Are You Ready For The Next Stock Market Crash?

It wasn’t normal.

In 2006, Floyd Landis stood on his pedals and left the world’s best Tour de France cyclists gasping in his wake.

I still remember watching it on television. It was as if the Pennsylvanian were shot from a cannon. In the modern era, most of the race’s stage victors win by seconds.

But that day, Floyd Landis gained more than six minutes. Not even Lance Armstrong, in his drug-fueled heyday, crushed his competitors by six minutes in a single day.

Floyd Landis soon stood on the podium as the overall winner. But a few days later, his titled was stripped because Landis tested positive for drugs.

According to Tyler Hamilton, co-author of The Secret Race, if a cyclist thought another rider was on intravenous rocket fuel, the riders never told the press.

But they shared their thoughts with one another in cryptic code. They might say, “His performance was extra-terrestrial.” Or they might say, “He was out of this world” or “That wasn’t normal.”

When it’s too good to be true…

Such is the case with the U.S. stock market.

Image by Pixabay 

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Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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19 Responses

  1. Carlos says:

    Mr. Hallam, I really enjoyed Millionaire Teacher and made note of the asset allocation you mentioned; however, I also heard you on the Afford Anything podcast talking to the host about the idea of 100% stocks. If I was to go this route, since I’m 40 years old without any investments, would 60% VTSMX and 40% VGTSX be acceptable? I know I would have to remain consistent when the stock goes down.

  2. Jen says:

    I am scared. Why: my contract job ends soon–and what if don’t have money to continuing buying every month–and the stock markets falls for years and years!

  3. Barry says:

    Re-Balancing regularly with new funds or take some profits off the table now?

    • Hi Barry,

      Just focus on one thing: your goal allocation compared to your current allocation. If you can rebalance by purchasing only, then go for it. If that isn’t working, by year-end, sell some of the overweight category and add the proceeds to the underweight category.

      Cheers,
      Andrew

  4. Keith says:

    Hey Andrew
    Loved your book! Wish I would have known this stuff 20 years ago. I have recommended it to several people including my 3 sons in there 20’s.
    I’m thinking of setting the them up with a TFSA, $5000 each for school or retirement. I’d like them to invest what they can monthly, this way can show them how to invest following you principles & get them started. Don’t like just giving money but would like to help them with schooling & teach them to invest for them selves.
    Do you use Norbert Gambit when converting US to CAD or back when rebalancing in your RRSP?

  5. Dennis says:

    Hi Andrew, hope you are well.

    Wanted to ask if you have had a look at the concepts around insulating one’s portfolio using Taleb’s/ Swedroe’s barbell strategy eg 70/80% in treasuries, 20/30% in small caps globally?

  6. J.P. says:

    Hi Andrew,

    Thank you for writing the Millionaire Expat book.

    I have a question. As an Australian, our index dropped by 50% during GFC.
    I was wondering if you think it is worth “over” rebalancing in a big market downturn such as this?

    For instance,
    Lets say I decided on 1/3 in each of Aussie index, Global index, Aussie bonds.

    If the stock market dropped in a major way, would you consider “over” rebalancing this to have higher proportions in the indexes that dropped a lot that come out of the bonds?

    for instance,
    Aussie index drops by 15% from peak – change the allocation to 40/33/27
    Aussie index drops by 30% from peak – change the allocation to 50/33/17
    Aussie index drops by 40% from peak – change the allocation to 60/33/7

    Doing this would allow you to buy much more when the market has dropped.
    The main problem I can think of would be knowing when to re-balance back the ratios though.
    Appreciate your thoughts on this.

    Cheers
    J.P.

  7. thue christiansen says:

    HI Andrew,
    I have had the pleasure of reading all your books and we’ve spoken a few times while you were still at SAS. My question is on reverse ETFs as a risk diversifier to the regular ETF portfolio.
    Would you consider that in a portfolio or stick with the bonds?

    Thx
    TC

    • Hi Thue,

      Such ETFs make little sense. The market, on average, rises 2 out of every 3 years. As a result of those odds, such a hedge would only hurt your long-term returns. The fact that they exist solidifies the notion that the financial services industry will sell whatever it can get away with selling.

      Cheers,
      Andrew

  8. Alex says:

    Hi Andrew,
    I’ve been invested for roughly 3-years using broad based low cost index funds, but have been extremely hesitant to invest in bond funds because of low but rising interest rates. Many bond funds hold value less well than cash (for now) and I’ve therefore held the ‘bond’ allocation of my portfolio in cash instead on a dedicated account. Do you really think bond funds value will rise the next time equities crash? I want to be prepared as seems we may be at the end of a cycle, but not convinced bonds will zig when equities zag this time around. Could be wrong obviously. Suppose when people take their money out of equities it has to go somewhere. Welcome your thoughts or any reference to any relevant literature.
    Cheers,
    Alex

    • Hi Alex,

      I think you’re making the investment process too complicated. I don’t believe there’s ever a reason to think in terms of market cycles, or to prefer one asset class over another based on speculation. If you own a short-term government bond market index, it will beat cash over any 2 year period, regardless of what that market does, or what interest rates do. That’s because short term bond indexes renew. When one short term bond expires, another (of an equal maturity) gets picked up. So…if interest rates rise, new bonds will pay higher yields. The prices for new bonds will drop. As a result, a short term bond market fund will easily beat cash over any period longer than 24 months.

      Investing, I believe, is simpler than most people think.

      Cheers,
      Andrew


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