Defensive Investing--How to Prepare for a Market Crash (In Advance)
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- Опубліковано 1 сер 2021
- Defensive Investing--How to Prepare for a Market Crash (In Advance)
With stocks, bonds and real estate at all-time highs, it's just a matter of time before we see a market correction, or worse. It doesn't help that our government is borrowing trillions of dollars, funded by a Fed who is buying bonds.
The question for investors is whether we should make changes to our portfolio today in preparation for the coming crash. If we should make changes, what should they be and when should we make them? And then there's the question of when we reverse any changes we make.
In this video we look at a Morningstar study on the diversification benefits of various asset classes based on their performance in past market crashes.
Morningstar Study: www.morningstar.com/content/d...
#RobBerger #marketcrash #investing
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
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Crashes and bubbles are persistent features of financial markets and are exacerbated by narratives. The narrative is always different but something’s don’t tend to change, most notably, returns after crashes are more often positive than negative and new paradigm bubbles tend to have disappointing returns.
I’ve heard you need to be right twice when you market time; right when you sell and right again when you buy. With COVID, I sold nearly half my portfolio at a good time and bought back at a good time - but only bough 25% back and still have 25% in a money market fund. So overall I would have been much better off by doing nothing.
So where is the other 50%?
@@100perdido He only sold 50%.
One of the most honest advice I have every watched on UA-cam. I think the last 2 min of your video is the most valuable - managed debt!
Thank you for your advice, Rob, on keeping the same portfolio, updating income producing skills and reducing debts to prepare for the market crash... And also your reminder that nobody would be able to time the market as many investors/analysts have claimed otherwise. You are my go to guy when it comes to investment advices...
Year later, this advice is still applicable and timeless. Anyone worried about recession who pulled money out the market would have missed the 15% gains in s&p and 30% in nasdaq in first half of 2023. Not to mention the money lost to taxes (gyrations in non tax advantaged accounts) or inflation if money was parked in cash.
A really honest, candid and helpful perspective on being ready for a crash - and refreshing to hear a view that is not all about asset allocation, but on being continually ready to think how could one generate an income. Thank you
Thank you for such detailed explanation. Learning this stuff for the first time, and can easily understand your videos.
Very realistic, sound, and practical advice! Thanks Rob!
Great presentation Rob! It is a difficult proposition to come out from a bear market unscathed but “soften the blow” is the best piece of advice in your video. Thanks a bunch!
Thx Rob for vid, thou u didn’t have an exact answer, just reassured that all portfolios will be hit in a bear market, be diversify, invest for long term, do index investing, and keep debt low👍
Very valuable video! Thanks!!!
I still believe that the best approach is to always keep the bulk of your portfolio in solid companies that can withstand the economic storms, and a range of companies with low correlation. Keep near term needs in cash (beyond what you can rely on from dividends).
I love how you boil finances down into simple (manageable) bites. So helpful and solid, sound wisdom. No get rich quick schemes!
The way you communicate about the market is very unbiased and I appreciate that greatly, as someone who's just starting out in investing. Great to prepare for the good things, but smarter to prepare for the worst too. Analysis on point, instant subscribe!
Awesome topic Rob. Thanks !
"More money is lost anticipating a downturn than is actually lost in the downturn." -Warren Buffet.
He's not currently following his own advice.
Peter lynch, actually.
This is quoted from peter lynch
The problems with quotes on the internet is that they are often not true
-Abraham Lincoln
@@matjul2008 😂ok Abe 😊
Excellent video- best advice is at the end. Debt is #1. I think knowing your expenses is #2. My part time job is retirement is a deep dive into my spending- cutting cable, finding health insurance, doing home jobs I contracted out previously.
Thank you so much for sharing your thoughts , extremely helpful !
Stocks will recover from a crash sooner or later. Good video. Thank you.
Great learning Sir... Thanks🙏🙏
Fantastic video Rob, keep it up
I like the way you explain the topic - it is well structured and clear (even for me that has no finance background)
Hi Rob, I'm amazed at how the things you say make sense in the United States, and the same way in Brazil. It's great to be able to follow you, reading your book, and watching the videos on UA-cam. Thank you very much for the excellent job of financial education!
Great video…. Really enjoy your insights. Thanks for doing great work and helping understand these financial topics.
One of the better and more grounded takes I've heard on youtube as a whole. Subscribed 👍
Such great info. Thank you for this
I'm happy with my 70/30 portfolio in retirement. You're right about keeping the debt down. I have no debt and have a 1% spend on my portfolio. I can withstand an 80% decline in the stock markets, at least for 3 years, probably more.
In 1994 when I was setting investment parameters, I said, no gold, no Latin America (expanded to emerging markets, although I have about 1% in them). Mutual funds only (added ETFs in 2011).
The 70/30 is recent for me. It had been 60/40, but decided that since I behaved well during downturns, I would increase it a bit. But it is a strict 70% maximum equity allocation. No junk bonds either. Me thinks that we are on the same plan, nearly.
Your channel is great, Rob. "Just the facts, ma'am", as Joe Friday used to say.
what do you have your 30% bond allocation in?
@@coocoocachooglin My 30% bonds also has a lot of cash too. My IRA is mostly Vanguard GMNA with a little cash. In my taxable account I have Vanguard Wellesley, which is over 60% bonds. In my Roth, I have Wellington Fund, 35% bonds.
I have several years living expenses cash in the credit union.
I don't like all the bonds and cash, but that is the only way to keep below 70% equities.
My IRA is only 16% of my total investments. I would rather have my taxable and Roth grow than my pre-tax IRA. My taxable accounts are where I want growth.
Great video Rob. So true there's no way to know what sectors to hold. Real estate, health care and consumer staples are the popular ones recommended by the "experts" for the coming crash. And God forbid, do not hold tech, they all say. If the 3 mini crashes of the past 3 days are an indication of how each sector will fare, then the experts have it all wrong. Since Monday as the sheeple and institutional lemmings sold every time someone sneezed, they sold precisely real estate equity REITS (not mortgage, but the stronger real property types), consumer staples and the hardest hit was healthcare (hospital owning REITS, medical supplies, pharma). Meanwhile tech skyrocketed. Point being: whatever sectors the "experts" recommend, either don't listen, or do the opposite of what they recommend. We're in the most unusually bizarre cluster_______ of contradictory economic problems that not a single person alive understands. There are no experts to turn to. It's every person for themself.
Very good , specially the final part
Good solid advise.
Great video... love the discussion and analysis. I have always kept my life well diversified and it has paid for itself multiple times over again... 🙂
If the markets start to dip I'm increasing my retirement withholdings to take advantage of the fire sale. I completely agree that being debt free and keeping marketable skills sharp is the key to survival in a bear market. 😉
Your end of video philosophy and overall perspective is spot on Rob. Insightfully critical to do. Appreciate it.
I hear you :))) Thanks!
Right timing on sell and buy is key. For COVID drop, I sold late and jumped into value stocks which were flat while everything else boomed.
Complimenti per il video, molto istruttivo.
You have great content.
another great video! thanks for your work
The closing advice was superb
Thanks Rob, this was illuminating
So glad to find a no-nonsense approach to handling investments. I'm about to retire and need to set us up to ride out whatever is coming next - thank you Rob!
Great content!
Outstanding points about life skills.
Hi Rob, l’m considering to replace 50% of the S&P 500 core, with S&P 500 financials as a defence. Appreciate your wisdom on this .
From artgstone UK..
Great Video!
Great advice Rob!
If you have a paid off rental at 65 that brings you in 4k a month, collect SS at $2700, a 90% stock position in a 4 Mil 401k is very reasonable....all the way.
Interesting commentary. I think trying to time anything - even if we might think the proverbial writing is on the wall, puts us in the actively managed camp. I personally think that asset class investing - including staying within the risk / return / standard deviation of risk / return continuum based on history, is the best we can do. Of course age and risk tolerance (investment time horizon) is going to heavily weigh on the asset allocation. I don’t recall in today’s markets what the standard deviation of returns of various debt classes is, however, back in the ‘90’s and 2000’s when I was doing work with DFA anything beyond 3-5 year treasuries did not stay on the risk / return continuum, and corps and reits definitely did not. The more correlation of asset classes, the riskier / less diversification. The lower the correlation (ie small cap value vs large cap growth etc etc) the more diversification / the better the buffer. Your conclusions are spot on and where it’s at for surviving market fluctuations - controlling your expenses (debt etc) or upping your income, because we really have very little control over the future performance of our investments.
22:04 when can we expect a video on this cuz I’m very interested in what you mean here?
Does portfolio visualiser give rolling year data? What you show here is one point from 72-now but what happened in every 10y between them is also important right?
Fantastic content. Love the term you used Defense Investing. Copyright that one...
Great video
In 2020 I bought puts against every position I had. Profited 94k on those puts. Then I bought the same stocks at lower prices with the proceeds of the puts. Then the market roared back doubling my profits 📈
wow. nice example. thanks
You're a genius.
Genius 👏🏻👏🏻👏🏻👏🏻
Good stuff Rob!
Great video and advice, especially on the debt. How do you find covered call ETFs in a bear marke6
Love the non-investment, "wholistic" comments at the end. This sets one up for being able to weather thru the financial storm.
When’s a good time to start migrating from pure growth stock funds to a balanced portfolio ?
Great video, well done. The only thing i can't understand - when the market is correcting/crashing - why wouldn't you pull out? i know we can't time the bottom perfectly, but we can at least sit out the majority of the storm and end up in a stronger position.
Because you don't know if it's a dip, a correction or a crash until it's over.
There are far more 3% dips than 10% corrections in the stock market.
I am 58 and I am 100% in stocks and real estate. I am retired and live off my rental income and dividends. Bonds are a terrible low yielding investment. I don't need to cash out from any of my stocks because my rental income and dividends are sufficient to cover my expenses. If the market has a sharp correction I won't sell a single share. I'll just stay in the market because eventually the stock market will recover and go even higher than the pre-correction level. My dividends keep coming even during a sharp market correction. That's what I did during the 2008 market crash and the COVID market crash. I didn't sell a single share. I actually bought more shares during the lows of these market crashes. For example, I bought a lot of Enbridge stock when it dropped to $38 Canadian in September of 2020. Yesterday it closed at almost $57 Canadian!! Selling after the market has crashed is one of the stupidest investment mistakes a person can make. DON'T DO IT!!
I never see people like you addressing the impact of retirement annuities or social security payments on peoples asset allocation for their portfolios. I consider these to be the equivalent of bond income streams. For me this has meant I invest almost nothing in bonds.
Diversification is the rule! US Stocks and ex-US, Reits, bonds, gold and comodity.
I wish I could go back in time to when you recorded this and tell you to sell your growth stocks now ! :)
Checking combinations of US stocks with bonds vs US stocks with gold, I got better results with gold every time. Not mentioning some serious misconception of "inflation of gold". Visualizer is showing gold adjusted for inflation. I think it is a nonsense. Gold is showing inflation of currency not the other way around. In this way CAGR using just gold is double the bonds. Makes sense since real inflation is double the official one.
I will stick to the 50/30/20 portfolio and dollar cost average my way to profits.
Makes me nervous looking at the price charts of the market. Seeing an almost vertical line since the pandemic selloff worries me. Gives me a gut feeling it could give way any day now, and because of that I am going to risk not risking my money and keep all of my new income in a savings account until the price inflation works it's self out.
I don’t have REITs as I’m heavy in property owning my own home @800k and 50% of NW. You touched on assets outside your investment portfolio (steams of income), but do you include physical property in your investment decision making?
I sure the hell do. The rentals provide the cash flow so I can let the stocks ride.
When he talks about his portfolio he only refers to his brokerage account. But most people with any wealth own their house with a lot of there net worth in their home. So a 80% stock/20% bond portfolio is really a 50% real estate/40% stock/10% bond portfolio.
Defensive sectors do well. eg. Healthcare, Consumer Staples & Utilities If you stay in all the time you have as much growth with less volatility than a total market strat. Vanguard's sector ETFs have 0.10% ER. In portfolio visualizer a portfolio of 10% bonds & then splitting the rest equally in Healthcare, Consumer Staples & Utilities grows more & has less volatility than a classic 60/40 total market 2 or 3 fund portfolio.
This is on time.
Easily understandable. Thanks.
Hi Rob, please share your thoughts and know how of today's article in WSJ "Buy, Borrow, Die: How Rich Americans Live Off Their Paper Wealth"
Finally, it happened now in 2022 and I felt better after watching this.
Is 30% a safe number to estimate taxes (federal and Virginia) I want to overcompensate for planning. I will be in the 22% tax bracket in retirement.
When you say "short term treasuries" what amount of time do you mean?
It will be the other way round - the rising interest rates favour tech companies like AAPL because of their high margins compared to “value” and relatively low debt to cashflow ratios.
The question is do retired people need a investment plan? We withdraw some money from investments but keep it invested and have enough income for our needs. A plan seems to dictate having to plan. A plan for what? If your a 60/40 ratio investment is that a plan? What else are we needing to plan. I’ve seen little talk about this necessity for those well into retirement.
Good stuff. I think it’s worth entertaining a very nominal buy (1-3% of your portfolio) of VXX in times of high valuations. I realize in the long run it will go down. But as a very modest market timing vehicle in terms of proportion of assets, it can have big impacts in downturns. Also, on international, currency hedged funds can be less correlated. I think they should be considered more.
Rob I agree with you 100%, this is exactly how I see it. As well I think if you don’t over leverage yourself having a rental portfolio is a good hedge against a bear market.
Marketable skillet + intellectual property + rental + websites ( digital real estate ) = hedge agents bear market.
But keep in mind: bear market = your renter losing his job or being furloughed. He can't make the rent, how long do you wait before you kick him out on the street? Or do you just eat the loss of income while you continue to pay the mortgage? Tough questions. It's never easy.
Isn't gold too expensive right now? in 2013 gold prices crashed. Wouldn't be reasonable to think that that could happen again?
That's one of my issues with Gold. How do you know when it's expensive?
@@rob_berger it becomes cheap when the price completely tanks. Then you buy a modest amount depending on your means.
I am looking for a hedged portfolio, non correlated investments
Nice video, I'm looking to buy bonds, should I wait, since people are saying it's a bad time to buy them?
It really depends on so many factors. Certainly longer-term U.S. bonds expose investors to significant interest rate risk. Generally, bonds aren't great right now, but I own short and some intermediate-term bonds, in part, because what's my alternative? I could go all to cash, but I just not comfortable doing that either.
Bond Buying is equivalate to "Return free Risk" at this moment ;)
This is why i buy puts on my major positions
What is the strategy you use with puts? Like how much in puts vs positions, how long of a put, etc etc.
The idea makes sense to me but the devil is in the details.
You give great analysis and address important issues. But it seems you are assuming the market is going to always bounce back. Is there ever a chance it won't bounce back for a relatively longer time? Let's say market drops 30% and does not bounce back for 3 years. How about 5 or 7 years? And let's say bonds go down a few percent also because they are also overpriced now? People will freak out, because the expectations is it always bounces back soon afterward. Nothing is guaranteed. Nothing. Everything seems correlated with the stock market. We may have an everything down market because the world economy may go down with a covid/climate change/political breakdown on global trade. Or we may have huge inflation where being in stocks still would be better than cash. Also, gold is not acting that much like it has historically now that we have crypto. Gold is a relic because it really is not as liquid as crypto or cash. I could go on and on, but it might trigger a panic attack.
Rob after The last couple of years what on reflection could you add To This video
Certainly at The Time you posted it lots have happened
Going into 2024 stocks are even reaching new heights and global aggregate bonds look like They duration upside if interest rates drop
I appreciate the sensible advice for a more stable life at the end, seems to be obvious but I can get so wrapped up in shares and movement I miss it. Subscribed!
What if we're in the Japan scenario and we're just throwing money into a bottomless pit? Seems the world has some repairing to do before we're back in business.
In that situation dollar cost averaging will save you. If you DCA through the Great Depression from 1929-1950's you would have been up thanks to buying into the lows. The same would apply to a Japan investor from 1989-present.
Markets are always crashing and going to new highs. Markets go up and markets go down!
Knowing what you know about the high valuations in the market, why would you have or recommend a minimum 50/50 allocation of stocks to bonds, and not something lower such as 40/60 or even 35/65, given the excellent chances of the market experiencing a down turn in the near future and the possibility of greater loses with a 50/50 allocation ?
My advice, keep working - never retire when it appears Winter is coming on the markets.
The time to retire is when you see signs of Spring coming. Work is the best income stream you will ever have.
I hate working though.
@@johndosta5261 Understand completely - Just remember you can work part time. The ideal job will allow you to work part time and go full time if you need to. Instead of retiring I stepped down to a 32 hour week but my employer would be more than happy to have me on a 60 hour schedule.
I think dividend investing is the best way to prepare for a marked crash.
If the stockmarked crashes, you still get dividend. With all the crashes the marked allways recovered.
So i buy good dividend stocks and don't sell them.
offcourse this is not a advice, it's what i do. Allways do your own research.
That's what I was thinking too. The way I see it is any gains shouldn't be wrapped up into one stock that can't take a hit. Dividends can be very helpful during market crashes because the price doesn't matter. Now there are dividend ETFs that take out the guess work of which companies back out of dividends. I'm not saying this is the best option but I personally believe it's better then bonds that's for sure. As mentioned before, no one can time the market but if your able to soften the blow of your portfolio during a market crash and buy well respected companies on a dollar cost average to feel out the market the risk is less. In the beginning you won't make money right away but the stock market is always about investing long term.
If you are in for the long run, sit tight. Just keep investing. If you are already retired or close to it, keep 4 years of cash needs and otherwise stick to your plan.
Really? I wish I could just let everything ride as it is for another 3 years, but I keep hearing we should change the percentages at retirement.
im going to ride this 🎢
You can't prepare. Only one thing to do is do nothing and keep investing. When the market comes back like it always does you will be sitting pretty. Market crashes are opportunities for growing portfolios!
The key to surviving market crashes is being invested in the runup before the crash. If the question is "should we market time" the answer is no!
Cash gives me the courage and the conviction to buy in ugly times.
When do the "ugly times" begin?
@@DavidEVogel only God knows or the people who rig the stock market
wouldn't the best way to prepare for a market crash be to just hold physical cash?
Yes, but then it sets there and does nothing with no upside, and loses value because of inflation. Only hold cash for what you need (emergency fund) or want to purchase in the short term.
If you're preparing , by definition , it's in advance.
ha ha. Redundant isn't it. Like "I personally believe…"
@@DavidEVogel " all thoughts are my own " 🙄
Enjoyed your video, but a bit of a pinball game. Multiple topics, interrelated?
So we can agree market timing is inaccurate at best, injurious to most. Reallocation as you seemed to recommend via your own approach is a form of market timing. Even rebalancing is. Choosing a portfolio balance in retirement and not rebalancing wins (Morningstar)
You reference Rekenthaler’s analysis of keeping a portion of portfolio in gold, also reference Ray Dalio. I’m more in Buffet’s camp- “diging it up and bury it somewhere else”.Hedges inflation, nothing else long term.
I hate to be a broken record, but bond ladders are a great way to avoid portfolio guess-work with fixed income portion of portfolio . I’m guessing that you don’t have personal experience with one, and rely on funds.
And lastly, 30 minutes is too long to grow your audience. You are the most informative but least subscribed of my favorites. You-Tube attention span is like 10 minutes. No more comments on this from me
It’s funny because I was just thinking- wow -Rob’s channel has really taken off over the last month , when he had 3k subscribers and now look @ what his subscriber level is ( 11k) ; in a month’s time-so I disagree w/ your last comment-the channel will continue to grow exponentially, whether his videos are 10 minutes or 30 minutes, because of the spot on content he produces and no one is doing this type of analysis 🧐 Quality matters.
You cant invest for a crash and you shouldn't do it. These are companies look if the companies will continue to perform.
How to Prepare for a Market Crash?
A bear market fund like PBRCX.