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Portfolio Diversification — Sleeping Better

By LINDON, Utah - January 19, 2017 No Comments

image001This investor is awake before the alarm, and before the stock markets open.  He’s worrying that yesterday’s bad economic or jobs news will affect his portfolio.  It’s common for investors who are heavily committed to one or two asset classes to experience significant swings in their portfolio value, particularly with so many negative news stories, frequent government actions, changing regulatory announcements, interest rate fluctuations and catastrophic  bad weather events.

Financial Bubbles

Major events like financial or real estate bubbles get plenty of press and have ruined the financial future for many people.  From stock market crashes to the housing bubble that burst dramatically in 2007, we all have heard horror stories of devastating financial damage to individuals.  Arguments as to what causes each bubble  to burst ensue, but  are fully resolved. What is clear is that individuals and families suffer greatly when this happens.

There are so many contributing factors to these damaging events including bad government policies, constant interest rate manipulation, horrible lending practices and skyrocketing levels of debt.  The point isn’t that we should lose sleep wondering when the next bubble is going to burst.  Instead, we should always be taking steps to protect our assets and preserve our wealth, especially from events we cannot control.

Diversification Strategies

Many investors are diversifying their portfolios, moving some money from the stock market, in efforts to minimize the negative impact of these major financial, geopolitical, economic and natural events.

  • Commodities – investing in the futures markets, i.e. buying and selling contracts controlling commodities from corn and sugar to coffee and cattle, is one investment strategy to allocate assets. **Paper assets indicating ownership of a physical commodity.
  • Real Estate – from rental property investment to more short-term house flipping, real estate has been a popular diversification tool for investors. **Good inflation hedge, but illiquid.  Buying and selling costs are high.
  • Bonds – though bonds trade a lot like stocks, there is a trade-off of return on investment to achieve lower risk. Government bonds are the safest, but their yields are often damaged considerably by inflation.  **Low yields for safer bonds, higher risk for higher yield corporate borrowing.

Is There Another Answer?

Recent regulatory changes now allow investment in physical holdings of precious metals in your IRA and other retirement accounts.  Gold, silver and platinum are the most popular precious metals for physical storage accounts.  You can actually hold your wealth, not just a piece of paper or electronic display of your holdings.

For thousands of years, people around the world have held gold in high value for art and jewelry, as well as a bartering currency when economies have failed or gone through damaging times.  Silver is valued both for jewelry and many industrial, medical and electronic applications.  Now, savvy investors are adding physical precious metals to their portfolios as a hedge against all the instability and uncertainties of the global markets.

Sleep Better with Precious Metals Diversification

Smart diversification of your assets will help you sleep through the night.  When you view the morning news and see that bad weather is destroying crops, or that the economy and jobs are suffering, knowing you have a portion of your wealth in stable and valuable precious metals can give you peace of mind.  When you see read that  “investors are fleeing to gold (precious metals) with bad economic news,”  you won't have to worry or flee, because you are already there and holding the asset these other investors are seeking.