An Investing Survival Guide

At The Motley Fool we don't get caught up in sharemarket scaremongering. We invest in a manner that prepares us for all possibilities.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's always something for the market to worry about.

And in the wake of the Greek referendum — which saw the people of Greece reject demands for reforms and budget cuts — the level of worry is higher than normal at present. Especially when you add in concerns over China's nose-diving sharemarket, plummeting commodity prices and an over-heated property market.

How do I know? At the time of writing, the ASX had fallen 1.8%!

Oh dear…

Long term, business focused investors — like us here at The Motley Fool — are usually pretty sanguine in the face of such worries. Sometimes to such an extent that you could think us irresponsible and and of touch.

So in the spirit of balance, let's play devil's advocate. Let's assume that the events currently unfolding lead to a global recession and sharemarket crash (and maybe they will). What does such an event look like?

From a general standpoint, we don't have to rely too much on guesswork. Though history never repeats exactly, these kind of things have happened before. As Mark Twain (supposedly) said; "history doesn't repeat itself, but it does rhyme".

The first thing to acknowledge is that there will undoubtedly be a lot of suffering. A lot of people will lose their jobs, and a good part of their savings and investments will be wiped out. On average, our standard of living will decline and there will be lasting social repercussions. Sadly, it will be those at the lower end of the socio-economic ladder that will be hit hardest.

Share prices will plummet — probably by a lot. So too will property prices. Rents and dividends  will, on average, fall. The declines will continue for longer than most think, and any recovery to pre-crash levels will likely take many years. For many investors, the losses experienced will be permanent; either because of bankruptcy or investor capitulation (selling out near the bottom and not buying back in).

All in all, it won't be pretty.

But the pain won't be shared evenly. Not even close. There are those that will actually do relatively well, on balance.

Those best positioned will probably have lived below their means during the good times. Saving a good part of their income for the inevitable rainy day.

They will have avoided taking on high levels of debt; probably very little. Certainly, they won't have racked up debt on things that decline in value over time, and that don't produce an income. Read: cars, boats and jet skis.

The assets they own will be resilient, such as shares in companies whose goods and services are needed in good times and bad. And these companies themselves will have avoided high levels of debt.

Of course, even shares in those companies will see their market prices slashed during any crash. Even the underlying earnings of the business may decline somewhat and dividends may be pared back a little — but they will survive. And they will continue to provide an income in the tough times.

Importantly, sensible investors, will recognise that the intrinsic quality of their shares relies on the underlying qualities of the business. And that fluctuating prices is evidence not of business quality but of investor sentiment, alone. As such, they'll avoid selling their shares just because others are panicking.

Given they have some savings, they may even take the opportunity to buy some wonderful companies at bargain basement prices — and reinvest their dividends accordingly. They won't pick the bottom exactly; they probably won't even get close, but that will matter little over time.

Life will go on. And when the economy finally manages to claw its way back, these investors will see their (paper-only) losses recouped, and then some.

In the early parts of the recovery, there will be much speculation that it is a false dawn. By the time everyone agrees that the worst is over, the best part of the gains will already have been made. At every stage, there will be new reasons to think things are about to head southward again. Almost certainly, most doomsayers will be proven wrong.

Foolish Takeaway

Of course, we may not even be on the edge of a crash. After all, economists have predicted 9 out of the last 2 recessions, so the joke goes.

So what is the best course of action for investors if there isn't a crash? The wonderful thing is, it's the same: live below your means, avoid excessive debt, and invest in quality businesses. Just keep investing.

This is why we  here at The Motley Fool don't get caught up in sharemarket scaremongering. We invest in a manner that prepares us for all possibilities.

Of course, with perfect foresight you could sell out just before any crash, and buy back in just before any recovery — but you're dreaming if you think you (or anyone) can do that.

It's up to you to be sensible with your finances, but if you need help in finding safe, reliable, income producing investments, Motley Fool Dividend Investor is here to help.

And don't think that you forego attractive returns by adopting a low risk approach — to date, our recommendations are well and truly beating the market average. That's something we expect to continue for many years, and throughout all the ups and downs of the economy.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »