stocks.

How much to move is up to you. However, you don’t have to get out of stocks entirely. Instead, you could reduce stocks to 30% of your portfolio, and have the other 70% in bonds or another safe investment. In a market crash, your losses will remain in the single digits, and you can move back into stocks after the market improves.

If you don’t know what to do, meet with a financial planner who can help you assess your risk tolerance and come up with a plan suited to your needs.

Method 2 Reducing Your Debt.

1. Identify all of your debts. In a market crash, you’ll need as much cash as possible to pay for living expenses. Accordingly, you want to decrease your debt load as much as possible now. Begin by identifying every debt you have, including any of the following:

student loan debt, credit card debt, home mortgage,car loan,personal loans.

2. Prioritize your debts. You need to make the minimum monthly payments on all debts. However, you should direct extra money to the debts you want to pay off the most. Accordingly, sit down and prioritize your debts.

For example, if you lose your job, then you can often delay payments on student loans, using either forbearance or deferment. Accordingly, you might not want to pay down your student loans first but instead focus on credit cards, which probably have a higher interest rate.

However, some debts are tied to an asset. For example, you can lose your car or home if you don’t make payment. Paying these debts off early could be a wise choice.

3. Create a budget. To free up money to contribute to debt payments, you’ll need to budget. Identify the following:

Your fixed expenses. These are bills that don’t change much month to month. Generally, fixed expenses are also for necessities, such as your rent or mortgage, health insurance premiums, car payments, and other debts.

Your discretionary spending. You can track your discretionary spending over the course of one or two months. Write down what you buy every day and note the price. Alternately, you can buy everything with a debit or credit card and then look at your monthly statement.

Reduce discretionary spending. You need your income to exceed your discretionary spending. To free up as much money as possible, reduce discretionary spending to the bare minimum by giving up gym memberships and cable TV. You can also cut out vacations, entertainment expenses, and meals in restaurants.

4. Refinance your mortgage. Mortgage rates are still low. If you have a high APR, then consider refinancing into a loan with a lower one. Avoid spending the money that you save and instead funnel it toward debt repayment.

To investigate a mortgage refinance, contact your current lender to check what rate they can offer you. Then compare their rates to others on the market.

5. Tackle credit card debt. You want a stable balance sheet when the market crashes, so you should reduce your debts as much as possible. In particular, you should pay down high-interest credit card debt. Identify a method of repayment so that you can wipe out these debts as soon as possible:

Debt avalanche. You pay the minimum monthly payment on all credit cards. Then you contribute extra money to the debt with the highest interest rate. Once you pay off that card, focus on the debt with the second highest interest rate.

Debt snowball. Another method is to pay the minimum on your monthly debts but then use extra to pay off the card with the smallest balance first. The debt snowball method is more expensive than the debt avalanche, but it can give you momentum.

Debt snowflake. This method is ideal for people who can’t budget extra money to pay down debt. Instead, you try to save a little bit of money every day and make multiple monthly payments to slowly chip away at your debt.

Method 3 Preparing for Emergencies.

1. Build an emergency fund. You’ll need money in case you lose your job or if any kind of emergency springs up. Generally, you should save at least six months of expenses. If possible, save up to twelve months of expenses.

Put money toward your emergency fund every month, even if that means you pay off debts more slowly.

If you are a retiree, then you should try to have two years of expenses saved. When the market declines, you should live off your savings instead of drawing income from your investments.

2. Buy insurance. Insurance protects you from any unforeseen accidents that will hammer you financially. In an economic downturn, you’ll need all the money you can get, and insurance will provided valuable protection in case an accident strikes. Consider the following types of insurance:

Health insurance. If your employer doesn’t offer it, you can buy it on the government exchanges. Depending on your income, you might quality for a premium subsidy and/or help with out-of-pocket expenses.

Automobile insurance. Your insurance will pay if you injure someone in an accident. Depending on the insurance, you might also be covered if someone without coverage injures you.

Disability insurance. If you are disabled before you reach retirement, you’ll need income to support you. Your employer probably offers disability insurance. If not, you can shop on your own.

Life Insurance. You can replace the income of a working spouse with a life insurance policy. Life insurance is particularly important if you have young children. Calculate how much life insurance you need at lifehappens.org.

Homeowner’s insurance. Your homeowner’s policy covers injuries that occur on your property, as well as any structural damage caused by natural disasters and other accidents.

3. Assess the stability of your job. In a market crash, many jobs will be wiped out as employers are forced to lay off workers. You need to assess whether your job is stable enough to survive a recession, or whether you should plan on getting a different job.

Look at how many people your employer laid off during the last recession. Were only a few let go? If so, your job might be secure. However, if your employer engaged in mass layoffs, then there’s no reason to assume it won’t happen again.

You can also pick up some freelance or part-time work now. That way, if the market crashes, you’ll still have some income coming in.

Tips.

Consult with a personal financial counselor to help plan, protect, and control how your finances and money in the future.

January 18, 2020

How to Protect Your Finances Against Market Crashes

How to Protect Your Finances Against Market Crashes.

Economic expansions don't last forever, and eventually, the country will enter another recession. When it does, you need to protect your investments so that you can weather the storm. Assess how exposed you are to stocks and decide whether to diversify your portfolio with safer investments. Also clean up your balance sheet by reducing your debts, which will allow you to survive the recession that accompanies a stock market crash.

Method 1 Changing Your Investments.

1. Check your current investment allocation. You might have no idea what your retirement fund is currently invested in. If not, log into your account and print out the current allocation of investments, which should include the following:

stocks or stock mutual funds, bonds,real estate,money market accounts.

2. Identify why you fear a market crash. The economy goes up and down with some regularity, and when the market crashes stocks suddenly become cheaper to buy. For this reason, you might not want to diversify your portfolio. Instead, you can leave your investments as they are.

However, you might want to reduce your exposure to risk if you are nearing your retirement age or have just entered retirement. A major stock market crash could seriously cut the amount of money you have to live on.

Your tolerance for risk might also have changed. If so, then you can diversify your portfolio so that you are comfortable with your investment mix.

It’s impossible to predict exactly when the next recession will hit, so you shouldn’t move money in and out of the stock market hoping to get out just before things turn south. For example, it looked like the U.S. stock market was about to crash in late 2015. Since then, the Dow Jones Industrial Average has increased more than 20%.

3. Consider holding money in a savings account. The easiest way to protect your investments is to get out of stocks and move the money to savings accounts. Consider the following options:

High-yield online savings accounts. These accounts will only earn about 1-2% annually, but this amount is higher than most banks offer. Your cash is liquid, so you can access it if needed. Furthermore, your deposit will be protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 USD.

Money market accounts. These accounts are like bank accounts but with potentially higher returns. You can write checks against the money market account. Open with your bank or with a company like Scottrade or TD Ameritrade.

Certificates of Deposit. Banks and credit unions sell "CDs," which you can buy for a set sum. You are prohibited from accessing the money until the CD matures, but you will earn interest on the investment.

4. Invest in bonds. Bonds are debt. Companies, as well as governments, issue bonds to raise money, and bonds are a safer investment than stock. Consider putting more of your investment into bonds, such as the following:

Municipal bonds. State and local governments issue bonds to raise money, and in return the bonds are exempted from income taxes. You can typically earn 3% annually on bonds. They are a low-risk investment, unless the city government is on the verge of bankruptcy.

U.S. savings bonds. These bonds are very safe. With a Series I bond, you get a fixed interest rate, and your return is linked to inflation. With the Series EE bond, you earn an automatic rate of return each month.

Treasury Inflation Protected Securities (TIPS). The U.S. government offers a fixed interest rate as well as inflation protection that’s triggered every time inflation increases.

Image titled Protect Your Finances Against Market Crashes Step 5

5. Consider annuities. An annuity is a contract with an insurer or financial services company. You make a lump sum payment, and in return you are provided with a fixed sum of money for a specific amount of time. There are several varieties of annuities, which can protect your investments in case of a market crash. For example, fixed-indexed annuities can protect your principal.

Annuities are safer than stocks, but they do have some risks. For example, the company you bought the annuity from could go bankrupt. In that situation, you will no longer be paid. You can protect yourself by doing thorough research and only buying an annuity from a company with the highest rating.

The value of an annuity can also erode with inflation, though you can buy annuities that will protect against inflation.

6. Find safer stocks. Not all companies are the same, and some are safer investments in a down economy than others. For example, you might want to get rid of low-grade stock, such as companies with a lot of debt or businesses in speculative fields like biotech that have not yet produced strong profits. In a market crash, the value of these companies will decline.

Instead, look to high-quality stocks which tend to hold up better. These companies have stable earnings and low debt.

Also consider stocks that pay dividends. Check if you can invest in a dividend exchange-traded fund.

7. Change your contributions. If you’re not yet in retirement, you should consider changing the allocation of your retirement contributions for the last few years before you stop working. Direct your contributions toward safer investments, such as those discussed above.

Changing your contributions will not change the allocation of investments already in your portfolio, so consider diversifying it.

8. Diversify your portfolio. When the market is good, riskier investments such as stocks perform well. But when the market crashes, you can expect stocks to perform poorly. Accordingly, you might want to diversity your portfolio and move some money out of stocks.

How much to move is up to you. However, you don’t have to get out of stocks entirely. Instead, you could reduce stocks to 30% of your portfolio, and have the other 70% in bonds or another safe investment. In a market crash, your losses will remain in the single digits, and you can move back into stocks after the market improves.

If you don’t know what to do, meet with a financial planner who can help you assess your risk tolerance and come up with a plan suited to your needs.

Method 2 Reducing Your Debt.

1. Identify all of your debts. In a market crash, you’ll need as much cash as possible to pay for living expenses. Accordingly, you want to decrease your debt load as much as possible now. Begin by identifying every debt you have, including any of the following:

student loan debt, credit card debt, home mortgage,car loan,personal loans.

2. Prioritize your debts. You need to make the minimum monthly payments on all debts. However, you should direct extra money to the debts you want to pay off the most. Accordingly, sit down and prioritize your debts.

For example, if you lose your job, then you can often delay payments on student loans, using either forbearance or deferment. Accordingly, you might not want to pay down your student loans first but instead focus on credit cards, which probably have a higher interest rate.

However, some debts are tied to an asset. For example, you can lose your car or home if you don’t make payment. Paying these debts off early could be a wise choice.

3. Create a budget. To free up money to contribute to debt payments, you’ll need to budget. Identify the following:

Your fixed expenses. These are bills that don’t change much month to month. Generally, fixed expenses are also for necessities, such as your rent or mortgage, health insurance premiums, car payments, and other debts.

Your discretionary spending. You can track your discretionary spending over the course of one or two months. Write down what you buy every day and note the price. Alternately, you can buy everything with a debit or credit card and then look at your monthly statement.

Reduce discretionary spending. You need your income to exceed your discretionary spending. To free up as much money as possible, reduce discretionary spending to the bare minimum by giving up gym memberships and cable TV. You can also cut out vacations, entertainment expenses, and meals in restaurants.

4. Refinance your mortgage. Mortgage rates are still low. If you have a high APR, then consider refinancing into a loan with a lower one. Avoid spending the money that you save and instead funnel it toward debt repayment.

To investigate a mortgage refinance, contact your current lender to check what rate they can offer you. Then compare their rates to others on the market.

5. Tackle credit card debt. You want a stable balance sheet when the market crashes, so you should reduce your debts as much as possible. In particular, you should pay down high-interest credit card debt. Identify a method of repayment so that you can wipe out these debts as soon as possible:

Debt avalanche. You pay the minimum monthly payment on all credit cards. Then you contribute extra money to the debt with the highest interest rate. Once you pay off that card, focus on the debt with the second highest interest rate.

Debt snowball. Another method is to pay the minimum on your monthly debts but then use extra to pay off the card with the smallest balance first. The debt snowball method is more expensive than the debt avalanche, but it can give you momentum.

Debt snowflake. This method is ideal for people who can’t budget extra money to pay down debt. Instead, you try to save a little bit of money every day and make multiple monthly payments to slowly chip away at your debt.

Method 3 Preparing for Emergencies.

1. Build an emergency fund. You’ll need money in case you lose your job or if any kind of emergency springs up. Generally, you should save at least six months of expenses. If possible, save up to twelve months of expenses.

Put money toward your emergency fund every month, even if that means you pay off debts more slowly.

If you are a retiree, then you should try to have two years of expenses saved. When the market declines, you should live off your savings instead of drawing income from your investments.

2. Buy insurance. Insurance protects you from any unforeseen accidents that will hammer you financially. In an economic downturn, you’ll need all the money you can get, and insurance will provided valuable protection in case an accident strikes. Consider the following types of insurance:

Health insurance. If your employer doesn’t offer it, you can buy it on the government exchanges. Depending on your income, you might quality for a premium subsidy and/or help with out-of-pocket expenses.

Automobile insurance. Your insurance will pay if you injure someone in an accident. Depending on the insurance, you might also be covered if someone without coverage injures you.

Disability insurance. If you are disabled before you reach retirement, you’ll need income to support you. Your employer probably offers disability insurance. If not, you can shop on your own.

Life Insurance. You can replace the income of a working spouse with a life insurance policy. Life insurance is particularly important if you have young children. Calculate how much life insurance you need at lifehappens.org.

Homeowner’s insurance. Your homeowner’s policy covers injuries that occur on your property, as well as any structural damage caused by natural disasters and other accidents.

3. Assess the stability of your job. In a market crash, many jobs will be wiped out as employers are forced to lay off workers. You need to assess whether your job is stable enough to survive a recession, or whether you should plan on getting a different job.

Look at how many people your employer laid off during the last recession. Were only a few let go? If so, your job might be secure. However, if your employer engaged in mass layoffs, then there’s no reason to assume it won’t happen again.

You can also pick up some freelance or part-time work now. That way, if the market crashes, you’ll still have some income coming in.

Tips.

Consult with a personal financial counselor to help plan, protect, and control how your finances and money in the future.

January 18, 2020

How did Warren Buffett get started in business?

How did Warren Buffett get started in business?

By BRENT RADCLIFFE.
Warren Buffett may have been born with business in his blood. He purchased his first stock when he was 11 years old and worked in his family’s grocery store in Omaha.
His father, Howard Buffett, owned a small brokerage, and Warren would spend his days watching what investors were doing and listening to what they said. As a teenager, he took odd jobs, from washing cars to delivering newspapers, using his savings to purchase several pinball machines that he placed in local businesses.

His entrepreneurial successes as a youth did not immediately translate into a desire to attend college. His father pressed him to continue his education, with Buffett reluctantly agreeing to attend the University of Pennsylvania. He then transferred to the University of Nebraska, where he graduated with a degree in business in three years.

After being rejected by the Harvard Business School, he enrolled in graduate studies at Columbia Business School. While there, he studied under Benjamin Graham – who became a lifelong friend – and David Dodd, both well-known securities analysts. It was through Graham's class in securities analysis that Buffett learned the fundamentals of value investing. He once stated in an interview that Graham's book, The Intelligent Investor, had changed his life and set him on the path of professional analysis to the investment markets. Along with Security Analysis, co-written by Graham and Dodd it provided him the proper intellectual framework and a road map for investing.

Benjamin Graham and The Intelligent Investor.
Graham is often called the "Dean of Wall Street" and the father of value investing, as one of the most important early proponents of financial security analysis. He championed the idea that the investor should look at the market as though it were an actual entity and potential business partner – Graham called this entity "Mr. Market" – that sometimes asks for too much or too little money to be bought out.

It would be difficult to summarize all of Graham's theories in full. At its core, value investing is about identifying stocks that have been undervalued by the majority of stock market participants. He believed that stock prices were frequently wrong due to irrational and excessive price fluctuations (both upside and downside). Intelligent investors, said Graham, need to be firm in their principles and not follow the crowd.
Graham wrote The Intelligent Investor in 1949 as a guide for the common investor. The book championed the idea of buying low-risk securities in a highly diversified, mathematical way. Graham favored fundamental analysis, capitalizing on the difference between a stock's purchase price and its intrinsic value.

Entering the Investment Field.
Before working for Benjamin Graham, Warren had been an investment salesman – a job that he liked doing, except when the stocks he suggested dropped in value and lost money for his clients. To minimize the potential of having irate clients, Warren started a partnership with his close friends and family. The partnership had unique restrictions attached to it. Warren himself would invest only $100 and, through re-invested management fees, would grow his stake in the partnership. Warren would take half of the partnership’s gains over 4% and would repay the partnership a quarter of any loss incurred. Furthermore, money could only be added or withdrawn from the partnership on December 31st, and partners would have no input about the investments in the partnership.

By 1959, Warren had opened a total of seven partnerships and had a 9.5% stake in more than a million dollars of partnership assets. Three years later by the time he was 30, Warren was a millionaire and merged all of his partnerships into a single entity.
It was at this point that Buffett’s sights turned to directly investing in businesses. He made a $1 million investment in a windmill manufacturing company, and the next year in a bottling company. Buffett used the value-investing techniques he learned in school, as well as his knack for understanding the general business environment, to find bargains on the stock market.

Buying Berkshire Hathaway.
In 1962, Warren saw an opportunity to invest in a New England textile company called Berkshire Hathaway and bought some of its stock. Warren began to aggressively buy shares after a dispute with its management convinced him that the company needed a change in leadership..  Ironically, the purchase of Berkshire Hathaway is one of Warren’s major regrets.
Understanding the beauty of owning insurance companies – clients pay premiums today to possibly receive payments decades later – Warren used Berkshire Hathaway as a holding company to buy National Indemnity Company (the first of many insurance companies he would buy) and used its substantial cash flow to finance further acquisitions.

As a value investor, Warren is a sort of jack-of-all-trades when it comes to industry knowledge. Berkshire Hathaway is a great example. Buffett saw a company that was cheap and bought it, regardless of the fact that he wasn’t an expert in textile manufacturing. Gradually, Buffett shifted Berkshire’s focus away from its traditional endeavors, instead using it as a holding company to invest in other businesses. Over the decades, Warren has bought, held and sold companies in a variety of different industries.

Some of Berkshire Hathaway’s most well-known subsidiaries include, but are not limited to, GEICO (yes, that little Gecko belongs to Warren Buffett), Dairy Queen, NetJets, Benjamin Moore & Co., and Fruit of the Loom.  Again, these are only a handful of companies of which Berkshire Hathaway has a majority share.
The company also has interests in many other companies, including American Express Co. (AXP), Costco Wholesale Corp. (COST), DirectTV (DTV), General Electric Co. (GE), General Motors Co. (GM), Coca-Cola Co. (KO), International Business Machines Corp. (IBM), Wal-Mart Stores Inc. (WMT), Proctor & Gamble Co. (PG) and Wells Fargo & Co. (WFC).

Berkshire Woes and Rewards.
Business for Buffett hasn’t always been rosy, though. In 1975, Buffett and his business partner, Charlie Munger, were investigated by the Securities and Exchange Commission (SEC) for fraud. The two maintained that they had done nothing wrong and that the purchase of Wesco Financial Corporation only looked suspicious because of their complex system of businesses.
Further trouble came with a large investment in Salomon Inc. In 1991, news broke of a trader breaking Treasury bidding rules on multiple occasions, and only through intense negotiations with the Treasury did Buffett manage to stave off a ban on buying Treasury notes and subsequent bankruptcy for the firm.
In more recent years, Buffett has acted as a financier and facilitator of major transactions. During the Great Recession, Warren invested and lent money to companies that were facing financial disaster. Roughly 10 years later, the effects of these transactions are surfacing and they’re enormous.

A loan to Mars Inc. resulted in a $680 million profit.
Wells Fargo & Co. (WFC), of which Berkshire Hathaway bought almost 120 million shares during the Great Recession, is up more than 7 times from its 2009.
American Express Co. (AXP) is up about five times since Warren’s investment in 200813
Bank of America Corp. (BAC) pays $300 million a year and Berkshire Hathaway has the option to buy additional shares at around $7 each – less than half of what it trades at today.
Goldman Sachs Group Inc. (GS) paid out $500 million in dividends a year and a $500 million redemption bonus when they repurchased the shares.

Most recently, Warren has partnered up with 3G Capital to merge J.H. Heinz Company and Kraft Foods to create the Kraft Heinz Food Company (KHC). The new company is the third largest food and beverage company in North America and fifth largest in the world, and boasts annual revenues of $28 billion. In 2017, he bought up a significant stake in Pilot Travel Centers, the owners of the Pilot Flying J chain of truck stops. He will become a majority owner over a six-year period.
Modesty and quiet living meant that it took Forbes some time to notice Warren and add him to the list of richest Americans, but when they finally did in 1985, he was already a billionaire. Early investors in Berkshire Hathaway could have bought in as low as $275 a share and by 2014 the stock price had reached $200,000, and was trading just under $300,000 earlier this year.

Comparing Buffett to Graham.
Buffett has referred to himself as "85% Graham." Like his mentor, he has focused on company fundamentals and a "stay the course" approach – an approach that enabled both men to build huge personal nest eggs. Seeking a seeks a strong return on investment (ROI), Buffett typically looks for stocks that are valued accurately and offer robust returns for investors.
However, Buffett invests using a more qualitative and concentrated approach than Graham did. Graham preferred to find undervalued, average companies and diversify his holdings among them; Buffett favors quality businesses that already have reasonable valuations (though their stock should still be worth something more) and the ability for large growth.

Other differences lie in how to set intrinsic value, when to take a chance and how deeply to dive into a company that has potential. Graham relied on quantitative methods to a far greater extent than Buffett, who spends his time actually visiting companies, talking with management and understanding the corporate's particular business model. As a result, Graham was more able to and more comfortable investing in lots of smaller companies than Buffett. Consider a baseball analogy: Graham was concerned about swinging at good pitches and getting on base; Buffett prefers to wait for pitches that allow him to score a home run. Many have credited Buffett with having a natural gift for timing that cannot be replicated, whereas Graham's method is friendlier to the average investor.

Buffett Fun Facts.
Buffett only began making large-scale charitable donations at age 75.
Buffett has made some interesting observations about income taxes. Specifically, he's questioned why his effective capital gains tax rate of around 20% is a lower income tax rate than that of his secretary – or for that matter, than that paid by most middle-class hourly or salaried workers. As one of the two or three richest men in the world, having long ago established a mass of wealth that virtually no amount of future taxation can seriously dent, Mr. Buffett offers his opinion from a state of relative financial security that is pretty much without parallel. Even if, for example, every future dollar Warren Buffett earns is taxed at the rate of 99%, it is doubtful that it would affect his standard of living.

Buffett has described The Intelligent Investor as the best book on investing that he has ever read, with Security Analysis a close second. Other favorite reading matter includes:
Common Stocks and Uncommon Profits by Philip A. Fisher, which advises potential investors to not only examine a company's financial statements but to evaluate its management. Fisher focuses on investing in innovative companies, and Buffett has long held him in high regard.
The Outsiders by William N. Thorndike profiles eight CEOs and their blueprints for success. Among the profiled is Thomas Murphy, friend to Warren Buffett and director for Berkshire Hathaway. Buffett has praised Murphy, calling him "overall the best business manager I've ever met."
Stress Test by former Secretary of the Treasury, Timothy F. Geithner, chronicles the financial crisis of 2008-9 from a gritty, first-person perspective. Buffett has called it a must-read for managers, a textbook for how to stay level under unimaginable pressure.
Business Adventures: Twelve Classic Tales from the World of Wall Street by John Brooks is a collection of articles published in The New Yorker in the 1960s. Each tackles famous failures in the business world, depicting them as cautionary tales. Buffett lent his copy of it to Bill Gates, who reportedly has yet to return it.

The Bottom Line.
Warren Buffett’s investments haven't always been successful, but they were well-thought-out and followed value principles. By keeping an eye out for new opportunities and sticking to a consistent strategy, Buffett and the textile company he acquired long ago are considered by many to be one of the most successful investing stories of all time. But you don't have to be a genius "to invest successfully over a lifetime," the man himself claims. "What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."

August 04, 2020

How to Prepare for Economic Collapse

How to Prepare for Economic Collapse.

An economic collapse means a breakdown of the national economy. It would be characterized by a long-term downturn in economic activity, increased poverty and a disruption of the social order, including protests, riots and possibly violence. In some cases, this collapse would be akin to a deep recession, with society still functioning basically as normal (just with more poverty). However, it could be much worse. You should prepare for the worst, but adjust your actions to the actual severity of the collapse. You can prepare for an economic collapse by preparing financially, stocking up on the essentials, and monitoring the economic indicators.

Method 1 Preparing Your Finances.
1. Start an emergency fund. If you are living paycheck to paycheck and you lose your job during an economic collapse, you are at risk for losing your home and living in poverty. It won’t be easy to find another job and replace your income. Your goal should be to save up enough to cover six months of expenses in your emergency fund.
If you are trying to get out of debt, save up an emergency fund of $1,000 and then apply all of your extra income to your debt. Once your debt is paid off, you can divert more money into your emergency fund.
Keep your emergency fund separate from your checking account so that you are not tempted to use the money. Put it in a low-risk, interest-bearing account such as a savings account, money market account or certificate of deposit (CD).
On the other hand, a complete economic collapse would leave you unable to access your bank account, because of the crash of the financial system. Additionally, your money may become useless or extremely devalued. Consider stocking other commodities that you could barter with in an economic collapse, like alcohol, precious metals (gold and silver), and fuel.
2. Have cash on hand. Depending on where you have it, money in your emergency fund might be hard to liquidate. Bonds, for example, must be sold, and other investments like CD’s might charge fees for early withdrawal. Also, if you have a savings account with an online bank instead of a brick-and-mortar institution, it might take several days to withdraw your money. It’s important to have cash that you can access easily, either from a savings account or a cash box in your home. This can tide you over in an emergency until you can access money in your emergency fund.
3. Generate an additional source of income. Start a home business as a second source of income. If you lose your job because of an economic collapse, it might be difficult or even impossible to find another job. Having an alternative source of income can help you to keep your home and avoid poverty. Choose your business idea based on skills that you have and things that you enjoy doing. In addition, think about how likely it will be that people will require these services in an economic collapse; people may need basic necessities like clean water or food more than they need an interior decorator.
Provide services to people in their homes, such as house cleaning, home organization, meal preparation, or interior decorating.
Sell goods you produce, such as baked goods, custom clothing or jewelry.
4. Get out of debt. In a financial collapse, many people are going to lose their jobs and their homes. To prepare for this possibility, you should make a plan to get out of debt as quickly as possible. This way, if you do lose your job, you don’t have to worry about finding a way to pay these bills. The worst kind of debt to have is credit card debt. Because of the high interest rates that many people have, carrying a balance on a credit card can cost you a great deal of money.
Create a budget in order to track your income and expenses. Make a plan to have a surplus of money left over at the end of the month to apply towards your debt. This means reducing your expenses and possibly finding additional work to supplement your income.
Organize your debt so you can make a plan to pay it off. You can choose from a few different methods for planning how to pay off your debt. Whichever method you choose, it is important to stick with it.
One method is to order your debts from smallest to biggest, regardless of the interest rate, and pay off the smallest debts first. This helps you build momentum.
Another method is laddering, which means paying off the debt with the highest interest rates first. This makes the most sense mathematically because it reduces the amount of interest expense you pay in the long-term.
That said, in a true economic collapse, your creditors would likely have other things to worry about than just finding you and recovering your debts. Additionally, currency may be greatly devalued or completely useless, meaning that the amount stated on your debt balance would be equally depressed or meaningless.

Method 2 Storing the Essentials.
1. Store emergency water. In the event of an economic collapse, it is possible that your power and water supply might be interrupted, or that you will not be able to pay for these things. You will need a supply of clean water for drinking, cooking and hygiene. You can purchase bottles of water or store water in your own containers. If you run out of water, you can take steps to sanitize contaminated water.
Store at least one gallon of water per person for a minimum of three days or for up to two weeks. Don’t forget to include pets in this equation.
If you are storing water in your own containers, wash them first with dish soap and water and sanitize them with a solution of 1 teaspoon of liquid chlorine bleach to a quart of water.
To make water safe, you can boil it and filter it through a clean cloth, paper towel or coffee filter.
2. Stockpile food. The kind of food you store up for an emergency is different from the groceries you purchase each week. You need to get food that is non-perishable, does not have to be refrigerated and will provide you with the nutrition you need to survive. It may be very different from the food you are used to eating, but you will be glad you have it if you ever need it.
Purchase food that does not have to be refrigerated or frozen so you don’t have to worry about power outages. These foods include canned goods, peanut butter and beef or turkey jerky.
Include foods highly nutritious foods that are easy to store, such as dried foods, nuts, beans, canned meat and vegetables and powdered milk.
For comfort foods, avoid snack foods that will quickly expire. Instead, stock up on spaghetti and spaghetti sauce, soups, sugar and honey for canning and baking, dried fruit, coffee and tea and hard candy.
If necessary, stock pile baby food and formula, Don’t forget to include pet food if you have pets.
Keep a manual can opener with your stockpile.
3. Start a garden. A garden allows you to continually have fresh, nutritious food to supplement your emergency food supply. Also, in an economic crisis the cost of living might skyrocket. Having a garden will help you to save money on your grocery bills. It will also allow you to be self-sufficient should a food shortage result from the financial collapse.
If you don’t have a lot of space, consider starting a container garden.
If you don’t have good soil, purchase humus soil or top soil. Add peat moss, composted manure and plant fertilizers.
Choose vegetables and herbs that are easy to grow, including beans and peas, carrots, greens like lettuce, cabbage, spinach and kale, potatoes and sweet potatoes, squash, tomatoes, broccoli, berries and melons.
4. Create an emergency kit. This is a collection of household items you might need in an emergency. In the event of an economic collapse, you may not be able to shop for these supplies, so it’s important to have them on hand. Keep your supplies in a container that’s easy to carry in case you have to evacuate for some reason.
Include an extra set of car keys, blankets, matches, a multi-use tool, maps of the area, a flashlight, a battery-powered or hand-cranked radio, extra batteries, matches and a cell phone and chargers.
Have some household liquid bleach on hand for disinfecting.
Make copies of all important documents, such as proof of address, deed/lease to home, passports, birth certificates and insurance policies.
Have a list of family and emergency contact numbers, Include baby supplies such as baby food, formula, diapers and bottles.
Remember pet supplies like food, collars, leashes and food bowls.
5. Gather first aid and medical supplies. You can purchase a first aid kit or put one together yourself. Either way, make sure it has all of the necessary supplies. Include personal items such as medications for yourself and members of your family. Check the kit regularly to make sure nobody has used any of the supplies. Also, check the expiration dates and replace expired items.
Keep a first aid manual with your first aid kit.
Include dressings and bandages, such as adhesive bandages in various sizes, sterile gauze pads and a gauze roll, adhesive tape, elastic bandages and sterile cotton balls.
Add equipment and other supplies, like latex or non-latex gloves, instant cold packs, a thermometer, safety pins to fasten splints or bandages, tweezers, scissors and hand sanitizer.
Have medicines for cuts and injuries, such as antiseptic solution like hydrogen peroxide, antibiotic ointment, calamine lotion for stings or poison ivy, hydrocortisone cream for itching and an eyewash solution.
Include contact lens solution if necessary.
Other medicines to have include pain and fever medicines like aspirin, acetaminophen or ibuprofen, antihistamines for allergies, decongestants for colds, anti-nausea medicine, anti-diarrhea medicine, antacids and laxatives.

Method 3 Preserving Food.
1. Preserve meat and fish. In an economic collapse, food stores could become dangerously low. If you are going to stock up on meat and fish ahead of time, you will need to know how to cure it. This will allow it stay fresh and edible much longer. Also, it can be stored at room temperature. This will be helpful in the event of a power outage.
2. Salt cure meat. Salt curing means using salt to kill the microbes that would spoil it. For every 100 pounds of meat, you need 8 pounds of salt, 2 ounces of saltpeter and 3 pounds of sugar. Apply the cure mixture directly to the meat. For bacon, allow the meat to cure for 7 days per inch of thickness. For ham, leave the mixture on for a day and a half per pound. After curing, rub off the salt under running water and allow it to dry.
If the outdoor temperature is expected to rise above 40 degrees Fahrenheit, you will need to allow the meat to cure in a meat locker.
If the outdoor temperature is below freezing, allow an extra day for curing.
3. Smoke cure meat. Wood smoking meat not only adds flavor, but it also protects your meat from pests and spoilage. Cold smoking smokes the meat without cooking it. Hang the meat in a smoke house, light the fire and allow the meat to smoke for 10 to 20 hours. You can purchase a ready-made smoke house or plans to build your own.
Use aromatic woods to add flavor, such as hickory, mesquite, apple, cherry, pear or cranberry-apple.
Woods to avoid include all conifers, crape myrtle, hackberry, sycamore and holly.
4. Jerky meat. To make meat jerky, you can use a store-bought dehydrator. However, if you do not have one of those, you can do it in your oven by cooking it at a low temperature for several hours. Choose an inexpensive cut of meat, such as brisket. Trim the fat and slice thin strips against the grain. Season the meat with salt and pepper, and if desired, marinate it overnight with diluted barbecue sauce. Arrange the slices on a cooking grate, and put them in the oven at 170 degrees Fahrenheit for two to six hours.
Line your oven with foil for easy cleanup, Prop the oven door open with a wooden spoon to allow air to circulate.
Partially freeze meat before slicing to make it easier to slice.
5. Can fruits and vegetables. Canning involves heating food in a glass jar to remove the air and prevent spoilage. Choose from two methods to can food: water bath and pressure canning. The method you choose depends on the kind of food you want to can. Water bath canning is for jams, jellies and for acidic foods such as tomatoes, berries or cucumbers in vinegar. For main meal foods such as meat, beans and other vegetables, use pressure canning. To ensure safety, always use tried and true recipes.
6. Can with the water bath method. Gather a deep pot with a lid, a rack that fits into the pot, glass preserving jars, lids and bands and a jar lifter. Check the jars and lids for nicks and scratches which would prevent proper canning and allow spoilage to occur. Heat the jars in a pot of boiling water or in the dishwasher. Prepare your recipe and fill the hot jars with the food. Place the lids on the jars and immerse them in boiling water. Make sure the water covers the jars by 1 to 2 inches. Leave them in the water for the amount of time stated in the recipe. Remove the jars with a jar lifter and allow them to sit for 12 to 24 hours.
The lids should not flex up and down when pressed. If they do flex or if you can easily remove the lid, then the jar did not seal properly.
7. Can with pressure canning. You will need a store-bought pressure canner. As with water bath canning, check the jars for nicks and scratches, and heat them in boiling water or the dishwasher. Prepare the food according to your recipe and fill hot jars with the food. Place the jars in the canner and lock it in place. Vent the steam according to the manufacturer’s directions. Process the jars at the recommended pounds pressure stated in your recipe. Adjust for altitude. When done, remove the jars, allow them to sit for 12 to 24 hours and check the seals.

Method 4 Securing Your Home.
1. Choose your shelter type. A standalone shelter is a separate building that is designed to withstand natural disasters or man-made weapons or attacks. An internal shelter is a room within your home that has been designed to protect you from the elements or other hazards. In an economic collapse, power systems may fail and looters and scavengers may threaten your home. Take precautions to protect yourself.
2. Create two sources of electricity. One source could be solar. Hook it up to your home and then run the system discretely underground. The second source might be an underground generator. You will use this in the event of a total loss of power. Keep your energy sources hidden underground to protect them.
3. Choose the size of your shelter. The size of your shelter depends on how many people you need to protect and the size of your food stockpile. An adult needs 10 cups of water and 1,200 calories per day. In addition, each adult needs 10 cubic feet of natural atmosphere to have enough air to breathe, so you will need an air system that lets in and filters fresh air. If you are planning to stay in the shelter long-term, invest now in making it large and comfortable enough for everyone. If it is only going to be a short-term living space, you don’t have to make it as comfortable.
4. Keep the location of your shelter secret. Protect yourself from others who were not prepared and may want to take what you have. Don’t let your neighbors see you creating a shelter. You can choose a remote location, but it may be difficult to access it later. If you choose to make a safe room in your home, create a secret entrance from within your house. This way others will not be alerted to your shelter.
5. Purchase self-defense tools. Self-defense tools are generally non-lethal. They are used to fend off an attack by rendering the attacker ineffective. You can use everyday objects, such as baseball bats or keys. But these may not be as effective as tools designed for your protection.
Mace and pepper spray can be sprayed into an attacker’s face to give you time to get away.
Hand-held stun guns deliver a large electrical shock to stun the attacker.
Taser devices shoot two small probes a distance of up to 15 feet that transmit an electrical charge to the attacker.
Sonic alarms create a loud noise to let others know that you are in trouble.
6. Set up an alarm system in your home. Wireless security systems are easy and inexpensive to install and maintain. Home alert alarm systems notify you if an intruder is approaching your home. Hidden cameras allow you to see internal and exterior areas in your home where an intruder may be present. Phone dialing alarms can be installed inside or outside your home and allow you to contact authorities with the push of a button. Child monitoring alarms notify you if your child goes beyond a certain perimeter of your home.
7. Purchase weapons. Weapons can be used for either self-defense or for hunting. A crossbow is easy to shoot and aim. It’s also quiet, so it doesn’t alert people or animals to your presence. A long-range rifle allows you to hunt game from a distance. A machete can clear brush or fend off a dangerous animal. A slingshot is good for hunting small animals. Have pistols on hand and teach others to shoot, reload, shoot from cover and work as a team for protection. If you plan to have lethal weapons, be sure to train everyone who has access to them in the proper use of these weapons.
Stockpile appropriate ammunition and arrows for your weapons.
8. Gather necessary tools. Having the right tools on hand can make the difference between surviving and not surviving during any kind of disaster. You not only want to be able to protect your home, but you also need to be able to build anything you might need.
Have a bolt-cutter on hand to cut through fences and wire.
Picks, shovels, axes, chain saws and bow saws allow you dig and gather and cut wood.
Rope and paracords are essential for assembling simple and complex survival systems.
Tarps are necessary as ground covers or for weather-proofing, Stock pile nails and plywood for building and repairs.
Keep large trash bags for waste disposal, Have gasoline for fuel or a fire starter, Get a propane stove for cooking, Have a fishing rod for catching fish.

Method 5 Preparing Your Family.
1. Make sure everyone is aware of the situation. In order to prepare for economic collapse, you will have to make sure that your whole family is on board with your preparations. This means informing them in honest terms what is about to happen and telling them what they should be doing. Make sure everyone takes the situation seriously. Otherwise, they will not be mentally prepared in the event that economic collapse actually occurs.
2. Check that each family member is individually prepared. Inform each other family member of the steps you have taken to prepare your finances, essential supplies, food, and shelter. Instruct them on doing the same. Make sure each family member has also packed a bag of essentials that they can grab if they are forced to leave the house without notice. This bag should contain enough survival essentials to last between 72 hours and a week.
3. Train family members in survival skills. Your immediate family members should be aware of how to handle weapons safely, perform basic first aid, hunt or grow food, and maintain your shelter. If they don't already have these skills, take the time to instruct them thoroughly. You never know when you might have to depend on them.
4. Work with another family or group. In addition to your immediate family, consider including other family members, neighbors, or a community group (like a church group) in your preparations. Make sure that these are people who are reliable and will put in work for the benefit of the group. You will be safer and work more efficiently if you can increase the size of your group.

Method 6 Anticipating a Financial Crisis.
1. Monitor the financial markets. Calm markets tend to go up. But if the market gets choppy, meaning prices swing up and down considerably, it will likely decline. Don’t be fooled if he market soars for one day. Big ups and downs in the markets are a red flag signaling an overall decline.
2. Keep an eye on global 10 year bond yields. Global bonds are bonds that are issued in several countries at once by governments or large multi-national companies. When 10 year global bond yields drop, it is in indicator that investors are withdrawing their money to put it in safer investments. This happened before the financial crisis that happened in 2008. A significant drop in 10 year global bond yields means that investors think a financial crisis is coming.
3. Pay attention to oil prices. The fluctuation of oil prices has a macroeconomic impact. When oil prices increase, the Gross Domestic Product (GDP) goes up too. The GDP is a quantitative measure of the nation’s total activity. If it is increasing, then the value of goods and services is also going up. If periods of high oil prices signal good times for the world economy, then the opposite is also true. If oil prices are on the decline, expect the GDP and the financial markets to also decline.
4. Understand the relationship between inflation and economic growth. Economic growth tends to lead to inflation. As demand increases, prices are driven up and unemployment falls. As unemployment falls, wages increase. As wages increase, people spend more, which leads to inflation of prices. Conversely, when economic activity slows down, so does inflation. Therefore, if the price of goods and services slows dramatically, it could signal a major downturn in the economy.
5. Monitor the price of commercial commodities. Commercial commodities are goods exchanged during commerce, such as gold, lumber, beef or natural gas. Changes in the prices of commodities affect the United States economy and the value of the U.S. dollar. An increase in commodity prices is correlated with an increase in inflation. Increased inflation correlates with economic growth. However, if commodity prices drop, inflation slows, which indicates economic decline.

Community Q&A.

Question : Where can I join a survival group to prepare for the potential economic collapse?
Answer : Facebook groups are the best place to start. Search for survival groups.
Question : Why would I pay off my debt first? If the economy collapses, my creditors' well being will take a backseat to my family's well being.
Answer : If you owe money to creditors, you would be putting your family at risk during such a time if you failed to keep paying back debts. Creditors are enabled by law to come and claim some of your assets if you have stopped paying them in order to protect your family's well being. In a time like this, assets are everything.
Question : Is an investment in gold and/or silver appropriate? If so, what are your recommendations, and why?
Answer : While gold used to be the standard for currency, it is still very valuable during recessions. Purchasing gold or silver can be a great way to diversify your investments.
Question : If I have a high car payment, and my IRA is large enough to pay off the vehicle, should I close the IRA and pay off the car?
Answer : Sell your expensive car and purchase an older, reliable vehicle with cash. One should never finance an item that depreciates in value, and keep your IRA.
Question : When is the economic collapse expected? In 2018 when bond yields drop?
Answer : No one really knows, but we can predict certain fluctuations (presidential elections or new terms, corporations moving out of the country, major world events, etc.) It's just best to be prepared for it with at minimum a month's supply of essentials.
Question : Should I get out of all stocks if preparing for economic collapse? Should I pay off my mortgage if I have the stock to do so?
Answer : No. Hedge your bets by keeping your portfolio 60% in stock index funds and 40% in bond index funds. I recommend Vanguard because of the low fees. Also, do not pay off your mortgage. You need cash flow. In a collapse, you will have the moral authority to defend your home with violence if necessary.
Question : With a low fixed rate mortgage, should I have my house paid off when the U.S. dollar crashes?
Answer : If you can, hold onto the cash needed to pay off your mortgage. When the dollar crashes, it won't be worth much for buying anything, but the bank still has to take it for your mortgage.
Question : What is the best way to reduce my losses on a savings account if the currency is devalued?
Answer : The best way is to not have a savings account at all. You have more liquidity keeping your money in your checking account. So take that money out of your savings account and open up another checking account with a debit card. Do not use it.

June 02, 2020