Is Your Retirement Portfolio Crash-Proof?Paul-Martin Foss
Many Americans put money into their retirement accounts and never bother doing anything more than briefly looking through their annual statements. They are the very definition of passive investors. But in the event of a market crash, those passive investors will lose significant amounts of their savings. Given that stocks and bonds are well into bubble territory right now, this is the time for concerned investors to begin taking a look at their portfolios and determining how they can diversify and reduce their risk.
1. Determine Your Portfolio’s Exposure
If you’re like most investors, you may be primarily invested in stocks and bonds. You may not be invested in any other assets, such as real estate and precious metals. But the first step towards diversifying and crash-proofing your portfolio is to determine exactly how much exposure you have to various asset classes. An investor who is invested 90% in stocks and 10% in bonds will make different decisions than an investor who is invested 40% in stocks and 60% in bonds.
2. Calculate Your Potential Losses
You’ll need to figure out the worst-case scenario for the assets in which you’re invested. During the last financial crisis, the major stock indexes lost over half of their value. Some individual stocks lost even more than that. During the dot-com bubble, tech stocks such as Amazon lost 90% or more of their value. If you’re heavily invested in Alphabet, Facebook, Apple, etc., you’ll want to keep that in mind.
You’ll also want to calculate the potential gains from alternative investments. Gold and silver saw huge price increases during the financial crisis and the years thereafter, and there’s every reason to expect them to see similar gains in a future crisis. You’ll need to take that into account, as gains from precious metals can offset losses from stocks and bonds.
3. Determine What Adjustments You Need to Make
At this point, it’s a question not of whether there will be another financial crisis but when that financial crisis will occur. The stock and bond bubble that has been blown up by central bank asset purchases will burst, and when it does it will take investors down with it.
If you’ve decided that you want to diversify your portfolio with precious metals, you will need to determine exactly how much to allocate within your portfolio. Moving 10%, 20%, or 30% or more of your portfolio into precious metals will have an effect in the short term and the long term. Many rollovers from retirement accounts into gold and silver IRAs can be done tax-free, but you’ll want to consult with your tax advisor to be sure.
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Remember that the aim of diversification is to protect your wealth by reducing your exposure to risky assets that will likely sustain losses. Gold and silver serve that purpose today, as they have for hundreds of years. But the time to diversify is before the crisis starts – afterwards it will be too late.