This week we’ve been looking at the history of big banks in the history of market crashes. While not always directly responsible for the disaster that leads to a recession, like the usual suspects in the movie Casablanca, big banks and investment houses can always be found somewhere nearby when something shady is going on in financial circles. We also spent a lot of time looking at who’ll get stuck with the tab the next time the government has to take over a large financial institution.
In the front of every prospectus is a disclaimer that reminds you that you can lose money. Stock market losses tend to be steep, sudden and inconveniently timed. For some reason that’s difficult to fathom, recessions always seem to be a surprise. Yet for every single major market correction the warning signs were there for anyone paying attention.
Why We Get Caught Over and Over
It’s no mystery why the average investor gets caught by big bank follies and recessions; people have a lot of demands on their time today. It’s easy to forget about that 401(k) that’s being pumped up with regular contributions that come straight out of your paycheck and maybe an employer match. That process is invisible to most people so who thinks about it? Those in their twenties and thirties don’t have to spend that much time thinking about managing a retirement account, they have thirty to forty years to recover from a market crash. Time and market history are on the side of young people. But then life happens, you work through your most productive years, dealing with the challenges of raising a family in your spare time. One day you wake up in your late forties and suddenly you don’t have thirty years to recover from a market crash anymore.
Rebalancing – the Neglected Art
Rebalancing and diversification go hand in hand in creating a secure retirement. Diversification means having your assets allotted in stocks, bonds, hard assets and cash. Rebalancing is making regular adjustments to your asset mix based on your age. Rebalancing, if done properly, actually works to help protect your wealth from catastrophic loss and extended bear markets. If done regularly and properly, rebalancing will keep you from having too much of your wealth in the stock market when big banks inevitably usher in another disastrous market crash. Those who rebalance regularly don’t have to panic, even those in their fifties and sixties who are looking at retiring imminently.
The Role of Hard Assets
Not all diversified investment mixes include hard assets, but they should. The reason they’re frequently left out is that banks and investment houses don’t make a margin on your hard assets. Hard assets can be income-producing property (not to be confused with an owner-occupied home), liquid hard assets like high quality gold and silver bullion and income producing machinery. Hard assets express the value of currency by converting it into something tangible and solid.
Gold is unique among hard assets in that it has a long history of functioning as a medium of exchange. Gold is where investors flee when volatility and risk arise, because it maintains its value relative to whatever’s passing as currency. Those who keep a percentage of their wealth in gold don’t worry about market crashes because they know the disaster will lift the price of gold and other hard assets. Gold also puts a percentage of your wealth beyond the reach of big banks and central bank insanity like negative interest rates. In these days of rising cybercrime, your gold will never get hacked, held by ransomware or get skimmed by a card reader.
Recessions have always been a surprise; you’ve never once heard the Federal Reserve predict one coming. A major market crash followed by a recession will happen again, that’s a guarantee. By diversifying, rebalancing and hedging your riskier bets with the solidity of physical gold you can shield your wealth from the ravages of big banks and Wall Street greed and sleep better at night as you approach retirement.