We’re in a whole new environment now after the recent actions taken by the U.S. against Iran. I won’t get into the politics of that decision and situation since this is a personal finance blog so the prudent thing to talk about here is how to prepare for a war economy. With the help of AI, I came up with this list.
- Diversify Your Investments
Global Diversification: If you have investments, consider diversifying across different asset classes, sectors, and countries. Global diversification can help reduce the risk of exposure to one particular economy. - Precious Metals: Historically, commodities like gold and silver have served as hedges against economic instability, inflation, and geopolitical risks.
- Defensive Stocks: These are stocks in sectors like utilities, healthcare, or consumer staples (things people need no matter the economy). These sectors tend to be less affected by economic downturns.
- Evaluate Cash Reserves
Build a Cash Buffer: In times of uncertainty, having a larger cash reserve (3-6 months of expenses) is critical. This ensures you have liquidity for emergency situations. - Access to Credit: Make sure your credit lines (credit cards, loans, etc.) are open and available, but don’t rely too heavily on debt during unstable times.
- Review Your Debt and Expenses
Prioritize High-Interest Debt: Pay down any high-interest debt (like credit card debt) before interest rates rise, which is often a response to inflation during times of crisis. - Cut Non-Essential Spending: Look for areas in your budget where you can cut back if your income becomes unpredictable or if inflation drives up living costs.
- Keep an Eye on Inflation and Currency Fluctuations
Inflation-Proof Assets: In war economies, inflation can rise. Stocks, real estate, and certain commodities are often seen as hedges against inflation. - Currency Exposure: If you’re earning or spending in a foreign currency, keep an eye on exchange rates. A war or geopolitical uncertainty can lead to significant fluctuations in currency values.
- Build Skills and Diversify Your Income
Freelancing/Side Gigs: A war economy can disrupt jobs, so consider diversifying your income streams. If you have marketable skills, freelance or start a side business. - Upgrading Skills: Be proactive in enhancing your skill set to ensure you’re adaptable to changing job markets.
- Monitor Global and Domestic Political Developments
Stay informed about what’s happening geopolitically. Major events can lead to economic shifts that may impact the markets or your job. - Consider Precious Assets and Survival Gear
While it might not be necessary for everyone, if you’re anticipating a prolonged period of instability, you may want to invest in essential items (e.g., food, water, medicine, etc.) to protect yourself in case of supply chain disruptions. - Retirement Accounts and Long-Term Goals
Review Your 401(k)/IRA: In a volatile market, it’s easy to panic and make rash decisions about long-term investments. Ensure your retirement funds are invested in a way that can weather volatility (e.g., target date funds, diversified portfolios). - Rebalancing: Depending on the level of risk you’re comfortable with, it may be a good idea to reassess your portfolio’s asset allocation.
Ultimately, your approach will depend on your specific financial situation, risk tolerance, and whether the event significantly disrupts your life and markets. Preparing financially for uncertain times involves both managing risk and positioning yourself to capitalize on opportunities that might arise.
I’ve done most of the things on the list and added links to some of them below.
How To Prepare For A Global Depression
How To Prepare For A Recession
Update On Foreign Currency Hedges
The Gold Bugs, Like Cicadas, Are Out Of Hibernation (still holding gold)
What’s Your Plan For Inflation
I’ll add one more recommendation to the list: Keep options open, be mobile and leave the country if and when needed. This serves as a reminder that I’ll be going overseas for the month of July and maybe August and perhaps longer. I won’t be posting much during that time as I will be mobile and sometimes off the grid.
Share The Wealth
Are you doing any preparations for a war footing economy? Let me know in the comments below.