Times change, politics change, economics change, and how do deal with those changes means everything. This phenomenon is not related directly to forex trading but it might be crucial for our long-term success and overall development as forex traders. We need to set us up to succeed and be far more prepared for the problems than anybody else. We want to be equipped if and when the next economic collapse comes. The longer we wait the worse is going to get, and we simply need to have some kind of a plan, we need to know what very next step we are going to take. Good thing is that there is always a way to overcome obstacles but surely there’s a lot more to this.
Trading experts agreed on one, forex is recession-proof far more than any other investment we know. No one can truly forecast of how the economic landscape is going to look like but if everything goes south we need to play defense based on our trading knowledge. Especially nowadays when almost everybody is playing offense because we are in the biggest economic rally in recorded history. Our goal is to change our mindset and start to be proactive now instead of being reactive when the problem is already on our doorstep. So how are we going to play defense? The first thing we can do is not to overpay our taxes, we want to keep them legally as low as possible, secondly, keep your precious metals close to you, make sure your money is disposed to a different place.
These are some of the ways of how we can stay solvent, this is how we might stay alive where everything goes south because the next economic collapse will come, don’t doubt it, it would be a miracle not to happen. From this perspective, we can put ourselves in a position where we can play offense and investing when everything out here is super cheap, like real estate, stocks, etc. These are all good things to do in general but they might be great if the next crisis comes. It could be a perfect way to stay protected and take advantage of the economic downturns when the time comes. The last thing we want to be is a helpless person who complains because they lost their job due to the recession, and how the costs of living are high.
The better option is to try to be in control of our destiny. Educate yourself on economics, be dedicated, and focus on details. One of the better economic minds from which we can learn a lot is Ray Dalio, he was explaining how recessions are cyclical, how we actually need them, and how they are supposed to happen every so often. Because we borrow money through credits, we have cycles.
This isn’t any due to law or regulation, it’s simply in human nature and the way the credit works. If we want to buy something we can’t afford, we need to spend more than we make, we do that through credit. Basically any time we borrow we create a cycle. We can explain cycles through debt. ‘Debt allows us to consume more than we produce when we acquire it, and it forces us to consume less than we produce when we pay it back’. All of you people out there, try to remember the sentence above. Debt swings occur in two big cycles. Statistically, we need about five to eight years for the first cycle and about seventy-five to one hundred years for the second cycle. While most people feel the swings, they typically don’t see them as cycles. Day by day, week by week life goes on, and big wheels of the economy are shifting gears.
The reality is that most of what people call money is, guess what, credit. For example, the total amount of credit in the United States is about seventy trillion dollars, and the total amount of money is about five trillion dollars. As a result, an economy with significant potential in credit makes us spending more, which can cause over-consumption that can’t be paid back. So if the cycle goes up, it eventually needs to come down. It is important for us not to forget these fundamentals because they can help us in making the right decisions. So don’t have your debts rise any faster than income because your debt burdens will eventually crush you, don’t let income rise faster than productivity because you will become uncompetitive, and most importantly do all that you can to raise your productivity because that is what matters the most.
Trading one currency against others we need to be careful, because The United States dollar may not be the safest place to be during the next economic breakdown like it was back in 2008. Peter Schiff said as well that The United States dollar is not the safest currency like before and that it might collapse, so we all need to take a serious precaution to protect ourselves and our accounts. No matter how bright the situation is or no matter how bad it gets, we need to gain the comfort of not having to worry about losing our jobs and incomes just because the economy is falling apart. We don’t want to be dependant on what markets say about the values of some goods. Forex trading is different, that is why we are in advantage. We are trading one currency against others, it is unique and different. So is it forex trading recession-prof? Probably yes. Are we recession-prof? Certainly not.
Here’s what we can do, if we have all our physical money in Canadian dollars or Australian dollars we should consider turning some of those dollars in other currencies, like Euro, Swiss francs, Chinese yuan, or The United States dollar. Apart from bank accounts, most financial experts and traders are keeping their wealth in precious metals as we mentioned. Hopefully, if things were to ever go pretty bad, we would have a chance to stay protected, and we will be ok.
Note that this also means if your forex trading account is in the USD, for example, consider diversifying into other currencies, or even better mix asset categories. Your portfolio should consist of several layers of diversification, by type and category. Pay attention when is the best time to invest in Gold, Oil, various currencies that escalate, or that have stable economies behind. You should also pay attention to the risks each asset carries, for example, crypto and new company stocks might be the least present in your portfolio and Gold the most. This structure is common with the most successful investors such as Warren Buffet, they have risky assets in case they skyrocket, but also have assets that do not have high probabilities of dropping too much in value.