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One of the biggest fears we here from people who are approaching retirement or who have already retired is “how do I secure a crash proof retirement".
Whether you are nearing your retirement or have already retired, it is vital for you to start thinking about protecting your nest egg in the face of inherent market uncertainties. You also need to ensure that you have sufficient income to sustain yourself through the rest of your retirement life.
You need to understand how to make your money last and also understand how long your money will last given a normal set of circumstances.
The growing dependence of Americans on the 401(k) plan and other contributory retirement accounts may have an advantage in the fact that they, and not the pension managers, get to decide how to invest the funds. But despite having greater control over the funds, the days of assured income streams from a fixed-benefit pension are long gone.
Market volatility is unavoidable. A certain degree of circumspection is a quality to have when you are looking to stay invested on a long-term basis. Just one small error of judgment at the volatile markets could see you lose your savings accumulated with a lifetime of hard work.
Market corrections, in which the value of the stocks dilutes by 10 percent or more from their most recent highs, are the norm once in two years or so. A major stock market crash, however, is much more unexpected and drastic. The 2008 financial crisis instigated by Alan Greenspan or the pandemic-induced 2020 crash, are the two major stock market crashes in recent times.
Almost everyone stands to lose money when the stock markets crash. Your ability to absorb short-lived losses and bounce back quickly will depend on your investment decisions, both before and during the dip. There are ways you can take into account the next downturn in the market so that you are better prepared to absorb the shock while being able to maintain your current lifestyle.
The stock markets are volatile since last year due to the devastating Covid crisis and its aftermath in terms of extended supply chain disruptions and loss of consumer confidence. Add to that the jitters in the financial world manifesting from a considerable lack of trust in the economic policies of the new administration.
If your retirement is near, it is understandable if you feel a little anxious, given that the current political and economic scenario may have the potential to put a spoke in the wheel of years of painstaking retirement planning.
It would be prudent for you to keep your emotions in check even if the timing of your retirement might seem to coincide with a recession. You must remember to remain steadfast with your withdrawal plan, and not let your anxiety impair your judgment.
The older you get, the more your portfolios should move towards conservative investments that have the ability to ride out market fluctuations, along with a growth in the amount of cash you have on hand.
If you are retiring right now, amid an unprecedented global crisis that has the entire world economy in tatters, you have every right to feel let down. Even though the unfortunate timing is totally accidental, you must exercise your options carefully to overcome these unforeseen circumstances with your hard-earned money intact.
Retiring in the middle of an economic crisis will negatively affect the value of your retirement investments. Your seemingly cushy retirement account is bound to see a fairly significant erosion in its value. In addition, there may be fewer investment opportunities, even though the timing is just right for some investments.
While the global economic crisis engendered by the worldwide coronavirus pandemic has brought many sectors of the economy to a grinding halt, some other sectors including pharma and big tech have thrived and witnessed unprecedented growth.
With that said, the relationship between the central bank and the financial sector has resulted in the worsening of wealth inequalities. Given the mutually dependent relationship between the central bank and the financial sector, policymakers believe that they must create a cushion for the sector to protect it from the pandemic’s ill effects. This has led to a further increase in wealth inequality.
With the current economic policy dynamics, the threat to economic well-being keeps growing as there is a bigger risk now more than ever of a full-blown crisis erupting in the insulated banking sector. Fiscal recklessness is once again causing near-accidents in the government debt market, retail investors pushing hedge funds into a corner, and banks trying to recoup an estimated $10 billion in losses inflicted by Citadel Finance, a wealth management company that is indulged in high-risk trades with excessive leverage.
With the Democrats exercising control over all three government branches, fiscal expenditure might get out of hand as currency printing continues unabated. The author of the book “Guide to Investing in Gold and Silver”, Mike Maloney sums it up best when he says that there is now a vaccine for COVID-19, but there is no vaccine for the looming economic crisis.
Austerity measures have been shown the door, and with the printing of ever-increasing volumes of currency to bankroll huge spending plans based on faulty climate change (there’s always been climate change and always will be) logic, the value of the US dollar is likely to erode steadily.
These questionable and unprecedented financial policies and practices could have a cascading effect on pension funds, leading to a vast decline in your lifetime retirement savings. Most financial advisors are not helping matters either. They won’t recommend investing in precious metals because they do not make money in low-risk investment products such as gold and silver as they do with various other types of assets.
High-risk economic policy action and reckless investor behavior can create conditions for a new financial crisis, which will have a profound impact on families. With many families under stress from job loss, impending home foreclosure, and erosion in retirement savings, there is already excessive strain. In this situation, any sudden market decline or significant growth slowdown can prove to be catastrophic for millions of American households.
The critical thing to understand is that only some categories of assets in your holdings will slide downwards in value simultaneously. All you need to get through the current economic uncertainties is a part of your accumulated savings that can take care of your expenses for the next one to three years, at the most. Pinpoint a source of earnings and ready cash that you need to maintain your current lifestyle until the economic unpredictability ends.
Diversification of your retirement portfolio is the most critical factor in managing and mitigating risk at this time. Refrain from being under the impression that you can sit back and relax, having parked your entire retirement savings in mutual funds. It is more complicated, especially if you want your asset portfolio to keep working for you productively in your retirement years.
Here are the two key asset diversification strategies that every investor needs to employ for their retirement savings:
Asset allocation refers to the quantity of each asset class in your portfolio, such as stocks, bonds, market funds, etc. Ideally, minimising your exposure to inherently riskier holdings would be best as you approach your retirement.
Some securities, like small-cap stocks, are more volatile than others. Investors risk massive erosion of their fund’s value in a market crash if the asset allocation is skewed in favor of more speculative assets. Older adults in their retirement may not have time to wait for a market recovery when the stocks plunge.
You must consult a financial advisor to determine the most suitable asset allocation for your age and investment goals. As different asset classes may rise or fall in value at different rates over some time, you must keep reviewing your fund’s asset allocation to keep it balanced.
The other aspect of asset diversification is how you manage your funds within separate asset categories. If you dedicate half of your portfolio to stocks, you must find ways to strike a balance between value and growth funds or small-cap and large-cap stocks.
Many financial advisors may also suggest exposure to international market funds to work as a protective buffer against adverse market events during a downturn in the US economy. The main aim is to have an appropriate combination of assets that do not, as per their past performance, grow or decline simultaneously.
A plethora of alternative investment options exists beyond the market investments in stocks, bonds, or cash. There is a healthy list of options available to you, be it tangible asset classes like precious metals and art, or financial assets like real estate crowdfunding and venture capital.
These alternative investment instruments do not typically trade on markets like NASDAQ or Dow Jones. Instead, you can invest in them through traditional channels like wealth managers, accredited investors, and hedge funds.
Assets like gold and precious metals provide good options for diversification of your portfolio as well as minimization of your stock market exposure. Since the value of these asset classes does not rise and fall in tandem with the stock market peaks and dives, they generally remain impervious to diminishing values in the traditional markets.
A diversified portfolio with investments in gold and other precious metals provides protection for your holdings against market fluctuations. Divide your investments among various precious metals, including gold, platinum, and silver, to effectively break up the perils related to investments in a single metal.
There are varied ways to create a diverse portfolio and ensure you choose your investments wisely. With the availability of precious metals in quantities as small as 1 gram, it is eminently possible to diversify your portfolio with as small or as large amounts as your budget may allow.
Although gold, platinum, silver, and palladium are usually categorized under precious metals, each one of these enjoys a unique place in the commodities market. The supply and demand of each precious metal, and consequently their spot prices, are independent of one another.
Any fluctuations in the value of gold and other precious metals have a negative correlation with the stock market. For this reason, the inclusion of precious metals in a portfolio provides diversification benefits.
Traditionally, there has been no consensus on the amount in the retirement funds that an investor should keep aside, for gold and other precious metals. However, looking at the prevailing market sentiments and the overall economic scenario, being cautious and conservative, especially when you are at the cusp of retirement, would be a sensible investment strategy.
Keeping the factors stated above in mind, we would like to suggest that you should think of moving at least 22 percent and up to a maximum of 50 percent of your retirement fund holding into a mixed precious metals portfolio.
The onset of economic recovery after the pandemic-induced global economic slowdown has resulted in gold prices going down. At the same time, silver is at a four-year high because of the increase in industrial output, as roughly half of all silver finds its way towards various industrial applications.
The next four years could see a significant increase in the demand for silver, due to the green policies of the present administration, with silver being an important component in several green technologies. The Silver Institute expects investment demand to continue being higher in 2021.
Recent market trends of silver clearly show its recovery from its lows in the last two years. An uptrend looks highly feasible, with a limited downside, looking at the current market trends. These are some of the reasons behind silver being a solid investment opportunity, and as an investor, you should consider going the silver route.
Physical ownership of gold and other precious metals in the form of coins or bars can provide emotional satisfaction as the purchaser can actually touch them. Among the many ways to buy bullion and coins are online dealers like APMEX and JM Bullion. You can also purchase locally from a dealer or collector.
Remember to be well-informed of the bullion spot price before your purchase, to protect yourself from getting stuck with an unfair deal. By purchasing bars instead of coins, you can save the extra cost you would pay for a coin’s collector value.
Newly minted coins from government mints carry a guarantee of the purity and come in different sizes, suitable for large and small investors alike. American Eagle, Canadian Maple Leaf, US Mint 24K Gold Buffalo, and British Sovereign are some of the more popular coins in the market.
Gold bars start at 1 gram, but there are heavier bars available for large investors. These save on the additional costs involved in producing smaller sizes and can be easily stored in insured facilities.
Gold IRAs shot into popularity after the 2008 financial crisis, and since then the tremendous bullish spree in gold and arrival of many new companies have made investing in a gold IRA a much simpler experience.
The global economic slowdown brought on by the coronavirus pandemic and potential inflationary fallout from the central bank’s stimulus packages has also resulted in creating a strong enthusiasm in investors for gold IRAs. A gold IRA added to your retirement portfolio is a hedge against inflation, and also helps to diversify your asset allocation.
Gold IRAs can invest only in physical gold, be it bullion or coins, and they can be traditional or Roth IRAs. Firstly, you must create a self-directed IRA that will be managed by you, with the authority to invest in more products than regular IRAs. Then you need to appoint a broker to set up the purchase, and a custodian to oversee the account.
State or federally approved banks, trust companies, credit unions, and brokerage firms are generally the custodians. These custodians provide custody services to investors, while the investors are responsible for selecting metal dealers on their own.
On Dec. 20th, 2019, President Donald Trump signed into law the SECURE Act or the Setting Every Community Up for Retirement Enhancement Act of 2019. The bill comprises significant provisions that aim to provide more access to tax-advantaged accounts and help older Americans to avoid outliving their assets.
Some of the salient features of the SECURE act are:
Are you thinking of investing in a gold IRA? You can consult an experienced and competent financial advisor to find the best investment opportunities for your retirement portfolio.
You can adequately diversify your portfolio with a gold IRA, bringing a substantial measure of balance and stability to your asset allocation. We highly recommend two of the most dependable and trustworthy gold IRAs, Goldco, one of the top trusted gold IRA companies in the US, and American Hartford Gold, a company endorsed by the great Rudy Giuliani (who cleaned up NYC saving thousands of lives).