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Reality Check 2017: How Can Average Americans Survive Another Market Crash

The economic crisis in 2008 prompted the U.S. Federal Reserve to pump massive dollar stimulus into the economy, that shifted pushed bond yields to their lowest point in seventy-five years. This forced many investors to shift from bond surrogate investments like real estate, high-yield bonds, high dividend paying stocks, and levered loans. The proliferation of these products has brought different risks to investors such as expensive valuations, regulatory changes and liquidity issues. Stricter capital rules are introduced by governments on U.S. and international banks in order to lower the chance of bank failures in the future.

For the average American investor, there are things you can apply today so you will be able to survive another market crash if it does happen. Be skeptical about the new product you are investing. The 2008 economic crisis was presaged by credit markets’ record set of innovations. Increased leverage, subprime asset-backed securities, and collateralized debt obligations magnified a contained real estate correction into a wider financial collapse. All with their own risks, we can see many new alternative asset classes, products and strategies. You need to plan ahead to prevent being forced from selling when market liquidity will dry up. In order to avoid selling securities at relatively fire sale prices, it is important to own high-quality investments and utilize diversified and effective high-quality fixed income investments which are mixed with appropriately priced stocks. You must be aware of different debt levels impacts that can adversely affect markets. You don’t have to panic or sell your securities when the outlook is not good as long as you have an adequate financial plan because markets will recover. Look for warning signs in terms of market valuation and failure to appreciate investment risk.

The 2008 economic crisis is a reminder for average American investors to embrace investments that can withstand the test of time. Investors must heed the important lessons of history to be able to create a portfolio that can withstand the challenges of tough markets, respect the past and open great opportunities of the future. It is not good to invest in a company just because of it net assets, you need to also closely monitor those assets if they were brought or earned like mergers or acquisitions. It is also crucial to look at the upper-level management and board of directors of a company. Ask the person who manages the financial aspects of the business you are planning to invest in. A company can fail because of managers that are less than above the board with their dealings. Beware of any get-rich-quick schemes or overnight wealth.