In today’s world, “on fire with risk”, how can you possibly safeguard your savings? One former financial pro offers his opinion on the key to success.
From L. Todd Wood
Having been a financial professional most of my adult life, I can remember many instances at a lunch, a dinner party or after a speech, where I was asked, So where should I put my money? I have found that most people – even hyper-successful businessmen or women – are clueless when it comes to handling their personal accounts. I’ve talked with executives who own a few million shares of their own stock tell me, since they also own a dozen penny stocks, they’re savings are diversified. I have to laugh at those.
When deploying your assets to protect and grow your wealth, the nature of the game is controlling risk. And boy, is that advice really pertinent at this point in our financial history. The world is on fire with risk! In all my years of investing and trading, I’ve never felt our planet could come unglued at any moment. But I feel that way now. Whether it’s China, Russia, Ukraine, Iran, Cuba, ISIS, Israel, Greece… the list of countries or situations on the brink is endless.
Perhaps the greatest risk facing the investment community right now is the global currency war we are experiencing. Country after country are devaluing their currency in order to beggar thy neighbor and make their exports cheaper than the next guy. Many countries have achieved this by cutting interest rates and printing barrels-full of money. This increase in money supply across the globe has significantly increased the probability of a catastrophic financial crisis, which could affect the entire world.
This is how wars start. This is how people start to jump out of windows. Think 1929.
If you ask most billionaires how they got rich and stayed rich, they will tell you: I don’t lose money. History is rife with examples of those who made a quick fortune and lost it just as quickly.
Diversification is a must-use concept when building a portfolio. Properly diversifying your assets can significantly reduce the volatility and the probability of you losing money. You can diversify among individual stocks and bonds, geographically, and among fixed-income, maturity, et cetera, et cetera.
Commodities also have a premier place in any well-maintained portfolio.
Commodities as a sector have experienced large sell-offs in the last few years. If you look at oil, copper, natural gas, gold, etc – they all are trading near multi-year lows. Throughout history, gold has been looked at as a store of value. Gold hit record highs above $1,900 a few years back. Currently, it’s trading around $1,300. If you loved it when it was close to $2,000, why wouldn’t you be backing up the truck now to buy some? As the market starts to understand and price in the risks that are out there as geopolitical events percolate, gold will likely maintain or grow its value.
With the U.S. equity market trading at stratospheric valuations and the bond market at historically low yields (which means high prices), you can’t go wrong buying high quality assets that are out of favor. Commodities fit that bill. In fact, I would argue that a financial consultant who is not advising his clients to move out of high-priced assets and into low-priced alternatives is negligent.
One of the scariest scenarios I foresee now in global financial markets is the exit of Greece from the Eurozone. Not because Greece is such a big player, but because of what that event will say about the stability of European financial markets.
If Greece can just up and leave and not pay their debt, then Spain, Italy and Portugal may not be far behind them. And where is Greece going to go for financial support without Germany paying the bills? For one, Russia has offered financial support. The Greek cleptocracy would fit right in with the Russian way of doing things. Russian President Putin wants nothing less than to peel off Eastern European countries into the Russian orbit.
Just imagine: You wake up one morning, turn on the financial news and hear that Iran has attacked the U.S. in the Persian Gulf, Russia has fully invaded Ukraine or ISIS has taken Baghdad. What would you rather own at the point: Overpriced stocks and bonds, or underpriced gold?
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The views and opinions expressed in this article are solely those of the author, and do not necessarily represent those of Birch Gold Group. You should not treat any opinion expressed by the author as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their opinion.