Prepping for an Economic Doomsday: A Q&A with a Financial Advisor

How likely is it that we’ll face an economic doomsday? It’s not a fun thing to think about but it’s important, and it’s wise to plan ahead—without going insane of course. Michael Brooks of Sentara Investments is brilliant thinker when it comes to money, investing, and building the ark before the rain. In this case, we’re talking simple ways to shore up our financial stability in the event of economic collapse.

When we think about societal collapse, it’s pretty natural for people like us to think we might be ok when the zombies come. We’ve got our food supply, our security plan, plenty of zombie slayer weapons and ammo, and, of course, training and understanding in how to use these things.

But what about economic collapse? How will we fare when the value of our investments and savings begins to plummet? Let’s say that all of a sudden war broke out with China or hyperinflation hit or the stock market just popped like a bubble. I want to be able to hedge my bets so that if/when everything goes sideways, I'd be okay.

I spoke with Michael Brooks of Sentara Investors, the company that helps Warrior Poet Society work through financial viability, growth, and investments. Michael is a brilliant thinker in this realm, so I wanted to pick his brain about how we can shore ourselves up individually in the event of an economic catastrophe. I asked him to walk us through what it might look like to have a “doomsday financial product” of a sort to keep us economically “safe.”

A Pending Economic Collapse?

John Lovell: Thanks for joining us, Michael. Is it crazy to think about the scenarios of economic collapse?

Michael Brooks: No, you're not crazy. We’re all in this together and one of the most important things we can do is get educated and empowered with knowledge about what are called different “asset classes.” This just describes the different places you can put your investments and assets—like stocks, gold, cash bonds, etc.

So when I think think about what might happen in the future—inflation or some type of doomsday scenario—are ways to invest rather than simply hiding liquid assets under our mattress or in our backyards. There are ways to keep it safe while allowing it grow and move you forward.

JL: I look at a country that used to be incredibly wealthy—Venezuela, for example—where all of a sudden Marxist policies crash the economy. Of course, a lot of financial guys and economists in that country do what they do in this country. They say “we've got historic trend analysis and because it's stairstepping up, it'll continue to do that ad infinitum." But just because it's always done it before doesn't mean it always will. And then we become another Venezuela.

As I see similar policies enacted in the United States, with our debt climbing, our national debt rising into the trillions of dollars. We can’t assume it won’t happen to us.

MB: It’s a legitimate concern. Just 15 years ago, in 2008-2009, we were at the rock bottom that required years of recovery. This time though we have bounced back. Because we’re in a better place right now, we have an opportunity to hedge against future risk. Even with this in mind - the current state of the housing market, ETFs, and interest rates reminds us that the market will continue to ebb and flow, and we have to be ready when it does.

Economic Forecasting for Doomsday

JL: Talk about that tool you mentioned when we talked earlier. Hidden Levers? Software that let’s you run through scenarios.

MB: Right. Asset managers use this program to help folks plan for scenarios. It’s not a crystal ball, but it gives us historical data and an algorithm for figuring out where everything might land if the sky falls or other nasty economic scenarios take place. It helps us get a picture of where stocks and different asset classes—bonds, gold, cash—might end up in particular situations. And these are not fantasy situations.

There are about 30 scenarios we keep our eye on the most, with four or five levels of severity within each scenario. We can make tweaks to portfolios based on what’s most concerning and plausible and what risk a client is willing to assume.

JL: So let’s talk about building that doomsday portfolio, to protect what we have if the bottom drops out.

Developing a Doomsday Portfolio

MB: I like to call this an all-weather portfolio, but I like doomsday, too. This portfolio holds up in some very nasty situations. While stocks are the best investment for long-term growth, if bad stuff happens we might not want everything in stocks. It might be better to mix in some other investments such as gold, treasuries and cash. So if you’re really concerned, you may drop your percentages to 25 percent gold, 25 percent US Treasuries, 25 percent cash. This might not provide much growth, but that’s not what this portfolio is designed to do.

And this raises the question of what’s called “behavioral finance.” In particular, are you engaging in “recency bias?” This means the way we think about our finances and future is based on what’s happened in the last couple of years. Things have been really good in the stock market the last 12 years, but does that mean you don’t need to be looking at de-risking—even if you’re still in your 30s? I mean, who told you that 100% US stocks was the only way to go in the first place?

And that's where I feel like we really have a very short memory when it comes to what can and can't happen in finance and in stocks. We can really build some discipline, hunker down for a bit, make sure that we understand where we're at risk-wise, and then be able to invest wisely and not greedily. 

JL: Right. Typically with capitalistic economies, it’s easier to bounce back. As soon as you move from a capitalistic system to socialistic controls, you lose that resiliency. You've taxed yourself, you've tried to buy yourself out of debt by making more debt, and it never works.

MB: It's a legitimate concern. And we’re not talking about the next couple of years. We are talking about a global problem. 

The Problem with Cash Bunkers and Mattresses

JL: So what’s wrong with putting money in a mattress? Say I’m right and things go bust in the next 3-5 years, shouldn’t I have some of my stuff tucked away at home?

MB: The problem with money under the mattress is the scenario of inflation. Of course, inflation means your dollar is worth less tomorrow than it is today, if inflation is going up. And we've actually been in more of a flat or almost deflationary environment, depending on how long ago you're going to look at it. But since we've added so much debt, since the whole world market has tried to pull itself out of one financial crisis after another, that causes inflation to be more worrisome in our future.

So the problem with the money under the mattresses is that with every day that goes by, you're actually giving some of that money away. The foundation of why we're investing is to beat inflation.

JL: How can people get ahold of you to start their own doomsday portfolio?

MB: You can go straight to our website, sentarainvestors.com. Our investment platform is there. All of our contact information is there and we’d be glad to set up a time to talk. We can do Zoom meetings and phone calls as well.

JL: Great. Now I'd like to give you a recommendation. You need to get AR-15s in bulk mass.

MB: Oh. I'll get on that actually. I can just hold the AR-15s in big wooden boxes in my office. I think that'd go over really well, don't you think?

JL: You’re onto something.

MB: I’m kidding of course. But I do have fond memories of that scene with Sarah O’Connor in Terminator II. She's got the bunker with her massive weapons stash. That grenade launcher she used. That’s what I want.

JL: It's pretty impressive.

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