Markets like these can give you motion sickness. I must admit, I am currently wearing a neck brace from the whip lash over the past few weeks. For those of you who have been reading the blog, you may remember in a recent post that I believed this market would continue higher until the Fed quit pumping money. Well, the second round of quantitative easing (money printing) ended June 30th. We are down roughly 20 percent from that point. Now, our portfolios have held up much better, down roughly 5% from the recent highs, mostly due to profit taking and our substantial gold positions. If you want to know the best ways to own and buy gold, email me. I encourage investors to be cautious but opportunistic. I have been saying it for years and will continue to say it: the days of endless government spending have caught up with us and gold offers one of the only ways to profit and safeguard from the mayhem that is caused by currency instability. The economic picture for governments will not be improving any time soon. Cutting costs severely enough to balance government budgets will be extremely hard for the markets and the larger economy to digest. Yet, we cannot print our way out of these problems without inflicting even more damage to our currencies. Gold should do well in either scenario as it is a safe haven/inflation play.
I think we will go lower still, maybe not immediately, but soon. Now is not the time for wholesale selling. Drops like these are precisely why we were taking profits and building up cash three months ago. There are some good buys out there but be very careful. Just because a stock has dropped a lot does not make it a good buy.
There are many ways to protect your portfolio from drops like the one we have recently witnessed. I use hedging strategies in many or my clients' accounts that can actually make money when the market goes down. However, these strategies are often very complex and can be risky. So, what can investors do to protect their assets? In a recent conversation regarding the market, a client jokingly suggested that a financial institution should develop portfolio insurance. Well, they have!!
When I first entered the business, Annuity, as least as I was concerned, was a dirty word. People had a habit of flocking to annuities in times of hardship and locking in a low but guaranteed interest rate after taking a pounding in the market. The vast majority of annuity purchases would happen in the aftermath of a massive market correction. Sadly enough, investors that employed this strategy sold low and missed out on the rebounds that came after the devastation, often locking their money up for years and earning a paltry 3%. How the industry has changed. I recently discovered products that were offered by annuity companies that offer upwards of 150 funds and investment options, offering 100% control over your money. At the same time, the company guarantees growth to your income base. Sound too good to be true? It's actually very simple. Annuities are traditionally income investments. You give the company a lump sum and they guarantee a payment for the rest of your life. If you don't take the guaranteed payments, your lump sum grows by whatever amount your guaranteed payment is (invest $100,000 in a 4% annuity you can take $4,000 in payments or your income base grows to $104,000). These new annuities offer the same thing but you are able to invest the lump sum as you see fit. If you invest well and the market goes up, great! It's just like owning a mutual fund portfolio. However, if the market crashes, your income base (principal originally invested) continues to grow by the guaranteed amount. I recently found a company that offers a guaranteed 10 year income base double. So, if you invest $500,000 in their 5% product, regardless how the investments that have chosen perform over the next decade, after ten years you will be able to take 5% of $1 million for the rest of your life. Now, we would obviously hope to that our investments would outpace that, but it sure makes is easier to know that your retirement income is growing regardless of how the market is doing. These products aren't for everyone but they certainly have their place. For those of us who are within 15 years of retirement, annuities can prove invaluable. They are truly the equivalent of purchasing an insurance umbrella for your portfolio. Again, feel free to email me with any questions.
