Volatility - what can you do to protect yourself?

1. Don’t invest in anything you don’t understand. E.g. bonds, investment products, anything stock-market related, even term deposits can be risky. If an investment advisor is pushing you into a product that you only partially understand, turn it down.
2. Interest rates can change in a heartbeat – you may think that a rate of 8% looks great right now and tie yourself in for 5 years – but what happens if interest rates go up to 17% (as they are right now in Iceland??)
3. Don’t tie yourself into anything – times are changing too rapidly e.g. Telecom – one year contract – but with Skype – you no longer have to pay for international calls. Mobile phone contracts – more competitors coming onto the market, rates dropping – best to stay flexible even if it appears to be a bit dearer at the time. This applies to all services including electricity, gas, insurance etc.
4. Learn to discriminate between wants and needs. You may really want to have something, but you don’t need it. In a recession, you need to learn how to be frugal and how to make everything you do have last as long as possible. And if you “need” something e.g. a car or a large item like a fridge or washing machine – remember that the best way to pay for it is with cash – you get the best price, you can negotiate the best terms and you are not heavily laden with debt in a slowing economy.
5. If you can possibly help it, do not take out any debt. Save up and buy it when you have the cash.
6. Green Shoots – do not be misled. Nothing warrants it: government spending deficits (look at California which is now bankrupt), rising unemployment, corporate failures, foreclosures…..economists constantly revising their forecasts, time and again they are wrong. So you will have to trust your intuition and your gut reactions. If it doesn’t feel right, it probably isn’t.
7. Watch out constantly for changes in the markets. Look especially at the US, as they still have the reserve currency of the world. What happens in the USA certainly affects the rest of the world. Be ready to turn on a dime – it is especially hard for people to conserve their wealth during a downturn. Interest rates are low, (Sweden now has a negative interest rate of -0.25%), banks are very unstable. Even those that are backed by the government cannot be trusted. What if the governments cannot afford to cover all the banks’ bad debts? Then what will happen to your hard-earned money? You will probably lose it. So be ready to change and adapt very promptly – people who hesitate will undoubtedly lose great portions of their wealth. And remember, make sure you have some gold and silver on hand in case the world financial systems take a “bank holiday” for a while.