Experts agree we have not yet seen the full impact of Covid-19 to consumers.  Naturally, keen investors are asking themselves how can I protect my money from a Covid aftershock.   

Here are 3 proven ways to protect your money from a Covid aftershock:

1. Precious metals 
2. Cash flow producing real estate 
3. Online businesses 

In an article titled Making Financial Sense of a Covid World & Finding Financial Opportunities I wrote about the many financial changes Covid brought to our world.  The biggest impact to our economy was, without question, the ever increasing unemployment numbers.   

In response to the pandemic, governments across the world raced to stimulate economies through various forms of subsidies and through lower interest rates.   

Unfortunately, in doing so, governments increased debt to unsustainable levels. 

And in response to the stimulus, investors poured money into the stock market, residential real estate, and other investments.  This in turn created rising prices in stocks and real estate.   

The problem is governments can’t continue to stimulate economies forever. At some point, the ever-increasing debt will lead to a serious debt crisis. 

The Spike in the US Gross National Debt Since March

At a minimum, a stock market correction appears increasingly likely.  In the long term, a serious debt crisis could have a domino effect that impacts multiple markets all across the world.  Thus, investors should consider protecting their money.  Furthermore, keen investors should look for opportunities to gain from any such situation. 

In an excellent podcast, Tom Bodrovics from Palisade Radio interviewed Brian Hirschmann from Hirschmann Capital. Brian touched on the subject of US government debt levels. This is one interview I highly recommend listening to.

During a debt crisis the US dollar will be under deflationary pressure.  Thus, keeping cash is probably not the right answer.  Instead, keen investors may consider looking to convert cash to other forms of investments that will provide protection and/or are likely to perform well in the event of a financial crisis.   

The chart below shows an insane spike in the US Gross National Debt, since March of this year.

What’s more, Gross Domestic Product (GDP) has been declining. As it should be obvious, the rate at which US debt is increasing, as a percentage of GDP is unsustainable. At some point something has to give.

The tweet below, which brings this to light, should really resonate with people. But somehow, people are happy holding paper assets and betting on the stock market.

Precious Metals as Form of Protection and Investment Growth 

Throughout history gold and silver have proven to either retain their value or rise in times of chaos.  In fact, gold and silver are currently in a strong bull market.  Not only that, but if a debt crisis ensues, gold and silver will shoot through the roof.   

Lately gold and silver have been mirroring the stock market, going up when the stock market goes up and going down when the market goes down.  Thus, it is very likely that these two commodities will initially go down in value if the stock market crashes.  However, sooner or later these commodities will decouple from the stock market and will begin outperforming paper assets.   

There are many forms of investing in precious metals.  The best form of protection is having physical gold in your possession. 

As much as I try to avoid investing in individual stocks, I believe keen investors will see tremendous opportunities in gold and silver mining stocks.  For those that prefer to stay away from stocks, other options may include precious metals related funds and ETFs.  A few common ETFs are GDX, GDXJ, and SILJ.

One thing that may further support gold and silver prices is the seasonal nature of these metals. Both gold and silver tend to do poorly during the Summer months and tend to do well in the Fall and Winter months. This has to do with with demand from Asia, especially from China and India.

The chart below from zealllc.com shows Gold’s seasonality. Silver follows a similar pattern.

To learn more about gold and silver, including how to buy these metals, check out the articles below: Reasons Why You Should Own Gold and Investing in Silver After the 2020 Market Crash

Cash Flow Producing Assets as Form of Protection  

Although a market crash or a debt crisis will likely result in devaluation of the US dollar, owning an asset that produces cash would be many times better than staying in cash or leaving money in the stock market.

I don’t mean to sound alarmist, but imagine a world with higher unemployment, higher interest rates, etc. If you think there is social unrest now, consider how things could be in that situation. If nothing else, having an additional source of income may come in very handy. 

To learn more about cash flow producing assets, such as real estate and online businesses, check out this article How to Evaluate Stocks vs Real Estate Vs Websites.

Cash Flow Producing Real Estate 

Arguably the best cash producing asset is real estate. Investing in real estate has so many advantages, such as tax breaks, land appreciation, leveraging of capital through financing, etc. This is why so many millionaires in the US own multiple real estate properties.

To be clear, not all real estate will do well in a crisis.  In the current market, low interest rates have led to increased residential real estate prices.  Thus, purchasing a rental house at this time may not be the best thing. 

Some commercial real estate, such as office space, has certainly gone down, and will probably continue to struggle.  However multi-family real estate, for example, has either remained flat or has gone up slightly.  And other commercial real estate such as RV parks has arguably increased in value.   

Taking advantage of low interest rates to convert paper assets to cash producing real estate, before it is too late, could be a good strategy. 

One of my favorite places to look for commercial real estate is loopnet.com. Loopnet can be a bit difficult to navigate if you are not familiar with it. If this interests you, I wrote an article titled How to Improve Creative Thinking in Business that expands into searching for real estate investments. This article can help you navigate the website. Below is a screenshot from an example in that article.

In addition, the article How to Evaluate Stocks, Websites, and Real Estate touches on real estate valuation and important valuation metrics such as capitalization rates, cash flow, etc.

Cash Flow Producing Online Businesses 

Another cash flow producing alternative, to protect your money from a Covid aftershock, is investing in the online business market.  Not surprisingly, most online businesses did relatively well during the Covid pandemic.  Again, converting paper assets to a cash flow producing asset makes a lot of sense.   

A large number of online businesses can be purchased with less out of pocket money than what is required to purchase real estate.  In addition, the return on investment on most online businesses is generally higher than the return on investment on real estate.   

The challenge with online businesses is that these require a little more technical expertise than managing real estate.  However, if you know you need to protect your money, now may be the time to start exploring this option. 

Someone recently asked me if starting an online business would be a good idea. It could be a good idea provided you have the technical expertise to create online businesses and the entrepreneurial skills to make a business succeed.

Remember, 90% of startups fail. So, if you have successfully created online businesses in the past, then you probably have what it takes to start another online business. If you haven’t, then you may be better off purchasing an existing business.

By purchasing an existing business you are trading cash today (before it devalues) for an asset that will continue to produce cash many times over.

Online Business Brokers

Most people have heard about Flippa, perhaps the most popular place to buy and sell online business. There are several other alternatives, including:

• Empire Flippers,
• Motion to Invest,
• FE International,
• BuySellEmpire,
• Quiet Light Brokerage and
• Investors.club.

For more information on on each of these brokers check out Top 6 Flippa Alternatives to Buy or Sell a Website.

Purchasing an online business may feel a bit foreign to some. I know it felt a little foreign to me. If this is you, then it is best to spend some time educating yourself on the subject.

I’ve listened to lots of podcasts about buying online businesses, to gain a better understanding of this space. One podcast I highly recommend is Jaryd Krause’s podcast, Buying Online Businesses. In addition, Jaryd’s business is really about helping investors buy and scale their website business.

Again, the article How to Evaluate Stocks, Websites, and Real Estate touches on valuation, and the article How to Improve Creative Thinking in Business, also touches on searching for online businesses. A screenshot from an example in that article is provided below.

Bonus – Bitcoin and Other Cryptocurrencies

A twitter user suggested Bitcoin can also help investors protect their money from a Covid aftershock. Although I am open to this idea, I am not yet convinced. Nevertheless, this suggestion was worth mentioning here.

Along the same lines, one investment I would definitely consider would be an online business that accepts payment in Bitcoin or any other cryptocurrency.

The logic here is similar. In times of distress an alternative to paper money makes a lot of sense, especially when paper money continues to lose value.

Conclusion

The bottom line is, keen investors would be wise to protect their money from a potential Covid aftershock.

In the short term, a correction in the stock market appears very likely. In the long term, a debt crisis with a potential negative domino effect appears inevitable. A stock market correction may not necessarily have huge implications. But even then, I suspect precious metals and cash flow producing assets are likely to outperform paper assets.

A debt crisis on the other hand is worth considering, and preparing for, as it could be devastating for unprepared investors.

If you gained some benefit from this article, would you please consider leaving a comment in the comments section below? In doing so you help me and you may help other investors interested in this topic. Thank you. JC Keen

Keep in mind I am not a financial advisor, a real estate professional, a broker, a lawyer, accountant, etc.  I am actually an engineer with a passion for business and real estate.  My desire is to help people in the area of personal finance gain financial knowledge. Please don’t take any of the information provided in this website as investment advice.  Rather, it is recommended you consult a professional prior to making any investment decisions.