MIAMI, Fla. (MarketWatch) — I have two friends, one a doctor and the other ex-military, who believe that the U.S. stock market is going to crash. People will riot in the streets, we’ll run out of food and crime will spiral out of control.
Ironically, everything they fear did happen this year in some form — just in other countries.
Although I don’t agree with most of my friends’ predictions, it makes sense to be prepared in case they are right. After all, 2012 could be a rough year, what with a no-holds-barred U.S. presidential election and the Mayan calendar’s December 21 end date.
Like all prophecies, these latest ones and others will play havoc with people’s emotions and portfolios. Even if the predictions are wrong, your finances could still be at risk.
To help you prepare for worst-case scenarios, here are nine steps to consider:
1. Get ready mentally and physically for a dangerous year
Don’t lose your head when others are losing theirs. Read books such as “The SAS Survival Manual” by John Wiseman. In 2012, get in physical shape and focus on helping family and friends. Do not panic or become too emotional. Listen to advice, but do your own research before following anyone. Also, be flexible in case events unfold differently than you think.
2.Stock up on canned goods, water, batteries, and a backup generator
Even if dire predictions don’t come true, many people think they will. This could create a run on essential items, similar to what happens before a hurricane.
3. Prepare for a stock market crash
If too many investors believe the market will crash, it could. Use put options to protect major stock positions, and have cash on hand to re-enter the market after the crowd sells in a panic. If the market crashes based on emotion, not fundamentals, it could be a fantastic buying opportunity, but the timing won’t be easy. It’s never easy to buy when everyone else is selling.
4. Buy gold and silver
If people get nervous about the U.S. dollar and the economy, especially if the U.S. election is tight, they’ll buy gold and silver. Just be careful. It’s possible that gold could end its 11-year bull market with a sudden spurt of irrational exuberance. If gold soars too high and too fast, prepare to sell.
5. Keep money outside of the U.S.
Consider opening a second bank account in a stable country such as
Canada. You never know when you might need to transfer cash assets to a foreign bank. Anything less than $10,000 can be done with ease, although you have to open the account in person.
6. Stash cash
Always have spare cash available if the ATMs stop working. If you’re really expecting the worst, you can purchase gold coins.
If It really gets crazy
If you truly believe that 2012 will be a catastrophe, consider these steps:
7. Own a ‘safe house’
If you have the money, you could build a “safe house” in the U.S. or in another country that will be stocked with all the essentials. Also consider a farm stocked with seeds, fertilizer, canned food, medicine, and clothes.
8. Wilderness survival
If you can’t afford a farm or safe house, prepare to go camping: stockpile freeze-dried food, a portable stove, tents, a hand-crank radio, and rechargeable batteries, to name a few items you’ll need. My ex-military friend suggests that people buy, and learn how to use, a firearm.
9. Leave the country
If the most extreme doom and gloom predictions come true (which seems unlikely), there could be an economic depression or even a breakdown of civilization, including a collapse of the U.S. banking system and perhaps a dollar meltdown. In that case, gold would soar and we’d probably revert to a barter system. You then might want to move to neutral countries such as the Dominican Republic, Brazil or Costa Rica until world order is restored.
By the way, have a happy new year!
Michael Sincere is the author of Start Day Trading Now (Adams Media, 2011), All About Market Indicators (McGraw-Hill, 2010), and Understanding Stocks (McGraw-Hill, 2003).