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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 event forced many investors to find income from “bond surrogates” investments such as high-yield bonds, high dividend paying stocks, real estate and levered loans. With the proliferation of these products, it has brought different risks to investors such as regulatory changes, expensive valuations, and liquidity issues. The international and U.S. Banks have tougher capital rules introduced by governments, reducing 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 credit markets’ record set of innovations presaged the 2008 economic crisis. Collateralized debt obligations, increased leverage and sub-prime asset-backed securities magnified a contained real estate correction into a wider financial collapse. At present, we see a lot of new alternative products, asset classes and strategies, all with their own risks. You need to plan ahead to prevent being forced from selling when market liquidity will dry up. Avoid being forced to sell securities at sale prices by owning high-quality investments, and utilization of effective and diversified high-quality fixed income investments that are mixed with appropriately priced stocks. It is also important to be aware of the impacts of debt levels because high levels of leverage or debt can adversely affect markets. Keep in mind that markets will recover and you do not have to sell if you have an adequate financial plan, and you do not have to panic and avoid selling securities if the outlook is not good. It is best to still look for warning signs in terms of market valuation and failure to appreciate investment risk.

The 2008 economic crisis serves as a reminder for American investors to embrace investment strategies that can withstand the test of time. It is critical for investors to learn from the lessons of history, creating a better portfolio, respecting the past, and opening great business opportunities of the future that can withstand the challenges of tough markets. Of course you don’t want to invest in a particular company just because of what appears to be net assets so consult a fee only financial planner to get a professional advice on the best ways to make investments. It is also crucial to look at the upper-level management and board of directors of a company. It is essential to know the person managing the financial aspects of the investment or business you’re planning to venture in. A company can fail because of managers that are less than above the board with their dealings. Do not fall on different get-rich-quick schemes or overnight wealth schemes out there.

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