Next Stock Market Crash is Coming [How to Prepare and Invest]


The sky is falling for investors and the stock
market just had its worst three days of the year. A recession warning signal with a perfect
track record just flashed red but most investors are nowhere near prepared for what’s to
come. Beat debt. Make money. Make your money work for you. Creating the financial future you deserve. Let’s Talk Money. In this video, I’ll show you why a 2020
recession is more likely than investors realize and what you need to do to get ready for the
next stock market crash. We’re talking investing before a crash today
on Let’s Talk Money! Joseph Hogue with the Let’s Talk Money channel
here on YouTube. I want to send a special shout out to everyone
in the community, thank you for taking a little of your time to be here today. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. The sky is falling ladies and gentlemen! The worst three days of the year for the S&P
500 have all been in August and seven of the worst 10 days have been since May. In fact, the market has gone from a roaring
21% gain on the year to a daily roller-coaster that would make 7 Flags jealous. Economists are currently putting the chance
of a recession in the next year at 35%…but then again, economists have a lousy track
record of predicting recessions. Research by Fathom Consulting found that of
the 469 recessions since 1988, the International Monetary Fund has only been able to predict
four by the spring of the preceding year. Worse still for investors, the IMF has never
forecast a recession in a developed country with a lead of more than a few months. Private-sector economists aren’t much better. Another study by Zidong and Loungani found
that private-sector economists have only correctly forecast five of the 153 recessions in 63
countries from 1992 to 2014. So if you’re waiting on economic models
to tell you if a recession is coming in 2020, good luck with that…and this is from a guy
that has worked as an economist! But there are some very strong warning signs
pointing to an eventual recession and the coming stock market crash. So what I want to do in this video is start
by listing out the reasons we could see a 2020 recession, what you can do to prepare
and how to invest before a recession. Now ten years outside of a recession, I know
it can sound like a pointless economic term, something only academics worry about. But just take a little time to remember that
last 2008 recession. We all remember the 50% drop in stocks but
don’t forget that 2.6 million people lost their jobs as well. Tens of thousands of people ready to retire
saw their nest eggs wiped out, and the National Institute of Health found nearly 10,000 cases
of suicide tied to the crisis with thousands in the U.S. alone. This is serious and one of the most powerful
recession warning signs went off this summer. The interest rate on the two-year government
Treasury bond has been higher than the rate on the 10-year government bond several times. Normal is for the longer-term bond to yield
a higher interest rate, investors should want a higher rate for locking up their money for
ten years instead of just two. Why this is important is because that yield
curve inversion, as it’s called, has signaled every recession in the last 50 years. While a lot of other recession warning signs
might flash off-and-on but without a great record for actually predicting a recession,
this one has a perfect record, every single time. A recession has followed the inverted yield
curve by an average of 22 months, which would put the start of a recession in mid-2021. That’s just the average though and there
have been three recessions in the last 50 years that started much sooner after an inverted
curve. Looking at the stock market now, which usually
dips well before an actual recession. For example, the stock market started falling
in July 2007, a year before unemployment really started getting bad in 2008. Here we see a scarier picture for 2020. In three of the five recessions since 1980,
stocks started falling from their peak almost a year before the recession started. That means we could see stocks start getting
slammed mid-2020 or even earlier. There are other warning signs to a coming
recession but the real risk is that all this becomes something of a self-fulfilling prophecy. The market is reacting to the inverted curve,
selling off like a recession is coming. Companies see the stock market falling and
start to rethink their hiring plans for the rest of the year. That causes unemployment to start rising which
decreases consumer spending and pretty soon…we’re deep in a recession. So for those of you dedicated enough to sit
through the econo-speak there, and you know I never like to just go straight into what
to do without explaining why first, let’s look at how you can prepare ahead of that
stock market crash. And here I want to cover a few ideas, not
only to prepare you financially but also how to invest ahead of a recession. First, it’s time to look at your income
and expenses and take an honest look at the possibility of not being able to cover your
bills. The unemployment rate hit 10% in 2009 with
over 15 million people out of work. Worse still was the fact that average time
unemployed reached 40 weeks, three years unemployed for many people and more than twice the average
we had ever seen before. So I want you to attack this from both sides,
your income and your expenses. Maybe this isn’t the time to buy that shiny
new car or to be taking on new bills but it is the time to start looking at ways to make
a little extra cash. Whether that means putting in a few extra
hours at work or just starting a work from home hustle on five or ten hours a week, this
is going to give you that extra cushion to survive anything a recession brings. Investing before a stock market crash or recession
doesn’t mean you have to time the market perfectly. After more than a decade of higher stock prices,
now is the perfect time to rebalance your portfolio to take some risk out of stocks
and find protection in other assets. What I mean by rebalancing is looking at the
amount of money you have in stocks, bonds and real estate compared to your total portfolio. For example, if you have a total portfolio
of $50,000 with $45,000 in stocks and $5,000 in bonds, then you have 90% of your money
in stocks and just 10% in bonds (and subsequently, nothing in real estate). The reason this is important is because having
too much in stocks just before a recession or market crash is obviously not a good thing. Millions of 50-something investors had almost
everything in stocks when the market crashed in 2008, losing half their retirement savings. Having money spread more evenly between stocks,
bonds and real estate will protect you from the worst of a coming crash. You’ll still see your stock portfolio fall
but your overall portfolio value will be protected by the other two investment types. So here you’re going to add up all your
investments in stocks, bonds and real estate. That means adding up all the individual stocks
and stock funds, adding up the bond funds and adding up any investment in REITs and
direct property investments. Then you take each of these three numbers
and just divide by the total to give you a percentage you have in each asset. If you have that $50,000 total invested with
$30,000 in stocks, $15,000 in bonds and $5,000 in real estate investment trusts, then you’ve
got thirty grand divided by fifty or 60% in stocks. You’d have 30% in bonds and 10% in real
estate. And that’s actually not a bad percentage
split though I’d have a little more in real estate and less in bonds. Now the target percentages you want will depend
on your age and tolerance for risk but I can almost guarantee you, nine-in-ten people watching
this video are going to have more than 80% of their money in stocks and that’s way
too much if you’re looking down the barrel of a recession. Another strategy to use before the coming
recession might be repositioning into sectors that are not as expensive as the overall market. The chart here shows the forward price-to-earnings
ratio of each sector of the economy. That’s the price of the stocks in the sector
divided by the combined earnings analysts think the companies will report over the next
year. You see here that the S&P 500 market index
is trading at a price of 16.2-times expected earnings of the companies in the index. That’s a premium of almost 13% over the
ten-year average at 14.8-times forward earnings. Some of the individual sectors are even more
expensive with stocks in Information Technology trading for a 29% premium on their ten-year
average. But there are pockets of value still in the
market with stocks of financial companies and energy companies trading below their long-term
valuations. This isn’t to say that all financial or
energy companies are good investments but there certainly does seem to be more value
opportunities compared to the more expensive sectors. You can take this information and invest broadly
across the value sectors, investing in funds like the Financials Select Sector Fund or
look for best-of-breed companies within these sectors. You can also rebalance your portfolio to some
of the traditionally-safe sectors and into cash before the recession. Research by Fidelity in this graphic shows
the average returns of sectors during a recession as well as how often the sectors produced
a positive return. You see that of the 11 sectors studied, five
have produced positive returns during recessions with three of those sectors; Consumer Staples,
Utilities, and Health Care all generating positive returns in 70% or more of the recessions
studied. Compare that against a sector like technology,
which we already know is expensive on a PE basis, that has averaged a negative 8% return
during recessions. This strategy might still be a little more
market timing than a lot of you want…and there’s nothing wrong with that at all. The vast majority of investors would do very
well to invest in a diversified portfolio, make regular deposits and take a stress-free
approach. I’m talking about just investing in a handful
of funds and stocks, not trying to change your investments in different sectors but
just hanging on for the long-run. You still need to watch the amount of money
you have in stocks, bonds and real estate though. After more than ten years of a bull market,
most investors have way more in stocks than is safe. For example, if you had a 50/50 portfolio
of stocks and bonds in March 2009, you would now have over 75% of your portfolio invested
in stocks. Stocks have returned an annualized 17% return
while bonds have lagged with a 4.% return over the period. Having more money in stocks over the last
ten years has certainly paid off but now it leaves you hugely exposed to a stock market
crash. If we get another crash like the 2009 disaster
and stocks lose half their value, your nest egg is going to fall off a cliff. So even if you don’t want to use some of
the strategies here, repositioning in different stock sectors, you still need to rebalance
back to your target percentages in stocks, bonds and real estate. Click on the video to the right here for the
truth about how to invest in stocks. I’m revealing the three lies Wall Street
tells investors, three lies I saw first-hand working as an equity analyst. Don’t forget to join the Let’s Talk Money
community by tapping that subscribe button and clicking the bell notification.

Paul Whisler

89 Comments

  1. Worlds coming to an end! 😝
    I believe diversification is the ultimate strategy 😉

  2. What do you think about Utilities ETFs for recession times? People have to eat and pay their utilities no matter what!

  3. I haven't added any more money to my account for close to a year. Yes, I have been expecting a crash for some time. Cash is king right now.😉

  4. Precious Metals & long dated SPY puts are the best way to prepare imo, as well as moving the portfolio to safer value stocks

  5. More important than avoiding the crash?…avoiding some of these biggest stock market lies! 😲 https://youtu.be/oF3Ro3SxmaU

  6. Damn I wish I could see the future chart for DJI … Just for a minute, ouh well . It is interesting to see what will haopen in Europe because it is unlikely a recession will originate in the US since its still going strong. Hmmm maybe if the dollar strenghtens that could play a role in exports … Shh am curious to see what will generate the next downturn.

  7. The foreseeable crash is both worrying and exciting. I've been holding onto a decent nest egg to invest but waiting for the massive dip. For now I've been just investing a small sum a week.

  8. I like your Videos, but I dislike crashes, recessions and Depressions…

    Thanks again for all the time you put into these =)

  9. I invested $7800 recently just to start positions but I will now save all my money. I have the ability to save 30k-40k right now so in hoping I can keep it going like this and be ready to splurge on stocks when the crash comes. After that I will be looking into real estate 😁

  10. Short SP500 then? Since when? I believe that after it touches 3000 again we should short it.
    Also, do you know any stocks investing in real estate?

  11. I wonder… You make a video predicting the next market crash, while in the same video you talk about how IMF economists have only been able to predict 4 out of 469 recessions so far. What makes you think you are more capable than them in predicting recessions?

  12. Honestly I'm going to keep investing in defensive stocks and I have atleast 30%cash ready to short sell into a recession

  13. Follow the business cycle. Is the best advance I would give someone. I also tend to focus on companies that did not decrease their dividends during the last few recessions. For example, ADM, PPL, MATW, LEG, and UNM are few examples of these. Matthews International is not a company you want to brag about owning. However, in the end, unlike their customers this business won't die. Please do another stock market challenge video at the end of this year or beginning of next year please. Thanks for all that you do Joseph!

  14. Great information. Thanks. I confess my ignorance to the more technical & inside knowledge of the market; but…with "everyone" talking about a market crash & the influence of algarythym can we expect to experience anything worse than Oct 2018-Jan 19?

  15. About time things went on sale. I’m tired of paying a premium.

    Reallocating based on anticipating a recession is ‘timing the market.’ If you need to deleverage into bonds because of your age you should have already done that irrespective of where you think the market is going.

    I’m 90% into stocks… I’ll be 90% into the next recession and I’ll be 90% into stocks after the recession. I’m 20 years from retirement; now is not the time to flinch.

    Dollar cost averaging is your friend.

  16. I have a total portfolio of around $410. I just started investing and I’m currently a junior in my BA program. What do you suggest??

  17. This seems like a great time to move $ from stock market into life settlement funds… immune to market swings as they are based on actuarial math and life insurance policies!

  18. I think the market pullback we had at the end of last year was the last we will see for the next five years. China trade agreement will make this market catch fire.

  19. Current portfolio targets.
    Blv. 5%
    Vnq. 40%
    Schd. 55%

    I'm evaluating to see if VPU will fit with my strategy.

  20. Hi Joseph. As there's been a serious bond bubble building all summer that popped moderately beginning of this month and all the experts say the looming danger area is corporate debt, what would you recommend for a safe area for bonds. Gov't/munis have had significant run ups YTD.

  21. Love the videos .The power of dividends at work. Most stocks will keep your returns coming. KEEP holding your stocks unless they cut their payout by half to nothing , that is the only time you should ever sell! With that being said my wallet is ready to buy buy buy. :D)

  22. Thanks for this valuable information. Yes, we all lost 40-60% in 2008-2009, but we regained it by 2013. If you move funds from stocks to bonds in the expectation of an upcoming recession, it could be difficult to predict the end of the recession and subsequent reallocation to stocks.

  23. Stocks go on sale during a recession so there is nothing to fear. It's a good time to go shopping for stocks. It's time to sit down and make a shopping list. 💲😁💲

  24. That’s why I like having some of mine invested in stocks in a lot and Real Estate as well. I’ll talk a lot about that on my channel

  25. They way in see it is a huge stock discount coming. I'm a dividend investor. When i buy a stock i think of it already as a loss. I buying a stock because i want that 2 to 5% dividend or more. But what's your opinion for dividend investors?

  26. Never bad to have a portion of your $ in bonds & real estate, but I don't see a major recession coming any time soon.

  27. Utilities 3X = UTSL (up 88.34% for the year)
    Consumer Staples 3X = NEED (up 28% for the year)
    Healthcare 3x = CURE (down 24.6% for the year)

  28. I usually enjoy your content, but this fear shit is for the birds, just keep buying when the market keeps falling. I've been broke my whole life, most wouldn't understand how "frugal" I've lived and how frugal I live currently, I hope a recession comes because I'm never going to make it out of poverty unless I can buy during the fall, please everyone sell your holdings, help me get out of poverty! Lol.

  29. The market has its lows and highs, doesn’t mean there’s a recession. The economy has been doing well since Obamanation

  30. It's too hard for me to sell my entire portfolio. I decided to just sell my computer.

  31. You hinted that tech is not a good investment prior to a recession. In one of your videos you recommended Verizon and Apple because of their dividends.. Should I not buy Apple and Verizon now because of the coming recession?

  32. So..when you say real estate-you are referring to REIT's? If that is the case-do they hold up better in a crash/recession scenario?

  33. Mr Hogue on Robinhood I'm on the verge of buying Vanguard Short Term Bond ETF. Is this considered a bond, an ETF, or cause is in Robinhood a stock.

  34. So if no economists can predict recessions, what makes you think you can. And don't forget there is the real risk of missing out on the gains of the stock market if it goes up and we have moved to bonds. Furthermore, if bonds become more expensive, and yields lessen, aren't you losing out by moving to bonds now?

    This is the issue I have had with this kind of thought. It is market timing, which lots of evidence has shown to not work

  35. Also is having a portion of your entire Money in your bank savings account a good idea ? During a recession?

  36. But why do you propose real estate where lower interest rates are already priced in for this asset class, while this is much less the case in stocks? The return in real estate dropped therefore, but you do not adjust PE ratios to the changed environment and so you think they are too high. What is the reason behind your thinking? I get the point of diversification, but not about valuation with past non-adjusted measures. Thinking of an average 1% interest rate environment you should still feel as comfortable with PE ratios a bit above 20 the same way as before with a ratio of 14 or 15 in a much higher interest rate environment. Do you assume rates are going higher much sooner than currently anticipated?

  37. Too many are aware of these crashes. Greatest minds banks govt can't balance books yeah right. The game is rigged we know it. Recession ha why? How? Got money for space travel, wars aren't cheap have they caught the terrorist.

  38. In Dec 2018 i was buying while the stock market fell by approx 15% Lots of nice deals available, i have not bought since, so would like a nice 20% -30% price reduction now PLEASE !

  39. Stocks, bonds, and real estate all fall, I have a balanced 401k between multiple sectors including foreign and in the last recession they all fall in unison, you need to have and hold cash. I didn't have cash last time to buy on the bottom.

  40. What about silver and gold? Last recession it hit 49 and down to 17 today? Thinking about selling everything and switching to silver, then selling in the recession and buying stocks at a huge discount

  41. On an unrelated note, that is one cleanly pressed shirt! Love the channel…please keep it up.

  42. Here is a 70/30 REIT & utilities portfolio.

    5yr Performance: 67.5%
    Dividend Yield: 6.47%
    5yr Max Drawdown (Dec 2018) : 11.5%
    ____________________________________
    REIT Portfolio:



    ABR

    Arbor Realty Trust

    13
    %



    CCI

    Crown Castle International Corp. (REIT)

    13
    %



    CUBE

    CubeSmart

    13
    %



    MFA

    MFA Financial Inc.

    13
    %



    ARI

    Apollo Commercial Real Estate Finance Inc

    12
    %



    BXMT

    Blackstone Mortgage Trust Inc.

    12
    %



    CIM

    Chimera Investment Corporation

    12
    %



    NRZ

    New Residential Investment Corp.

    12
    %

    ____________________________________

    Utilities Portfolio:



    AEP

    American Electric Power Company Inc.

    10
    %



    AWK

    American Water Works Company Inc.

    10
    %



    ATO

    Atmos Energy Corporation

    10
    %



    CMS

    CMS Energy Corporation

    10
    %



    DTE

    DTE Energy Company

    10
    %



    EXC

    Exelon Corp. – Ordinary Shares

    10
    %



    NEE

    NextEra Energy Inc.

    10
    %



    OGS

    ONE Gas Inc.

    10
    %



    WEC

    WEC Energy Group Inc.

    10
    %



    XEL

    Xcel Energy Inc.

    10
    %

  43. Why am I the only one seeing a depression 👀…—• yea we’re due for depression, and look at what the democrats 👀 say there idea is socialism…—• look at these banks being bailout as of to day.

  44. They said same thing about this stupid recession since 2013, 2014, 2016, 2018…yawning…..kinda boring

  45. "The IMF sucks at predicting recessions. But the economy is going to crash for sure!"

    Not saying you're wrong, just pointing this out. Lots of love!

  46. I might just wait to invest in stocks until they actually do plummet and get them on sale. Otherwise, just leave your money alone and it will eventually come back up!

  47. Videos like this help a lot of people. Thanks for sharing your knowledge.

  48. I have a portfolio worth $900 should I sell off and wait for the crash? Just started but I’m willing to learn!

  49. So the people that deal with economies have no idea but some simple indicators are total reliable. I am not saying, no recession will come next year but so might an alien landing or this trump idiot getting the peace noble price. Noone knows and these titles are just click bait. Recessions come and go. People who try to time the market usually lose. So just invest into value and keep holding and averaging down.

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