What can investors do to protect themselves from an economic depression?

Question

I am a 24 year old investor. I realize that it is probable that in my lifetime I will see this happen. What can investor do to insulate themselves from this and prosper afterwards?

I am also curious to hear your ideas on periodicals, magazines, etc. You may think I would find helpful. Currently, I invest in mostly in mutual funds, but have some CDs, and bonds. I always read all the prospectus I receive, but am curious to learn more about the stock market and learning more about the management of mutual funds.

Thanks.

Answer 1

It is hard to predict exactly what sectors a depression might hit, so you need a portfolio that is invested in widely disparate fields.

So you would spread your money around in real estate, gold, government bonds, foreign stocks, etc. The idea is that one or more of your investments will either hold its value or go up if all else heads south.

Read Investors Business Daily and Barrons - which seems always to be predicting the end of the world - to learn more about the stock market than you probably need to know.

Answer 2

Diversification continues to be the best shield against economic fluctuation. In theory, you could completely shield your portfolio from risk at all if, if you could find enough assets with negative betas.

Many mutual fund managers already do a good job with this. As far as you picking and trading stocks, unless you know a few things about them, just pick a mutual fund that has consistantley performed around market or better, and is fairly diverse, and drop money in that. Most mutual funds are simply a collection of stock holdings, so when you invest in most mutual funds, your money is already on the stock market, its just being managed by someone else.

Historically, in down markets, people will put money in metal, government bonds and real estate, while up markets usually see people put money back in the stock market.

Making up some of your portfolio with low risk stuff like CDs and bonds is a really good way to drop the overall beta.

Answer 3

You are already well on your way to being somewhat protected from an a depression. Your knowledge and keeping up to date is imperitive.

Typically Gold and Silver offer good protection against a falling dollar and a depression. You could also keep some of your cash in Euros as the US dollar continues to fall. Foreign stocks may also be good, but be careful. Many countires don't have the same accounting or reporting laws to protect investors. Many countries may also experience a downturn if the US economy is slow.

After a depression has occured, prices are typically very low for many assets (land, businesses, stocks, etc). After it has hit a bottom, and starts to slowly recover, that is the best time to buy assets like mad!

Answer 4

It is NOT probable that you will see an economic depression, recession yes, full 1929 type depression, nope. Rules have changed, safeguards are in. To protect your self from a recession, invest in a well deversified portfolio, mutual funds (domestic large cap, small cap, growth, value and international) with some fixed income (CD's and bonds) are the way to go. If you want to invest in individual stocks, look at products that are used every day, used up quickly, and they more are bought. Things like toothpaste (Proctor & Gamble makes some and lots more. They have been in business a long time and have increased their dividends every year for the past 50 years. Seems to me like a good company to bet they will be around for the next 50 years).

Answer 5

In layments terms, I urge you to think outside the box. Assets such as property and Real Estate are very important to protect you from both economic recession and depression.

You need money that can reach a total of liquid assets, that can create a financial fortress around you and your future family.

CD's are smart, but saving money does not increase it's worth as the value of money is going down.

Stocks are what I invest in, too... but it is also the biggest legal scam in the world. It's legal, but not necessarily legitimate.

It's all based on assets that may or may not exist and therefore, have caused you concern over their instability just like the stock market crash of 1987. This was not due to depression.

See the web site below as it's a very valuable asset for diversifying your assets.

Answer 6

During a depression, cash is king. The reason there is a depression is because there is no money available to pay for anything. If there is no need for money, there would be no depression.

The primary purpose of investing should be to have enough assets to not need any money. In the USA there are people that make 1 to 2 hundred thousand dollars a year. They are so in debt that their income does not permit them to put $500 a month in their saving account.

Believe it; these people are doctors & lawyers. If you have the assest (cash) put it to work, it should work as hard as you do.
(if you make $50,000 a year - your investment of $50,000 should make you $50,000 in a year)
If your investment is a percentage of your annual salary, then it only need to return that percentage. $10,000 only have to return $10,000.

Please understand, If you have $10,000 and you are buying the home of a bankrupt person for $56,000 / and the value of the property is $201,000 your return on investment is:

$201,000 - $56,000 = $150,000 this is making a $10,000 investment work very hard.

Answer 7

Invest in Colombian cocaine futures.

Answer 8

Just place a 20% STOP for every company and you will be fine.