The next financial crisis
The markets have been on an incredible high pretty much ever since the financial crisis in 09. Around 2014 I started feeling a bit itchy, – everything is going too well. I have since become more and more convinced that the next financial crisis is just around the corner. This is why I believe next year will be the year of the next crash.
1 Unstable markets and the rise of cryptocurrencies:
More and more money is being invested in cryptocurrencies of different sorts. After the bitcoin boom late last year multiple other (less legitimate) cryptocurrencies have started to rise. The investors are less and less high risk traders and hackers and more and more our next-door neighbors. This means that if (when) these cryptocurrencies loose their value or becomes more regulated, it will affect normal people with average saving margins, thus exposing them to a lot of risk (= creating more volatility on the market and setting it up for a crash).
Everything that goes up has to go down. It is simply not realistic to have a market trending upwards without any significant (smaller 10-percent little dips doesn’t really cut it) break to it in so many years. Everything that goes up will at some point in time have to go down (and at some point up again).
3 The mass effect
There is too much instability in the world right now to not expect it to take a larger toll on the financial markets than it has. A lot of people are starting to pull their investments out of the markets and into savings accounts, and when enough people do this, it will show in the larger indexes which in turn will confirm others suspicions of an upcoming recession and then incentivize them to also withdraw from the markets, creating a downward spiral.
What is your take on this? Are you also preparing for the next financial crisis to happen soon?
Mr Viking and I have had a tendency to head off to the most exotic location we can think of during the holidays. This tended to cost a lot of money, as you may understand and doesn’t rhyme well with our 7 year goal to Financial Independence. This year we have worked out a strategy to avoid this period being the cost-peak of the year. The goal is to save as much money as every other month of the year. This way we will stay on point, and continue to work towards making the leprechaun happy, even if it is christmas 🙂
3 steps to save money during the holidays:
- Stay at home over the holidays (i.e. no travel abroad). No expensive resort or impossible flight connections that costs a fortune. Staying where you are with friends and family is in itself not a radical thing to do. But for us, it is going to be a massive saver right there.
- We have made a deal with our closest friends and family. They are not giving us any gifts for christmas this year, and vice versa. Everyone we spoke to about this was very happy. This means that they don’t have to go through the shopping frenzy of buying yet another kitchen-device that will never be used while receiving something similarly unnecessary same. Saving money not having to buy (or receive!) unnecessary gifts never to be used seems reasonable.
- Planning. Last minute maniacs as we are, we normally stumble into the closest bar we can find when the clock approaches midnight. Christmas ham is being bought last minute at the local delicates store -read 10x more expensive than buying it in time at the larger store 5 km away. This year, it will be all set. We have a meticulously planned list over where and what we are going to do. In all honesty, we will probably never go through this insane planning process again. However, it will work as a very good benchmark for us. We will know how much time and money can be spent when doing this. Which will hopefully incentivize us to do it at least half-way in the years to come.
What do you think?
My Strategy to financial independence
If you read my last post you know how much I was able to save from my last salary. The next implied question then naturally becomes; what do I do with that money in order for it to grow me some financial independence? This post will talk about what i do with the money that I invest into the Leprechaun , i.e. my investment strategy to Financial Independence.
Four easy steps —
Get an income stream, and preferably more than one. You can never save money if you don’t get any money, so this is the most crucial step, even if the actual salary is not that important. I get my salary each month.
I have a set saving goal each month, lets call it X . This sum I need to invest. The biggest mistake you can make is leaving that money passively deprecating itself due to inflation and potential taxes. Long term investments can be put into high-risk funds and stocks without it being that much historical risk associated to it. The market has historically always gone up, even if it regularly will take a stroll downwards into a recession. Note here that I talk about the whole market and not individual stocks and funds. Stocks tank all the time, which is why it will generally be a higher risk for you to invest your money in one individual stock, than in a larger index.
I invest 80% of X in different index funds. Of these 80%, around 40% are branch-specific, quite risky and narrow indexes while the remaining 60% are large global index funds.
I am looking to leave my riskier branch-specific investments where they are but from now on start putting the whole 80%-chunk into global index funds. Mainly because I am still convinced he recessions is near and not sure which market it will hit first. The remaining 20% I place in stocks of different kinds, mostly larger companies with a good track record of raising their dividends shares each year. I will probably continue to buys socks for a few more months but then slowly shift this chunk over more and more to the global index funds as well. I will explain this more in step 3.
Have a set percentage to play with. This is where my 20% that I buy stocks for each month comes into play. I really like investing in stocks, and reweighing, shifting and shorting my way around the markets. This is not a very good thing if you are looking for a solid investment plan. This is why I have capped my allowance of my savings I can play with to 20%. I will decrease this percentage in the next few months. This as I don’t have enough time to become the next Gordon Gekko and index funds has historically almost always beat individual strategies in the long term anyway.
When the time has come for me to have enough capital for the Leprechaun to become immortal (i.e. enough for me to live off its returns indefinitely) I will sell off the funds and buy high-dividend stocks for these so that I am set up for a monthly income.
Thanks for all the positive feedback from my last post as well!