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Do You Have A Backup Plan?

Do You Have A Backup Plan?

Thursday, 22 March 2018 05:25 PM Current | Bio | Archive

There’s a lot that has been written about the best way to invest. From overarching strategies and long-term goals to the nitty-gritty of actually buying and selling investment assets, there is an almost overwhelming amount of information out there. But while everyone focuses on how to plan for retirement, almost no one focuses on creating a backup plan. What happens if you aren’t able to save as much as you hoped? What happens if your investments start underperforming? What happens if stock markets enter a years-long bear market? Those are the types of questions that investors need to ask themselves and prepare for if they want to ensure that they can live comfortably in retirement.

Are You Prepared for a Crash?

A recent survey by Country Financial showed that 44% of Americans aren’t ready for a stock market crash. If the Dow were to drop by 6,000 points, or about 25% of its current level, they would be caught completely unprepared. That’s not an unprecedented drop in terms of percentage, as both the Dow Jones and the S&P 500 lost over 50% of their value during the 2008 financial crisis.

But with stock markets having been so high-flying the past two years, many people have been lulled into a false sense of safety, thinking that markets will continue to remain hot. If they don’t begin to prepare now for an eventual crash then they will risk losing significant amounts of their savings once the crash finally occurs.

Is Your Portfolio Diversified?

That’s why portfolio diversification is so important to investors. It’s great that so many millions of Americans invest in 401(k) programs, but in many cases their investment options remain very limited. Many 401(k) programs offered by employers only offer a small selection of investment options, and often are very heavily weighted towards stocks. That’s great when stock markets are doing well, but not so great when they start to decline.

A 401(k) is okay to form the beginning core of a retirement investment profile, but a well-developed and well-diversified portfolio will include bonds, real estate, gold, and other investments. At the back of the investor’s mind should always be: If the worst-case scenario comes to pass, how will my portfolio perform?

How Has Your Portfolio Performed?

It’s important to take a good, detailed look at how your portfolio has already performed. Stock markets have done really well over the past two years, but how have the stock investments in your portfolio performed? Are you invested in individual stocks or in funds? Are the funds you invest in actively or passively managed? Have the funds you’ve invested in outperformed the market, equaled the market, or underperformed the market?

The long-term performance of actively-managed funds isn’t too great. Between 83% and 95% of actively managed equity funds have underperformed the stock market over the past 15 years. That’s not a great track record, and means that you could be losing out on significant gains if you stick with subpar investments. Even gains of one percentage point less than you could be gaining could result in tens of thousands of dollars of missed gains over a 15-year period, and potentially hundreds of thousands of dollars over the 30- to 40-year period you’ll be investing in before retirement.

The Role That Gold Can Play

Because diversification is so important to both the health and performance of an investment portfolio, it’s important for investors to diversify properly. Too many investors invest in a mix of stocks, bonds, CDs, and other financial assets and consider themselves well-diversified, forgetting that all of their assets will move with the whims of Wall Street. Failing to invest in counter-cyclical assets is the Achilles heel of all too many investors.

Thankfully, there are plenty of ways for investors to protect their hard-earned savings from the ravages of stock market crashes. Chief among those is gold, which has been trusted by savers and investors for hundreds of years. Gold isn’t a “sexy” asset that sees the huge spikes that stocks do, but it holds its value year in and year out. In fact, since 1971 gold has even outperformed the Dow Jones and S&P 500. That makes it ideal for investors looking to protect their retirement portfolios against the risk of a stock market crash while not sacrificing possible future gains.

With the development of gold IRAs, investors can invest in gold just like they would invest in any other financial asset, even enjoying the same tax advantages and being able to use existing retirement assets to purchase their gold. So if you understand the importance of diversification and want to take the first steps to creating a backup plan to protect your retirement assets, you owe it to yourself to take a look at 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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There's a lot that has been written about the best way to invest. From overarching strategies and long-term goals to the nitty-gritty of actually buying and selling investment assets, there is an almost overwhelming amount of information out there.
gold, IRA, retirement
Thursday, 22 March 2018 05:25 PM
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