November 1, 2018

The next crash is coming - and I don’t care

One thing is certain: The next stock market crash is coming. The question is, what can we do about it? Hedging against a crash doesn’t make a lot of sense, because nobody can predict when it will occur; and because hedging is expensive. If you use hedging on a regular basis, you can easily burn through half of your savings.

We can see this in the Swiss pension funds: They are required by law to hedge against crashes. That’s the reason they are only able to pay out 1-2% in returns to the insured clients, even though their assets in stocks, obligations and real estate yield 5-8%. The difference goes to the administrative costs and the hedging.

The solution is to invest regularly and in a balanced way. That means not buying too much when the market is doing well. And not selling your stocks when the market is in a downturn – if anything, this is the time to buy more. However, the even smarter approach is to design an investment strategy that you can stick to – even when everyone else is panicking. And to ignore the prices, because they fluctuate anyway.

That is my strategy to protect against the imminent crash: I ignore it, and as soon as it arrives, I utilize it. Because once the prices are at the bottom, you can buy previously expensive stocks for cheap. When looking at it that way, I almost look forward to the crash.

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