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Why did the stock market crash on Wednesday? There is no simple explanation. And there is no telling if the stock market will drop more, or quickly recover and hit record highs in the near future.
What investors can be certain of is that crashes like those happening this week are inevitable. Even before the stock market tanked on Wednesday, economists were saying the good times wouldn’t last. In fact, most economists predict that the economy will see another recession by — or before — 2021.
Understandably, any big stock market drop might have you worried about the long-term viability of your 401(k) or other assets. But there is work you can do to lay the groundwork for the next cyclical downturn. We tapped investing and market experts for insights and resources on how to protect your nest egg from the next downturn, whenever it happens. Here are the books they recommend to help you cope with the next recession, whenever it comes.
The Atlas of Economic Indicators: A Visual Guide to Market Forces and the Federal Reserve by W. Stansbury Carnes and Stephen Slifer
Scott Wren, a senior global equity strategist for Wells Fargo Investment Institute, says The Atlas of Economic Indicators is unique and especially helpful because it uses a lot of visual depictions to explain complex concepts. Sometimes it's simply easier to “see” things rather than try to visualize and understand them based on a description.
“You have to understand what the economy is doing in order to see patterns unfold and make projections,” says Wren.
While there are lots of books that address wealth-building and portfolio management in general, Andrew Thrasher, portfolio manager at The Financial Enhancement Group and founder of Thrasher Analytics, recommends A Wealth of Common Sense because it takes a deeper look into the investment decisions people make.
“Carlson looks at the misnomers many investors have about the market, using statistics and world-real strategies to show methods non-professional investors can use to properly invest for the future," Thrasher says. “It's best to make sure your own personal finances are on the right path.”
Thrasher also says that A Wealth of Common Sense has a focus many investing tomes don't: Warning readers to be aware of the fees they're paying on their portfolio.
To get through the next recession, you'll need advice not only to help you protect assets from the downturn, but also insights into how you can make gains once you're in the belly of the beast.
“Crash Proof 2.0 covers the reasons for past and current booms and busts, and how to protect your portfolio by diversifying into real assets, like precious metals and commodities, as well as foreign assets,” says Robert Schmansky, founder and president of Clear Financial Advisors.
Diversification is the key here, Schmansky says: “These assets can provide 'portfolio insurance' against inflation and a U.S. market correction.” And Crash Proof 2.0 shows you diversify your investments properly, Schmansky says.
Rich Arzaga, founder and CEO of Cornerstone Wealth Management, recommends Simple Wealth, Inevitable Wealth as a "direct, no-nonsense book to help understand how investor behavior impacts investment performance."
Arzaga says this book will give you insights into current market crises and how to weather them and build wealth. “Not known for hand-holding, Murray makes excellent points that will make sense for those seeking rational explanations,” Arzaga says.
A fatal flaw in many people’s investing strategies is that they get rattled by downturns and pull out of the market during a trough. That hurts these investors in the long run, because they don't gain back that lost wealth during the next recovery. Kate Warne, an investment strategist at Edward Jones, says that Stocks for the Long Run will help keep you focused on the big picture.
“It's an excellent history of financial markets and why economic and earnings growth supports rising stock prices over time, even though there are many pullbacks along the way,” Warne says.
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