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Preparing your finances for harder times ahead

The US sub-prime banking crisis has now infected the global economy and will lead to a slowdown next year. Already share prices are tumbling and house prices falling in many markets. This leaves investors in need of some plunge protection. Here are 10 tips to safeguard your personal fortune over the next couple of years.

It is always better to be safe than sorry in an economic downturn, and investments that leveraged the boom on the way up will likely perform with equal gusto to the downside. This is no time to be brave or bold. Keep your head down so that you are around to pick up the bargains when the battle is over.

1. Sell off any shares, hedge funds, mutual funds and other financial instruments held in Western markets, and just do it without any further waiting around. Warren Buffett has just sold out of Petrochina (with a $3.5bn profit) so look hard at emerging markets too.

2. Dispose of any investment properties both residential and commercial. Keep your home provided the mortgage cost is reasonable for your income as you need to live somewhere.

3. Check your bank’s financial position very carefully, and only bank with the largest and most highly capitalized banks. Who warned you about Northern Rock? Nobody!

4. Withdraw money from internet based financial institutions unless they are owned by a major Western bank. The small print on the terms and conditions of many of these groups is alarming. Stick to the highest quality firms only.

5. Move your money into US dollars. This is the safe haven asset class and the devaluation of the US dollar is almost over making it an excellent buy. You can exchange dollars for almost any asset after its price has crashed: useful stuff money!

6. Consider investing 10-20 per cent of your money in gold and silver bullion. Gold is a proven safe haven in both a deflationary and an inflationary downturn scenario; not much else works in both directions and major investors already know this.

7. Just stop listening to conventional investment advisers who are only interested in protecting their own jobs and commission income, and will become even less reliable in a downturn due to sheer desperation for a sale.

8. Live modestly and within your means – pay off as much of your debt as you possibly can. Sell the Porsche, buy a Toyota!

9. In the UAE you might consider buying a house to protect against the local inflation of rents, and selling a massively overpriced house overseas to buy locally looks a good arbitrage opportunity. But get on and do this if you still can.

10. Check the financial position of your employer, and consider changing jobs if necessary: Losing your job in a declining economy maybe the worse thing that can happen. Then your assets may become the liabilities they really are, such as houses with mortgage payments.

See also:
Top tips to make you a smarter investor
Will Abu Dhabi become a global financial centre?