How to prepare for a market crash

The stock market has been going up for quite some time now, and every now and then we can read about some market analysts predicting the next crash or crisis. The common consensus is that it’s not whether a market crash will happen, but only when it will happen. And I fully agree. It would be foolish to think that markets can only go up. Someday, something will happen that will send share prices to rock bottom.

How investors can prepare for a market crash

And yet, every long-term investor out there will tell you the same thing: Staying in the market is the only right choice. Peter Lynch comes to mind with his fairly accurate quote that “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Yet this doesn’t mean that there is nothing that could or should be done. And in my case, I follow the strategy of long-term focused investors. I invest in dividend-paying companies. Especially in those which have a track record of paying out dividends even when a recession hits their profits.

The rationale behind it is two-fold.

For one, I want to make sure to have a steady cash-flow coming in, no matter what happens around the world. Those companies that not only survived the financial crisis back in 2007 and 2008 but also managed to keep or even to increase their dividends are great picks in my view.

In my personal portfolio, this would be companies like AT&T (T), Royal Dutch Shell (RDSB), AbbVie (ABBV), or GlaxoSmithKline (GSK). Other reliable candidates are the likes of Starbucks (SBUX), Apple (AAPL), Imperial Brands (IMBBF), Vodafone (VOD), E.On (EONGY).

Communications, Utilities, Medical, and Consumer stocks have proven reliable partners over the years to keep generating cash-flows no matter what. This kind of companies are called SWANs, because they let investors Sleep Well At Night.

Secondly, having a steady and continuous cash-flow allows an investor to take advantage of market corrections. While others might sweat and crumble watching their portfolio value crashing down, investors with large passive income from dividends get into the unique position of having the opportunity to buy company shares at rock-bottom prices. Following Warren Buffetts mantra of “being greedy when others are fearful”, this strategy has proven to provide outstanding results in the long-run.

Not giving into emotions

All this is easier said than done. And yes, I have been there. On a few occasions, I have watched some of my shares dropping as much as 70% or even 80%. When the value of your portfolio drops down from 50.000 Euros to be only 10.000 Euros – it really does hurt.

You can’t sleep. You get nervous, you get easy to panic and it seems that you get constantly into a bad mood.

This has completely changed since I started to focus on dividend-paying stocks. While I still have some shares that are rather speculative and pay none or very tiny dividends, the majority of my investments are in those stable and long-term focused business models.

Stable investments help us to keep our emotions in check and thus to make smarter decisions. And in the long-run, there is no smarter financial decision than to be invested.

Disclosure: I own shares of all the companies mentioned in this article.

What to do with your Christmas bonus?

I am sitting at Starbucks (SBUX) and listening to some old Christmas jingles. Yes, even the Starbucks in Thailand is playing American jingles as Christmas is drawing near.

For many hard-working employees out there, this time of the year is not only an opportunity to spend some days with friends, family and to eat more than we usually do. It’s also the time when many employers pay a Christmas bonus. And the big questions is: What to do with it?

I know Apple (AAPL) got the new iPhone out and the Camera is really great. Plenty of people seem to think so because it’s constantly sold out in all the shops around here. I pre-ordered my iPhone 11Pro and just got it a week ago. It is awesome. It is also very expensive. So the question is, should you really spend so much money, or is there a better way?

Buying without spending

Me buying the iPhone was not a spontaneous decision. I was using my iPhone 6s for almost 5 years now and it was simply time. However, I also didn’t pay for it in a lump sum.

I got it with a 1-year contract which reduced my purchasing price by around 6.000 THB, almost 180 Euros. Then I put it on my credit card to collect cash-back-points and turned the total amount into an installment plan for 6 months. It will now cost me roughly 150 Euros a month, 6 months long, at a 0,79% interest rate – and it will be covered entirely by the dividends from my investments which I receive monthly.

So in the end, I didn’t even touch any of my cash to get it, and I will enjoy the benefits of the phone hopefully for another 5 years.

As for the Christmas money, well, I don’t get any. There is no such thing in Thailand. However, IF I would work in a place where a Christmas bonus is a thing, I would have done exactly the same. And the Christmas money would go straight in my investment account.

Conscious spending

There are many ways how we can get great things without actually spending money on them. A little preparation, creativity, and thinking. That’s all it takes.

And if you don’t receive monthly dividends just yet, then, even more, you should start investing now. The sooner you can start receiving and/or increase your passive income, the more money you will have left to keep increasing your assets and preparing for a worry-free future.

Disclosure: I have shares of Apple.

Can I earn money with ads on my blog?

Among the many jobs that emerged popular in recent years are those of the so-called influencers. Individuals who can motivate others through engaging online content. They encourage others to visit destinations, and to purchase products or services. As an influencer you can either get paid directly by the party which engages you in promoting their service or product, or passively, via ads and commercials. This is how Instagram and YouTube capitalize the content.

Blogs have something almost ancient in the technological world about them. They have been around for a while. In the beginning it was all only about sharing ideas, knowledge, or just about keeping public diaries. However, they can also be used to generate earnings.

Earning with ads

My blog is mainly about motivating people to develop better financial understanding. It’s a niche topic that some may consider a little “dry”. Certainly not sexy. I am hardly posting any pictures, except for the occasional infographic. I don’t promote any specific products or services. Not yet anyway. But even for this kind of blogs there is an option to collect some cash, and to get rewarded for all the effort that is being put into writing all the articles. Online advertising by placing banners in the articles.

I was curious how this could work out and have activated on my WordPress blog the option of the so-called WordAds. It’s basically an automated integration of commercials into the blog based on it’s content and visitors. It is the easiest way with WordPress to setup this kind of service as it can be activated with two clicks on the wordpress website.

Without further adue, I like to share with you the results of my ad-integration:

Screenshot 2019-11-18 at 14.14.51

Low effort equals low results

I admit, I put the lowest possible effort into it. I didn’t put up banners and ads on my main website. I just don’t want to do that. I hate clutter, so you see the banners only if you actually really read a full article. I also didn’t look for any specific partners or looked at affiliate marketing options which are more targeted and specific and which pay significantly better. I seriously just did the bare minimum. And yes, the result speaks for itself.

So if you intend to earn money with you blog or website, I am afraid you should put much more effort into it than I did. Otherwise you might get just this: A mere 0,13 $ for almost an entire year of writing.

A journey of a thousand miles…

…begins with a single step. There might be twists and turns, ups and downs, but once we start walking and frequently check our compass, step by step we get closer to the finishing line.

Reaching the goal of financial independence requires a substantial amount of money in savings and investments. Getting there is not easy and requires time, perseverance and patience. But no matter how hard it may seem, it’s not impossible.

Many of us are top-line millionaires

If you are blessed living in a thriving economy, you are most probably a millionaire – stretched over your lifetime. The math? It’s not too complicated. Let’s say you earn 2.000 Euros a month which is really not a high salary.

Not accounting for any bonus or extra payments, this comes up to 24.000 Euros a year. Put this into a context of 40 years of work and you have 960.000 Euros right there. Almost a million. No salary increases, no bonuses, nothing added to that.

Of course, there are taxes to be paid, living expenses, medical bills. Whatever. Your total income over those 40 years in this scenario is almost a Million Euros. In business, we call this the “Top Line”.

The deciding question is how we approach this top-line and what we do with it. All the expenses that we have along the way will reduce our top-line. The money that is left over is called “the bottom line” and this is basically the amount that we have to save and to invest.

It’s not about how much we earn

Having a high salary can help us to reach financial independence more quickly. And yet, during my short career in a bank, I observed that most people with high salaries were seldom the ones with the highest numbers on their bank accounts.

It was usually the quiet, medium-salary people who had the best credit scores and whose accounts would show the occasional million Euros. And I always wondered how that could be. How could someone with a very regular income of only 2.000 or 3.000 Euros a month amass a Million in their late 40s or early 50s?

The answer: They controlled their spendings, they invested regularly in the stock market or real estate, and they kept a comfortable but modest living standard.

  • When they got their first salaries and started to develop their careers, they would immediately start saving and investing.
  • When they got salary increases, they would increase their savings and investments first, before thinking of buying non-assets.
  • They wouldn’t succumb to peer pressure and buying shiny things or branded clothes just to show everyone that they can afford it. They would rather buy just another asset to watch their portfolio grow.
  • They would seldom use credit cards or take loans for anything.

Some might live very frugally, trying to find hacks and get creative about how and where money could be saved or re-gained. Some might push for a stellar career and higher salaries. And there is nothing wrong with any of that. They might reach their goals earlier on.

But the point is that even with modest salaries, it is possible to save, to invest and to take our future in our own hands. The first step to get there is to learn to control our spendings.

Assets and Liabilities

These two words rarely come up in conversations. Even with my friends and colleagues, unless initiated by me, I have seldom noticed anyone popping them up into a regular chat. I guess there are good reasons for that. They sound complicated. They sound very “financial”. They just don’t fit in the “what are you planning for the weekend” talk. They also don’t really fit in the “what do you do after work” conversation. And yet, when it comes to financial knowledge, these two words are the most crucial terms and in my humble opinion, everyone should learn their meaning as early on as possible.

What is an asset?

Obviously, if one is about to learn something, one should always try to learn from the best. The book titled “Rich Dad Poor Dad” by Robert Kiyosaki was my personal eye-opener. It takes the most simple and accurate approach to define assets and liabilities with one-line definitions:

“Assets constantly generate money and put it in your pocket”.
“Liabilities constantly take money out of your pocket”.

That’s it. It doesn’t get simpler than that. And yet many have trouble getting the concept. Especially the traditional souls out there who dream about buying a house or condo might have some challenges with this definition.

I as house an asset?

The definition is clear in terms of what to do with your money in general. A car is not an asset. It uses energy, depreciates in value, you need to pay taxes, insurance and chances are that even if you use it to earn money with Uber, your net-balance will remain negative.

Stocks and bonds are assets IF they generate cash-flows and add on value. So personally, I consider dividend-paying stocks, REITs, and index-ETFs to be assets. Other stocks that are highly speculative and don’t pay dividends I consider to be just that: Speculations.

But how about a house? Is a house an asset? The answer to this question is: It depends. Unless purchased for a commercial purpose, they don’t generate cash per se and if purchased with a mortgage or with any other form of a loan, they actually take money out of our pockets, month-in, month-out.

Now you can argue, that you won’t need to pay rent and the money saved is equivalent to a handsome return on investment. It is a valid comment and one could definitely have debates about it. The reason why I would still hesitate to count it is due to the structure of mortgage payments. Especially during the first years of a mortgage, almost every penny you pay to the bank is actually only covering bank fees and interest. Very little is going into the actual payback of the loan. You are therefore actively spending money on it.

Furthermore, a house is good for a couple of years, but you do have additional costs associated with it which will grow even larger as the house gets older. Repairs, refurbishments, taxes, insurance. These factors play a big role and can massively diminish your return on your investment.

Buy assets, avoid liabilities

Once you have the understanding of assets and liabilities, all you need to do is to focus. Keep buying assets. Try to avoid liabilities. Following this simple rule will lead you straight to financial independence and out of the rat race.