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Saving for Retirement Means More Than Just Holding Cash

Saving for Retirement Means More Than Just Holding Cash

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Thursday, 15 March 2018 04:01 PM Current | Bio | Archive

The first step to being able to retire comfortably is to start saving money. Being disciplined about putting aside a portion of every paycheck to help you out in retirement is absolutely essential. But once you’ve put that money aside, you’ll need to make sure that it goes to work for you. While you definitely want to have a good supply of cash saved up (3-6 months worth) to cover unforeseen expenses, cash is a lousy investment asset.

Losing Money to Inflation

Because of the inflationary monetary policy undertaken by the Federal Reserve, your cash holdings are guaranteed to lose money every year, at least two percent but very often much more. If you don’t put your money to work, the purchasing power of your savings will be eaten away by inflation. All that hard work will have gone for naught. And don’t think that a return to higher interest rates on bank savings accounts would protect you either. As Germany’s Bundesbank pointed out, real (i.e. inflation-adjusted) savings rates on bank deposits have almost always been negative.

Negative Interest Rates

Nominal interest rates may be low, but at least they’re not negative… for now. Unfortunately for savers, one of President Trump’s picks to the Federal Reserve Board is known as an advocate of negative interest rates. Negative nominal interest rates would of course incentivize depositors to pull their money out of banks.

Of course, then the government could impose a surcharge on all bank withdrawals, as was done in Greece. In fact, a surcharge on deposit withdrawals might precede a move towards negative interest rates, in an attempt to force depositors to keep their money within the banking system and not use cash.

Government Seizure of Cash and Bank Accounts

Then of course there is always the prospect of outright seizure of bank accounts or at least portions of assets held in bank accounts. We saw this in Cyprus, when many bank depositors were forced to take “haircuts” in order for the government to try to prop up and recapitalize the failing banking system. Too many people view bank accounts as a safe place to store money risk-free, but the reality is that bank accounts are anything but risk-free.

There is the illusion of bank accounts being low-risk, but that is only because of the subsidy provided by government deposit insurance. Banks are inherently engaged in risky business, borrowing short by offering bank deposits and lending long to homebuyers and others, and the federal deposit insurance fund doesn’t have nearly enough money on hand to make depositors whole in the event of a systemic banking crisis. If push came to shove, your money in the bank may not be available to you when you really need it.

The Dollar Bubble

The dollar is also in a bubble that is set to burst. For decades we have become accustomed to the dollar being the world’s reserve currency, but that is slowly changing. China has definitely set its sights on elevating the yuan to be the world’s future reserve currency, and it’s probably only a matter of time before that takes place.

When the dollar is eventually dethroned, its purchasing power will decline precipitously. Anyone holding large amounts of dollars will suffer accordingly.

Diversify Your Assets

That’s why it’s important to diversify your assets. Most people know about stocks, bonds, mutual funds, CDs, and similar assets. They believe that investing across that range of assets is enough to fully diversify an investment portfolio, but it’s not. Full diversification means minimizing not just asset class risk but also geographic risk and currency risk. If the dollar ceases to be the world’s reserve currency, the stock values of American companies will decline. Interest rates will rise on dollar-denominated bonds, reducing the value of bonds. Those who haven’t diversified will be most at risk.

That’s why alternative assets such as gold, silver, real estate, and various other investments can be very powerful in protecting an investment portfolio. Yes, you may not gain the enormous growth that can come from investing in a stock market bubble, but your portfolio will also be protected from the vast losses that can occur when that bubble crashes.

Grow Your Assets in Retirement

It’s also vitally important that your retirement assets continue to grow for you in retirement. While you want your portfolio to be less risky in retirement than when you’re saving up during your career, cashing everything out and holding just cash is a poor strategy due to the rampant inflation that will occur. You will want to invest in assets that hold their own against inflation and that continue to grow your portfolio so that you can use the minimum amount of principal that you need in order to live comfortably.

Gold is an ideal asset in that respect, as it has held its value against inflation for centuries, serving as a safe haven and store of wealth for thousands of investors. In fact, since the early 1970s gold has even outperformed both the Dow Jones and the S&P 500 stock indexes. That makes it a great asset to hold in retirement to protect your portfolio and its hard-earned assets.

With the development of gold IRAs, you can even roll over existing retirement assets into a gold IRA, allowing you to benefit from the same tax advantages as a traditional IRA while simultaneously enjoying gold’s protective status. So if you’re looking to find an asset that can benefit you in retirement, you owe it to yourself to think about investing in gold.

Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.

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The first step to being able to retire comfortably is to start saving money. Being disciplined about putting aside a portion of every paycheck to help you out in retirement is absolutely essential. But once you've put that money aside, you'll need to make sure that it goes...
gold, ira, cash
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2018-01-15
Thursday, 15 March 2018 04:01 PM
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