5 Safe Investments in a Stock Market Crash


Stocks plunged last week and if history is
any indication, we could be in for a drop of at least another 8% and up to half of stock
prices could be wiped out before it’s over. We haven’t had a bear market in a decade,
even though it’s happened about every six years in the 40 years to 2008. We haven’t had a drop of 5% or more in stocks
for three years, even though that’s happened on average every two years for the last five
decades. In this special video I’ll show you why
the stock market has been on edge lately, the two primary reasons stocks could be in
for a major crash, as well as one reason that nobody could see coming. I’ll also be sharing five investments I’m
using in my personal portfolio to protect my money and grow my nest egg even if the
rest of the market collapses. These five investments don’t move in lock-step
with stocks so it could be the opportunity you need to save your portfolio from the coming
panic. Along with all that, I’ll be doing a live
Q&A with this video and answering all your questions right here on YouTube. Joseph Hogue here with a very special video
on the Let’s Talk Money channel. We’re trying something new with this video,
a live Q&A session to answer all your questions. I love the interaction here on YouTube and
by doing live Q&A sessions, we can get all your questions answered in real time. So check the comments below for the time and
date of the live Q&A but I’ll also be checking in regularly to answer any questions afterward
as well. We’re going to be doing these a lot this
year so subscribe to the channel so you don’t miss your chance. Today’s video is something that’s always
on investors’ minds but just got real last week with a 4% plunge in the stock market. That was the worst week in two years and the
Dow dropped almost 700 points on Friday, something it’s only done 17 days before. Now I’m not saying the stock market is heading
lower for another crash. This bull market is the second-longest in
history and stocks are ridiculously expensive but that doesn’t mean it all has to end
this year. But it will end. Just the nature of the markets and our economy
means there will be booms and busts. People like to believe in the good times that
stocks will always go up but it just doesn’t work like that. I pulled 50-years of stock market prices to
find all the corrections, moves of more than 5% lower, and all the bear markets of 20%
losses or more. There have been 26 corrections and six bears. Just the corrections, which have happened
about once every two years, have posted an average loss of 12% and the bears have destroyed
an average of 42% in stocks. Last week’s loss was just 4% so if it does
become a correction, that means we could have another 8% farther to go. But that doesn’t mean you have to lose money. In fact, now could be a great opportunity
to protect the gains you’ve made over the last eight years and make more money even
if the market tumbles. It’s all about recognizing the factors that
could drive a crash in stock prices and finding investments that won’t drop because of those
factors. So I’m going to share a few of those factors
I’ve been watching that are going to crush stocks whether it’s this year or next then
I’ll show you five investments that will hold up and even grow your money. If you like, you can fast forward ahead to
those five investments but understanding these factors is going to be really important in
finding other investments and understanding why the market is crashing. The truth is that the factors that drive a
crash are pretty obvious before the fallout. The only question is when it happens. I’ve worked as an economist and have seen
these signals many times before. First, the federal reserve is raising interest
rates. The Fed helps to control the economy through
its policy of borrowing and rates it sets for banks. If you look at a chart of the Fed’s assets,
which is like money it has increased in the economy from its own borrowing, and the stock
market, it doesn’t take an economist to see that all this stimulus really pushed the
market higher over the last decade. Now the Fed is taking that away. It’s increasing the cost companies pay to
borrow money, it’s increasing the cost of home mortgages. All this is going to slow down the economy
even against the new tax cuts. We’re also seeing the beginning of inflation
in wages and prices for the first time since 2011. All those companies announcing wage increases
and bonuses is good for workers but its going to weigh on those company profits and it won’t
be long before it forces layoffs and cost-cutting. They say you can’t be a little pregnant
and you can’t have a little inflation. I’ve been following inflation in energy,
imports and a few other areas over the last year and it’s going to be the surprise event
this year. Those are the two big factors that could dump
stock prices but another is international trade. It’s a huge unknown and could lead to a
selloff at any moment. I’m not making a judgement call on the fairness
of trade deals but this is a machine and anytime you start tinkering with a machine while it’s
running, you’re going to lose a finger. So now that we have an idea of why the market
could plunge, we can look for investments that might not be exposed to these forces. These are investments and asset classes that
don’t move in lock-step with stocks and will smooth out your returns so you don’t
freak out when stocks crash. I’ve found five investments that will continue
to give you positive returns this year and next even as stocks hit a wall. I’ll talk through each of these here and
leave links to more detailed articles in the description to the video. First is investing in peer-to-peer loans on
Lending Club. I’ve been investing in p2p for a few years
now and have booked returns just under 10%. Now that might not sound great against double-digit
stock returns but it’s double what you get from other fixed-income investments. Investing in loans is nothing new. In fact, I guarantee you already have money
in them through any pension plan or insurance. You see banks sell their loans to investors
that need reliable cash flow so their biggest buyers of loans are pensions and insurance
companies. With p2p, you cut out the middleman and become
the bank yourself for higher returns. Peer Lending is like bond investing but since
most of the loans are only for three years, they don’t lose their value when interest
rates increase. In fact, as rates increase, the rates on loans
will increase as well and returns for p2p should hold up well. P2P loans aren’t totally immune from an
economic recession. There will be higher loan defaults but your
returns are still going to be positive if you invest in high-quality borrowers. I’ll share the criteria I use to pick loans
in an article and link to it in the description below. Using these loan-picking factors, I limit
defaults even if the economy slips and keep collecting payments even as stocks drop. My next investment to protect from a market
collapse is real estate crowdfunding. Now I started my professional career as a
commercial real estate analyst and I’ve managed my own rental properties so real estate
has always had a special place in my portfolio. No other asset has created as much long-term
wealth as property. There are a couple of problems with direct
investment in real estate though. It’s expensive to buy even a single property,
a minimum of tens of thousands of dollars, and there’s no way most investors can build
a portfolio of different property types and in different regions to protect from those
risks when you have all your money in just one or two investments. Besides that, managing your own properties
is a constant headache with tenants and repairs. So real estate crowdfunding is just the crowd
meets real estate investing. Developers and investors list their properties
on a crowdfunding platform that reviews the investment and the project owners. This is a detailed review and only about 5%
of the projects ever make it on to the RealtyShares platform which is where I do most of my investing. You can invest as little as $1,000 in each
property which means you can build up a portfolio of different property types and in different
areas for that diversification. You also get professional management of the
projects. The project owners send all debt or equity
payouts through the platform and it gets passed on to investors. Since these are longer-term projects, short-term
market hiccups shouldn’t affect them. Real estate prices may follow the economy
a little but there is still that natural demand from homeowners and commercial users so that
supports prices. I surveyed real estate crowdfunding sites
on returns and found that debt investments average around 9% while equity returns average
15% annually. I invest in real estate debt on PeerStreet
and in debt and equity on RealtyShares. I like investing on more than one platform
because it gives me access to as many deals as possible. Next on our list of safe investments is shares
of utility companies and telecom companies. Both of these sectors have stable demand that
doesn’t follow the economy up or down. You aren’t going to turn off the heat or
stop using your cellphone in a recession. Now you see that shares of utility companies
also fell in the 2008 crash but not as much as the overall market. Plus, these companies are cash machines and
pay higher dividends to investors. So if you were investing in the Utilities
Select Sector Fund throughout the market crash, you would have collected a dividend return
of three to four percent. That dividend is always a positive return
and the shares of these companies bounce back fast because of that steady demand. Both utility and telecom companies are also
going to be big winners in the tax cuts because the sectors were paying some of the highest
corporate rates before the cuts. They also invest billions in equipment every
year and that is cheaper now under the tax cut as well so I’m looking at these two
sectors and the funds that cover them to do very well this year. On that real estate theme is our next investment,
real estate investment trusts or REITs. These are stocks of companies that hold mostly
commercial real estate and pass the cash flow on to investors. They also get a special tax break because
the pass most of their profits on to investors every year. You can see that REITs also aren’t totally
immune from a recession but those high dividend payments are always a positive return. Since they pass on almost all their profits
to shareholders, REITs pay a higher dividend than most other stocks actually about double
the dividend on the stock market. Even in the real estate crisis of 2008, REITs
have returned an average of 13.5% over decades. That’s well over the average return on the
stock market and almost 8% of that is an income return from dividends. Whenever the stock market tumbles, you want
to be holding as much of your money in different assets as possible. That means asset classes like bonds and real
estate so three of our investments here, those peer-to-peer loans and real estate investments
fit this diversification that’s going to protect you from the stock market. Our last investment here is shares of gold
miners. Now you’ll see a lot of commercials and
advice to invest directly in gold when the stock market crashes. That’s because gold is a safe haven investment
and holds its value. But I don’t like investing directly in gold
because it means you have to time the market. It doesn’t pay a dividend and really doesn’t
produce anything. All of your return depends on buying low and
then selling high. Gold miners on the other hand will benefit
when gold prices increase during market crises but they also pay a dividend and produce profits
on their production. That means gold miners are going to be creating
value for their investors. Even if the price of gold comes back down
when the market steadies, that value created will still be there and you can sell your
shares for a profit. Now I’m not talking about taking all your
money out of stocks and putting it in these five investments. We’re not trying to time the stock market
here, just shift our exposure to assets that won’t crash along with the market. That means taking a portion of your money
and putting it in these safety investments. If you’re like most investors, you probably
have very little in any of these. Maybe you own some shares of utilities and
telecom companies but most investors have less than a fraction of their wealth in these
five investments. I’ll keep watching the market and updating
you on how to manage your money. We’re here every Monday through Wednesday
with a new video on beating debt, making money and making your money work for you. Be sure to subscribe to the channel. It’s free and you’ll never miss a video. If you’ve got a money question, subscribe
and go to mystockmarketbasics.com/ask and I’ll answer it in a future video.

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