“We have no right to be surprised by a severe and imminent stock market crash,” explains Mark Spitznagel, a hedge fund manager who is notorious for his hugely profitable billion-dollar bet on the 2008 crisis. “In fact, we must absolutely expect it.”
“We are in a gigantic financial asset bubble,” warns Swiss adviser and fund manager Marc Faber. “It could burst any day.”
Even billion-dollar investor Warren Buffett is rumoured to be preparing for a crash as well. The “Warren Buffett Indicator,” also known as the “Total-Market-Cap to GDP Ratio,” is breaching sell-alert status and a collapse may happen at any moment.
Is there an inevitable crash coming soon? According to several reputable experts, it is only a matter of time before the stock market plunges by 50% or more. Yes, crashes will keep coming: History lesson: The 1929 crash led to the Great Depression. So the stock markets will crash by 50%. Really? One thing is certain about the economy, there will always be uncertainties. As sure as the sun rises, there will be another credit crisis. How do we know? It’s because the entire financial fiat system is based on credit! When is it coming? No doubt, there are plenty of warnings, both in the secular and Christian circles. If you were to read the book of Revelations, there’s one thing that you’ll realise: things are going to get worse. If you are a mother, you’ll understand the meaning of birth pangs mentioned in Matthew. It just gonna get meaner and faster.
What can we do? Nothing much, actually. One option is to withdraw all stocks and convert to cash. Or property. Or… gold. But the main is issue here is not “if”, but “when”. Timing is everything. Isn’t it? But how are we going to know when to invest, and when to pull out? If you don’t know when to invest or pull out, then isn’t that… gambling?
The recent boom and bust of the global economy over the last decade, from which many portfolios are still creeping up, not only left investors questioning their strategy for risk, but helped shine the spotlight on the importance of diversifying. That’s one way to go. The principle of diversification. Emerging markets may offer excellent growth potential. And of course, there is gold. But be warned, all investments have risks.
A little known statement tucked away in a little known part of scripture unveils that this is indeed a universal strategy for long-term investing. “Divide your portion to seven, or even eight, for you do not know what misfortune may occur on the earth.” says Eccl 11:2.
Have you heard of stories about people earning millions and you thought they had it all made, when suddenly they are declared bankrupt? And you wonder to yourself “what happen?”. A typical mistake is to dump all your money into an investment and then when it sours up, you lose everything. Failure to diversify.
There are those who mock diversification and almost treating this concept with contempt. But what does the Bible say? Ecclesiastes 11:2. Diversify.
Diversification by assets can be in the form of stocks, real estate, bonds, cash, and even precious metal like gold and silver. However, diversification does not mean you jump into it blindly. Do your research first. Diversification by investment styles can be in the form of value-driven investment, market orientated investment, and small capitalization investment.
Real estate represents an investment that can benefit from geographical diversification. International investments comprise another asset class that could and should be invested geographically. Perhaps we can learn something from history. After all, for centuries, many investors have slept comfortably in the knowledge that if they diversify their assets wisely among stocks, bonds, commodities and cash, they will do well enough over the long term.
That’s the key, “the long term”. Proverbs reminds us the dangers of “quick get rich schemes”. So here are some basic but easily forgotten principles that gives wisdom: 1) Buy low, sell high. 2) The only investments that you can ”buy and hold” are those that provide an income stream with a return of principal function.
If you wish to learn more, many of these principles are laid out in our successful course, the Scriptural Financial Freedom series. You can download the Small Groups kit.