Bear Market Warning: 3 Ways to Protect Your Savings
From Peter Reagan at Birch Gold Group
If you’re nearing retirement age, or you’re simply considering the best ways to ride out the storm savaging the financial markets this year, then you’re not alone.
Millions of Americans are frantically trying to preserve as much of their hard-earned nest egg as possible. Especially in the face of persistently raging inflation, rising rates, and a slowing economy.
It’s called a bear market, otherwise known as one of those “times of stock market declines, inflation and uncertainty.” A recent article on U.S. News summed up the situation for anyone from those of us still saving for retirement to current retirees:
For most people the advice is simple: You have time to wait it out and not react to the market’s short-term ups and downs. But the advice is different for baby boomers who have already retired.
Retirees who take regular distributions from their accounts must make sure they are not selling into the bear market lows and locking in the market losses, thus doing long-term damage to their portfolio. Baby boomers need to take steps to protect their portfolio to make it through a bear market with minimal damage to their retirement savings.
Assuming the “downs” in the market don’t last for a decade, it feels like common sense not to overreact and to wait out a downturn for a little while. Those who are already retired might consider some “damage control,” just as the article suggests.
But the question remains: How can we hedge against a major downturn that will drain your retirement savings over time? (Retired or not.)
Let’s explore three possible answers to that question…
1 – Keeping savings in cash (or liquid equivalents)
Aside from building an emergency fund of 3-6 months’ worth of expenses, putting your retirement savings in cash to ride out a market downturn could be fruitless.
Here’s why: According to Bankrate, even the top-yielding money market accounts only pay a yield of anywhere from 0.01% – 2.21%. With overall CPI inflation still white-hot at 8.5%, it’s pretty obvious that you’re losing much faster than winning when you park your savings in a money market account.
Fortunately, there are some suitable, highly-liquid cash equivalents. You can learn more about inflation-resistant investments here, but keep in mind that some of them aren’t suitable for your emergency fund.
On to the next hedge to consider…
2 – Review investment allocations
Another way to start hedging against a longer-term bear market is to continually review how your assets are allocated, depending on what “phase” you’re saving in.
Kristian L. Finfrock, an investment adviser writing for Kiplinger’s, describes these three phases as accumulation, preservation, and distribution.
It’s fairly obvious that ideally you would accumulate savings during your younger years, preserve your savings when you’re getting closer to retirement, and distribute your wealth once you’re in retirement.
During the accumulation phase, Finfrock says, “it’s generally OK to take some risk… If the market wobbles or even dives, you’ll likely be fine, because you have plenty of time to regrow your money.”
The preservation phase is, “the stage of life when you need to be thinking about how you’ll provide your own paycheck from your savings… You’ll still want some growth, but you should dial down your portfolio risk to better protect your money. Because we’re living longer, this stage still requires significant strategizing.”
That means during the distribution phase is ideally when you should be enjoying the fruits of your lifelong labor.
But you risk “selling your retirement savings into the downturn” if you’re not properly allocated right now.
Which brings us to a very important way to protect your savings against a bear market downturn…
3 – Fighting volatility with diversification
Are you properly diversified across different asset classes and risk categories? That’s a question only you can answer by examining your retirement portfolio.
But some asset classes could help you move one step closer to proper diversification. In fact, Ed Coyne (director global sales at Sprott) recently said:
The bottom line is that by adding some gold and gold-backed equites to your portfolio, not only does it dampen your overall volatility, but surprisingly, it increases your total return.
He continued by adding why that’s the case: “We see that as a tremendous bullish sign for the physical market today, given that rates are rising, given that the dollar is strong and yet gold is still holding (above $1,700).”
It’s a good idea to keep this in mind if you do visit with a financial planner.
Physical gold and silver: the hedge financial planners won’t tell you about
Precious metals have been a proven store of value for thousands of years.
During times of instability (like now), they have been viewed by many as a safe haven. That’s because they can be used to preserve wealth and add security to an otherwise uncertain financial future.
We’ve even put together a handy (totally free) guide that explains the benefits of this safe haven.
But don’t expect your financial planner to let you in on this knowledge. It’s not really their fault though, because their certification courses don’t explain the benefits that well. (That, and they’re paid a commission on the investments they do recommend.)
With that in mind, why not take a few minutes and learn how to take back control of your own retirement? That way you could diversify and take risk off the table by allocating your savings as you see fit.
After all, it’s your money – shouldn’t you get to decide how to invest it?2022, Featured, retirement, retirement plan, retirement savings