Personal Finance

7 Steps to Managing Your Money in a Volatile Economy

Expertise: Mortgages & Creative Financing, Buying & Selling Houses, Personal Finance, Real Estate Investing Basics
46 Articles Written
closeup of lower half of a person riding a bicycle in heavy rain on city street


Like most people who stepped off the Wall Street casino ride and into real estate, I did so because I wanted more control and fewer surprises.

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This spring, we have seen the end of the longest bull run, the deepest drop, and the best rally in the history of the stock market. And while we are starting to open America back up, I’m planning for more market volatility in the near future as we brace for more potential closures and a steamy political race.

However, the stock market is what many investors have access to invest in, especially for retirement, and the stock market is on sale right now.

So, how can you take advantage of some of the investment deals available now and those to come in the next few months? And do so in a conservative manner?

I like to take a three-pronged approach with my financial position: foundation, growth, and momentum. Today, I will tackle foundation and growth.

Your Financial Foundation

The first step to weathering a volatile economy is having a rock-solid financial foundation to guard against uncertainty. If you were building a castle in medieval times, you would build a wall and moat around your land and dig a good foundation for your castle prior to investing in lavish artwork to adorn your walls.

Bodiam, United Kingdom: Moated castle near Robertsbridge in East Sussex, England as seen at sunrise.

However, recent pandemic aside, many Americans have unfortunately focused on belongings first, and we are learning just how many people have poor financial footing for weathering an uncertain storm. Here are a few steps to shore up your castle’s foundation.

  1. Track your expenses. We’ve all heard this advice. I’ll take it one step further and say it must be real-time and seamless. As Tony Robbins says, “Where focus goes, energy flows.” Monitor your expenses on a weekly basis if you are just starting out or monthly if your plan is dialed in.
  2. Pay yourself first, and make it automatic. Make automatic transfers into your savings accounts immediately when your paycheck hits. This will keep you from spending the money. To amplify your savings immediately, eliminate any destructive expenses and reduce consumptive expenses not aligned with your values-based spending plan.
  3. Identify and lower (or eliminate) the four “I”s that will destroy your budget. The four “I”s are interest, investment fees, insurance premiums, and your IRS bill.
  4. Feed your emergency fund. I see so many investors who want to leap into investing without the proper reserves in place. Think about saving six-plus months of reserves and deductibles set aside in cash, money market, and/or a well-structured life insurance policy that you can access in a matter of days if needed. You can also think about creating a ladder of these funds so you can keep them working hard for you.

Your Financial Growth

The next step in being able to weather a volatile economy is learning that the basic rules for investing are hard assets.

Feed Your Opportunity Fund

Once you have adequately funded your emergency fund, start diverting your savings to your investment opportunity fund. I like high-yield savings accounts, CD ladders, short-term notes, and cash flow life insurance for storing my funds until I’m ready to invest (keeping my money working while I wait).

Master the Tenets of Conservative Investing

Every time I talk to an investment advisor, they open the conversation with, “What kind of risk tolerance do you have?” Over time, I’ve come to realize that to remove risk, my investments need to do four things for me.

1. Preserve my capital.

Rule 1: Don’t lose money.

2. Create stable cash flow.

If the asset kicks off income that exceeds the expenses of holding it, I won’t have to sell when the market is down.

3. Offer a reasonable chance at appreciation.

If I can force the appreciation or equity of the asset, even better (this is why I love BRRRR).

4. Produce tax benefits.

If the IRS is incentivizing me to invest in the asset (like real estate), it’s a relatively safe bet I’ll get some sort of support in times of an economic crisis.

street signs one with risk one with reward on blue sky backdrop

Related: Investment Success in Good & Bad Times: A Recession-Proof Investing Plan That’s Never Failed Me

Don’t Speculate

At this phase, investing should still be rather boring. The name of the game is creating cash flow and reasonable chances of appreciation.

I don’t use these buckets of funds to invest in momentum assets like the stock market or development deals. Instead, I invest in hard assets, like real estate, or ones backed by a hard asset, like notes. These tend to be more illiquid and not as volatile as the stock market.

Additionally, I can leverage all four tenets of conservative investing and employ other people's money (like the bank's) to purchase the asset. At this stage of investing, the main goal is not losing money.

But there’s a caveat.

I realize you may only have access to the stock market to invest in as you build your path. If you want to invest in the market, stick to a broad-based index fund to spread your risk, keep your fees very low (one of your “I”s), set it, and forget it (for six to 12 months, until you need to rebalance).

If you are super nervous about market drops, set stop-loss limits on your portfolio that will move your assets to cash in the case of sharp drops. Set alerts on your phone for when these orders are executed, because you will then need to go in and set a buy order for when the asset starts to go back up. Resist the urge to try to time the market, as you may end up catching a falling knife.

Ladder Your Investments

The last thing I want is all of my assets maturing at one time. This mainly applies to notes, syndications, and property with bridge debt on it. By laddering your investments, you can spread your risk of investing out over time. My ladder looks something like this.

  • Long-term: 5-plus years
  • Mid-term: 3-5 years
  • Short-term: 6-12 months
  • Cash: Less than 6 months

ladder_to_financial_freedom

Related: 5 Core Concepts in Both Real Estate and Stock Investing—and 5 Key Differences

Open Lines of Credit When You Don’t Need Them

While you may not think that opening a line of credit directly relates to investing in a volatile market, if done responsibly, having lines of credit can be advantageous to smooth cash flow issues or take advantage of investment opportunities.

You should only do this if you are responsible with credit and it won’t adversely affect your credit score, credit utilization, or debt-to-income. Here are three areas of opportunity:

  1. Opening a HELOC on your primary or investment property.
  2. Opening a business line of credit.
  3. Opening a low or 0% APR credit card for your business.

Wrapping It Up

As I’ve navigated these two tiers in the past few years, I’ve realized a few things:

  • I have stored my cash in a hard asset that doesn’t go to $0.
  • I have more cash flow coming in every month to smooth my investing ride.
  • I sleep better at night knowing the value of my assets won’t drop by 20% in a day.
  • I’m partnered with the IRS to lower my tax bill, allowing me to accelerate my wealth growth.
  • Most importantly, I have more control over how to manipulate the business plan around the asset.

With that type of control comes greater responsibility, which isn’t for the faint of heart.

To manage your money in a volatile economy, you have to proactively put yourself in a position to mentally and economically manage the unpredictability of the market cycle. Because volatility happens—it’s a guarantee like death and taxes.

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How do you handle your investments for maximum stability?

Share your strategies in the comments below.

Whitney is a real estate investor and personal finance trainer. After purchasing her first rental in 2002 and hitting a home run, she nearly lost it all on her second deal. So she took control and figured out how to invest in real estate the right way. In 2018, she founded ASH Wealth and the Investor Accelerator Mastermind. In the Accelerator, she'll show you exactly how she built her portfolio: $500M+ in real estate assets, including 5,000+ residential units (MF, MHP, SFR, and assisted living), 1,430+ self-storage units across seven states, and over $3M in residential fix and flip real estate. (Though don’t tell anyone, BRRRR investing is still one of her favorite ways to invest!) She has been featured on BiggerPockets Real Estate Podcast episode #340, BiggerPockets Rookie Show episode #29, BestEver Podcast, The InvestHer Show, Investing for Good Podcast, and more!
    Kris Patel Investor from Arroyo Grande, California
    Replied 8 months ago
    How come you are not into Commercial Property and NNN investments? Thanks
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 8 months ago
    I do residential commercial investing (multifamily). Business buildings aren't tied to a basic human needs. NNN are good, but I'm also looking for balanced growth. I might pursue them in my 3rd tier of momentum investing, but not right now.
    Nicholas Bledsoe
    Replied 8 months ago
    Hey, I'm pretty new to this concept but I was wondering what was meant by "cash flow life insurance."
    Zachary Paschke from Scranton, Pennsylvania
    Replied 8 months ago
    Hi Nicolas! Cash flow life insurance is permanent life insurance custom built to build “cash value” in the policy that can be used as needed. Obviously there are some huge benefits. The most important one is the account is insured if you pass away. Policies like Indexed Universal Life allow you to invest your cash value in indexed accounts that protect you from downturns in the market. Keep in mind these policies are best off if they’re properly funded to minimize fees and maximize the deposits. Good luck!
    Chris Staten
    Replied 8 months ago
    But most IUL's are or whole life policies cost less than a term policy. Why would you pay extra for that instead of just a term and invest the remaining toward your next investment. Insurance isn't an investment vehicle. Insurance is like your emergency savings account. It's there for when you need it but isn't going to make you money.
    Zachary Paschke from Scranton, Pennsylvania
    Replied 8 months ago
    No. Insurance policies if designed right actually do pretty well. The accumulation is generally tax free and will never loose money as long as it’s in a whole life policy or indexed product. What people will often do is open the account , fund it then borrow the cash out for projects you need to fund. Unlike a home equity loan you can always borrow without having to qualify. While you have the money out the underlying investment continues to make money. You can often make more than the cost of borrowing from the account. It’s meant to be a reserve of money to tap into. I’d never use it for long term financing.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 8 months ago
    Zach did a great job explaining!
    Terrell Murray from DelMarVa
    Replied 8 months ago
    Really good post Whitney, I especially like the section about building a financial foundation. It seems so often overlooked but it is so important for people to learn, developer, and implement in there everyday financial lives.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 8 months ago
    Glad you found value, Terrell! Right now the foundation is so important (as it always is).
    Ayobami Ojuawo
    Replied 8 months ago
    I first educated myself and my spouse first and each of us have stable career. Then started buying shares and building houses Rents from our real estate proofs to be more reliable and stable than income from shares.
    Nancy Oh
    Replied 8 months ago
    Well done! I have some extra saving that I want to invest in notes with higher interest rate. Where or what companies can I contact? Nancy
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 8 months ago
    HI Nancy, David Van Horn is one that I follow here on BP. There is also AHP. You could also consider direct note investing as well. There are many options!
    Erick Chavarria Rental Property Investor from Los Angeles/Baltimore
    Replied 8 months ago
    Great article Whitney! What would be a good example of a Midterm -3-5 year investment? I have rental property which I would assume you'd consider Long term investments.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 8 months ago
    Notes can be a mid-term type of investment. Rentals in a great appreciating area as well. The catch is not to take on high risk with such a short duration (as most do).
    Christopher Stacy Rental Property Investor from Wiesbaden Germany
    Replied 8 months ago
    Great advice Whitney. I have never heard of cash flow life insurance so I am definitely going to research it. Thanks!
    Susan Elliott Specialist from White Salmon WA
    Replied 7 months ago
    This is such a great overview and focused path to creating that stable base. I'm partially along this path and really appreciate the new ideas (the ladder!) and reminders. You are a great motivator and writer Whitney!