Investing question: hedging against a stock market crash?

Joined
Nov 5, 2016
Messages
801
Location
Jersey
Country
Country
#1
This might sound like a dumb question but would investing in a private company, let’s say SpaceX, be a logical way to hedge against a stock market crash? Everyone has been saying for years that a major crash is overdue, so it got me wondering. That would be another good reason for Tesla to go private.
 

garsh

Dis Member
Moderator
M3OC Supporting Member
Joined
Apr 4, 2016
Messages
7,118
Location
Pittsburgh PA
Tesla Owner
Model 3
Country
Country
#2
No. The "stock market" crashing just means that businesses in general have stopped spending. One of the first things that's going to happen when the economy is bad is that companies will stop sending up new satellites. So SpaceX will feel the pain as well.

Generally, bonds do well when the market is bad.

But you're generally going to have a Bad Time if you try to predict the market. Instead, follow the simple advice found at this link:

http://www.mymoneyblog.com/dilberts-one-page-guide-to-everything-financial.html
  1. Make a will.
  2. Pay off your credit cards.
  3. Get term life insurance if you have a family to support.
  4. Fund your 401k to the maximum.
  5. Fund your IRA to the maximum.
  6. Buy a house if you want to live in a house and can afford it.
  7. Put six months worth of expenses in a money-market account.
  8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
  9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio.
 
Last edited:

garsh

Dis Member
Moderator
M3OC Supporting Member
Joined
Apr 4, 2016
Messages
7,118
Location
Pittsburgh PA
Tesla Owner
Model 3
Country
Country
#3
PS - I'm pretty much following that plan, EXCEPT I have a bit of money in GOOG and TSLA. Don't invest in individual stocks unless you've researched the company and feel confident about it.
 

MelindaV

☰ > 3
Moderator
Joined
Apr 2, 2016
Messages
5,958
Location
Vancouver, WA
Tesla Owner
Model 3
Country
Country
#4
I’d add on garsh’s #4 and #5 to look at where those are bing invested. If a downturn in the economy is happening, maybe have them rebalanced to be more conservative, and moved from more volatile higher risk funds. (Having left most of mine thru 2007-2009 sitting in high risk funds didn’t turn out so well ;))
 

PNWmisty

Top-Contributor
Joined
Aug 19, 2017
Messages
1,404
Location
Anacortes, WA
Country
Country
#5
PS - I'm pretty much following that plan, EXCEPT I have a bit of money in GOOG and TSLA. Don't invest in individual stocks unless you've researched the company and feel confident about it.
I agree with the common sense advice you posted in your previous post but take issue with conditioning investments in individual stocks with "unless you've researched the company and feel confident about it."

It has nothing to do with "feeling confident" and everything to do with whether you have that much risk tolerance because everyone is different in terms of how they deal with losses. Some people are attached to their assets and become sickened with a big loss, others just shrug it off and say "Oh, well, that one didn't work out, no big deal". Only people in the latter camp should invest in individual stocks. Because it's been proven time after time that fund managers, even the best, struggle to beat the SP500 index.

No one knows when the next big crash will happen, certainly, there will be major corrections but these are nothing to fear, they are just corrections and the market will generally recover within a few months or perhaps as long as a couple of years. And I would not want to bet on a major crash, the kind that takes 20 years to recover from because it's pretty apparent to me that no one can predict them accurately enough to be of any practical use.

Personally, I see the signs that we are in a multi-decade bull market that is based on being in the "information age" and is unlikely to end anytime soon. The immediate flow of information creates new discoveries/breakthroughs and information travels cheaply at the speed of light creating efficiencies in manufacturing, marketing, farming, transportation, etc. while at the same time we are transitioning to green energy that has potential to greater lower the cost of energy. During the onset of the industrial age it took armies of hard-working coal miners to extract the coal that provided us with steam power and electricity, now huge heavy equipment extracts more coal with a fraction of the workforce and even the electricity produced by these more efficient coal mining methods cannot compete with solar and wind on price. And the price of these clean energies is still dropping. And the efficient flow of information will keep technological breakthroughs happening at an accelerated pace (dare I say exponential pace) which will further increase standards of living and economic output.

Looking at the big picture going forward, I think there is no better time in history to be an investor than right now. But it's not all roses and perfume, I see trouble brewing in the form of "us" vs. "them" and headwinds with trade barriers being erected and short-sighted loosening of important environmental and consumer protections. We cannot conquer the biggest challenges facing humanity if we deny there are problems. The world works best when people and nations work together for the good of humanity vs. pitting groups of people against one another. That said, I'm hopeful this is just a passing fad and people will wake up and see the light.