Yesterday, I was discussing with a friend of mine who is shopping for real estate. He is very concerned about real estate prices in Canada and who would blame him?
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He’s thinking about waiting a few years for some kind of decline. It’s not a terrible idea and in fact I remember thinking about doing the same thing before buying my house 3 years ago. I ended up deciding not to because it’s so difficult to type the market (no matter what market you’re investing in). Looking back, it’s a good thing that I did not wait. My family and I would still be on the sidelines. That crash has yet to come. It could take a few months, a few years or maybe a while longer. It’s almost impossible to bet or invest based on such scenarios.
Enter Gold BugsI’m not a huge fan of gold. I’ve written about it a few times but don’t currently own any. At some point, I will probably buy some but I don’t expect it to be a significant part of my holdings at any point. Others have gone all-in on gold as they prepared for massive inflation and a stock market collapse. It’s not impossible that we will witness such an event. And for a while that trade was profitable… But lately? They say a picture is worth a thousand words, so take a look at this chart from the Reformed Broker:
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Ouch! Needless to say that it has not worked out very well. My main takeaway would be that it’s never a good idea to invest a big portion of your assets in an unlikely scenario. I can’t imagine that someone would believe, no matter how negative they are, that the end of the world is a year or two away. So much can happen. Taking part of my savings and investing into such a scenario is something I might consider at some point. But not until I had a lot more to invest in.
The Alternative ApproachInstead of trying to move my entire assets to protect myself from a difficult environment, I try to use strategies that will do well in any environment. It’s not a perfect method (because such a thing does not exist) but using strategies such as buying a sustainable and diversified portfolio limit the downside in case of a financial collapse. It’s not perfect but I’d argue that very few of us can afford to always be ready for such an event.