The stock market has been trading at record highs, but experts believe that could soon be coming to an end. Major investors say there could be a stock market collapse in our near future.
But before you cash out your 401(k) and other investments, it’s important to understand exactly how their stock market predictions would affect you.
Here’s what financial experts are saying about the economy and what you can do to protect yourself.
5 experts make startling stock market predictions
Five financial experts – all who predicted the collapse of 2008 – believe we’re facing serious declines. Some say it will be the biggest crash of our lifetime and millions will lose money.
Tim Forester, chief investment officer at Forester Capital Management: He believes the 2008 crisis was caused by one industry’s failure: housing. This time, he says that all industry sectors are overvalued – no one sector is considered safe.
Jim Rogers, professional investor: Rogers says this collapse is imminent. With our national debt so high, he believes it will be more difficult for the government to help recovery efforts.
Marc Faber, Swiss investor: Faber believes that asset holders could lose as much as 50 percent.
Bill Gross, manager of Janus Henderson Global Unconstrained Bond Fund: Gross believes investors have stretched themselves too thin. Increased debt will hurt the nation’s productivity, worsening the recession.
Rob Arnott, founder of Research Affiliates: Arnott says American investors have forgotten how much risk there is with the market. One small shift could wreck it all.
If their predictions are correct, we could be facing one of history’s most severe recessions.
How to prepare
The experts’ stock market predictions are serious, but that doesn’t mean you should panic. For one thing, they could be wrong; financial experts have made mistakes before. However, it’s still a good idea to prepare for the worst and hope for the best.
Here are a few ways you can protect yourself in case there is a recession:
1. Prioritize an emergency fund
If there are layoffs, a six-month emergency fund can help you keep up with your expenses while you search for a new job. Having a cash reserve means you can afford the essentials.
If you don’t have an emergency fund, start saving now – save as much as you can each month. While building a six-month fund can sound overwhelming, starting small will help you build a strong foundation.
2. Evaluate your portfolio
Check your portfolio investments and consider changing how you invest.
For example, instead of buying individual stocks, you may want to spread out your money by investing in index funds. That way, you can invest in many different companies at once. With an index fund, you won’t lose everything if one company goes south.
3. Keep investing
While you might be tempted to empty out your retirement fund or stop contributing to your nest egg, it’s important that you keep investing.
For young investors, a recession can hurt in the immediate future, but it actually could help you in the long-term.
If the stock market does crash, your monthly contributions to your 401(k) or other investment vehicles can go further. Stocks will be cheaper, so you’ll be able to buy more. Your portfolio may drop in value, but if you keep investing consistently, you could get dramatic returns when the market eventually recovers.
4. Make all of your payments on time
If a recession does occur, access to credit will likely become more difficult. When things get tough, banks and lending companies become more cautious about giving out loans or new credit cards.
That means only those with excellent credit will be able to get credit lines with reasonable interest rates. Those with average or poor credit scores will have to pay high interest rates, and that’s if they’re approved for a loan at all.
You can help protect your credit by making all of your payments on time. Even if you only can afford to pay the minimum right now, making timely payments will ensure your credit score doesn’t take a hit.
5. Diversify your income
Many of the people hurt the worst in the 2008 recession had just one source of income: their full-time jobs. That meant that if they were laid off, they had no more money coming in. Millions exhausted their savings and even had to sell their homes.
You can help prevent the same from happening to you by having multiple income streams. You can supplement your full-time job with earnings from a side hustle (or three) and forms of passive income. That way, if you are let go, you have other sources of money to tide you over until you’re back on your feet.
While hearing dire stock market predictions can be scary, it doesn’t mean you should cash out your investments. By continuing to save and investing consistently, you can weather the market changes.
For more information about the stock market, check out the beginner’s guide to investing.
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