Everyone is euphoric, markets reach record heights every day, the banks keep printing money and inflation is still relatively low. It couldn’t be better, right? Wrong. A recession is in the making. Here’s how to protect yourself.
When Businesses Start Cutting Back And Japan’s Market Reaches New Heights, It’s Time To Worry
China, Japan and Europe have promised to keep interest-rates low and stimulate their economies with cash infusions. The FED is ahead of the game and in full recovery mode: They will increase interest rates way before Japan or Europe. Japan is known to lack behind in the economic cycle, so when Japanese markets reach new heights, it’s time to start getting worried, so to speak.
As a small business owner, you will be hit the hardest when the recession kicks in.
The internet grows and more and more people come online, which obviously puts a strain on current ad prices, but when businesses start cutting back, it’s a good sign recession is ahead.
Sure, that may not be until mid-2015 or even 2016, but political events may start a recession earlier than expected. The upcoming recession may not be as hard on businesses as the last: Stocks are still priced reasonably with P/E not exceeding 20 for many corporations and world economies are still growing at a decent rate.
Still, the question is how to protect your business and keep your cashflow high? One answer to that is obviously restructuring and cutting costs wherever possible and looking at the profit margin of your peers, which I started looking into here
Aside from that, you need to diversify your money. Here are 5 ideas to diversify your wealth:
1 Stocks / Commodity Producers
Obviously, during a recession stocks will go down, but right now many European/Japanese stocks are still priced reasonably. Buying in tranches, e.g. 20% of the lump sum will help you to avoid common pitfalls like buying at the top and selling at the bottom many beginners fall victim to. Dividend stocks may help you to earn income while you face the storm of the recession.
If you believe the recession is coming sooner than later, you may want to overweight consumer stocks and commodity producers (silver/gold mines) possibly some solid energy stocks with a decent dividend.
Trading and looking for bullish flags is another possibility to better time your stock purchases, but when you’re running a business, it’s unlikely you have a lot of time for this, so it’s much better to buy for the long-term (5 years+) instead of looking at short-term losses.
Buffet keeps saying you should act as if you’re buying the entire business. When you look at that, you suddenly realize there are some really great opportunities out there. As someone who runs an online business, you will have knowledge of the industry. Use that to your advantage. There are still many small caps and large caps that could easily double your money in 12 months.
Gold and Silver are out of favor, but they will have a comeback eventually. A time may come when commodities will be in high demand again, especially since inflation will increase eventually and may spiral out of control.
3 Digital Currencies
Use of digital currencies will grow. Digital money is here to stay. If you are not investing some of your wealth into digital currencies, you are missing out on a big opportunity. Sure, it’s not as regulated as stock investing and has some inherited risks, but you’re not supposed to bet big on this, it’s just another way to diversify, so invest whatever you can lose and follow the market. Aside from Bitcoin, digital currencies such as Stellar and Ripple still have a very low market cap and could potentially triple or quadruple your investment in 1-2 years. The greater risks may come with greater rewards.
4 P2P Lending
Lending money via the internet is a growing trend. The Lending Club IPO will give the sector some much needed publicity and may help you to land some good deals.
5 Business Diversification
Last, but not least, you can diversify your income. Relying on a single income source such as Google will put you in jeopardy. It’s tough out there. Online ad prices are shrinking and so is your revenue. It’s a feast for media buyers, but if you’re on the other side of the spectrum it may just kill your business, unless you diversify your income: