Just when the stock market is looking up, the waters get choppy again, so to speak. It’s a volatile time, and leaves a lot of uncertainty for people who are depending on that money to do well–whether for education money, retirement money, or something else completely. When faced with such uncertainty, we like to take a deep breath, and take a “zoomed out” approach.
What can you control? How can you increase your certainty? Where can you save money without risk? In a volatile market, these are good questions for assessing your financial decisions.
First, let’s look at what is happening.
Where Is the Marketplace Right Now?
The Stock Market
2020 was, unsurprisingly, a tough year for investments. While the latter half of the year saw improvements, the widespread uncertainty of COVID-19 caused heavy fluctuations. Now, in 2021, we’ve seen unprecedented occurrences with stocks like GameStop and AMC, or the speculation of Dogecoin becoming the next big cryptocurrency.
Vaccine rollouts had investors hopeful that the market would stabilize, although it could be months before that truly happens. March and April alone have been swinging up and down.
The Housing Market
Mortgage rates were historically low last year, so current homeowners refinanced. Not to mention, the mass migration to the suburbs in order to lock in low rates and get out of crowded cities.
Now, rates are one the rise. Usually this means the housing markets slow down, however many people continue to move out of cities at a rapid rate, often overpaying for houses. For sellers, this is great news, however bidding wars and a rush to the country/suburbs means competition for buyers.
Potential “X” Factors
There are many possible explanations for the volatility occurring, including:
- Effects of Brexit
- Lingering uncertainty about COVID
- A new President
- Volatile oil prices
- Interest rates on the rise
7 Ways to Build Wealth in A Volatile Stock Market
Ultimately, with the stock market, it’s all a guessing game. To build more certain wealth, you must eliminate the guesswork where you can (which adds a lot more peace of mind if you do choose to stay invested in the market).
1. Build Your Foundation First
Put that way, it sounds painfully obvious. After all, few things are built without a foundation. And yet, too many people invest first… without having something to fall back on. That’s where savings come in.
Saving more money allows you to have liquidity in both emergencies AND opportunities, unlike money invested or otherwise tied up in qualified plans. Saving money first will allow you to wether economic storms, partake in lucrative opportunities, and invest without gambling on your future.
For long-term growth, consider the value of cash value insurance. You’ll enjoy increased privacy from IRS and creditors, growth without risk, and tax-deferred growth within the policy. If you have doubts, read our article on where banks save their money.
2. Take Charge of Your Cash Flow
If you only have one stream of income, it’s time to consider how to create more opportunities for wealth. Not only do the wealthy have multiple sources of revenue, they often exert a high level of control over that income.
If you already have work you love, consider building a business on the side. Doing so can help you develop business skills, and it gives you the opportunity to write off business expenses like travel and meals.
Owning real estate, or even renting a room through Airbnb, can offer great monthly cash flow. Other passive income options include creating work or intellectual property that can be leveraged over and over again—books, courses, and more.
3. Live Within Your Means
While it may be the first rule of personal finance, it bears repeating. Don’t let your finances control you. Compared to other countries, Americans have an incredibly low savings rate. Lack of savings can lead to debt or even bankruptcy, if not addressed.
Wealth isn’t necessarily about reaching the million dollar club. It’s actually more about how much you can save. The key is control:
- Knowing where your money is coming in and going out
- Being clear on needs vs. wants
- Being more tax-efficient
- Spending less than you earn
4. Protect Your Human Capital
On average, Americans earn millions of dollars in one lifetime. Whether or not you believe it, this actually makes YOU your greatest asset. After all, your skills and knowledge are what allow you to do what you do. Why wouldn’t you protect that?
In the event that you’re no longer around, your spouse, partner, and/or children will be affected financially. In some cases, you may be alive and unable to work, and you’ll want to protect that income too. A combination of whole life and convertible term insurance can make sure your earning potential is fully covered, so you and your loved ones have one less thing to worry about should the unthinkable happen.
5. Diversify Beyond the Stock Market
When investors talk about a diversified portfolio, they almost always miss the point. They want to diversify between stock and bonds, yet they rarely consider assets beyond the market. The reality is, a broad portfolio of different asset classes is true diversification.
To avoid the heartache of loss with a poorly diversified portfolio, don’t miss asset classes such as:
- Investment real estate—this kind of cash flowing investment can help you build income and optimize taxes.
- Private lending, which offers similar benefits to real estate without the responsibilities of a landlord.
- Dividend-paying whole life insurance—while not strictly an investment, it helps protect AND grow wealth sustainably.
Check out this article on alternative investments for even more ideas.
6. Non-Correlated Investments
This means investments that don’t depend on the stock market rollercoaster. These kinds of investments move independently of the market and can have excellent returns. Life settlements, for example, have no correlation to stock, politics, or even the economy. They’re pretty much a sure bet, since they’re tied to a guaranteed event.
Just because you can’t get something with banks or brokers doesn’t mean it isn’t worth it. The most important thing you can do is ask questions and do the research.
7. Guard Your Thoughts
Last but not least, it’s important that you maintain a Prosperity Mindset. It’s not just finances that can suffer in times of economic and political upheaval. Focus on the good and what you’re grateful for, and you’ll see that it can go a long way on your journey to Prosperity.
After all, stress can take a lot out of us when we don’t manage it. So if you’re ever stuck, THINK from a place of Prosperity—one of our 12 Principles of Prosperity.
Take Back Control of Your Finances
The most important strategies you can employ in your finances are the ones that keep YOU in control—not the banks, not your broker. Prosperity Economics Advisors are committed to financial education and putting YOU back in the seat of power.
If you’re interested in discussing how to get more control and more certainty with your money, or want to employ any of the above strategies, contact us. We will put you in touch with an advisor from our nationwide network.