On April 8, 2021, Federal Reserve Chair Jerome Powell said that a full reopening of our economy may be coming soon. But at the same time, he gave a warning: “It’s important to remember we’re not going back to the same economy,” he said. “This will be a different economy.”
But how “different” will that economy be, and what does it mean for your retirement portfolio?
It’s time to reexamine your portfolio.
In 2020, a survey by TD Ameritrade found that 47% of Americans believe the biggest threat to their long-term financial security is the increased cost of living. Adding to that concern, Powell said that Americans out of work will continue to struggle to find new jobs because small businesses have been heavily impacted by the recent economic challenges.
To help address the issues of this “different economy,” Powell also said that he endorses the idea of more government spending—just days after President Biden proposed a $2.3 trillion infrastructure stimulus package.
If current unemployment rates remain steady while the cost of living and federal spending increase, confidence in the strength of the U.S. economy could take a hit. And depending on how much of your 401(k), IRAs, or other assets depend on the stock market, faltering stocks could also impact the health of your retirement portfolio.
That is why it’s important to make sure your portfolio includes a healthy level of diversification. By allocating your hard-earned wealth into different asset classes, you can help minimize your financial risk.
Diversification is a key part of protecting your assets.
Even in times of economic prosperity, a diversified portfolio can help you sleep better at night. And if the present economic woes contribute to increased rates of inflation or another economic downturn, a well-balanced portfolio could be key to helping you insure your wealth.
As our economy continues to rebound from the past year’s crisis, traditional paper-based asset classes (like cash and stocks) may follow suit, with all three rising and falling together. To ensure that your portfolio is as diversified as possible, you can consider tangible assets like gold, silver, platinum, and palladium. These tangible assets have historically responded differently to market conditions than paper-based assets, often rising as stocks fall and people seek out a time-tested safe haven for their wealth.
Precious metals can help insure your wealth.
Experts recommend that individuals allocate anywhere between 5% and 25% of their portfolio toward physical, tangible assets. The World Gold Council, in a 2021 report, suggests that a significant portion of a U.S. dollar-based portfolio be gold specifically.
As both a store of wealth and a liquid asset that can easily be turned into cash, gold is a strong choice for your portfolio because it can do well when the economy struggles and folks seek out traditional safe-haven assets—and it can also do well when the economy thrives and individuals have more liquid funds to turn into precious metals like gold. Additionally, silver has also seen a significant rise in the past year, going from around $14 per ounce at the start of April 2020 to more than $25 per ounce in April 2021.
Whatever may come in the “different economy,” allocating a portion of your portfolio into tangible assets like precious metals can help your retirement look more promising.
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“We have, without really noticing, severed the connection between share price and liquidity. This matters in ways I think we may not fully understand. Combine it with game-like mobile apps that let people buy and sell in individually tiny amounts that add up to the big numbers once reserved for giant institutions. And without any kind of institutional decision-making process to constrain rash moves. Further add trillions in government cash payments, often to people with time on their hands because they are unemployed, and who need ways to generate income. Of course, some turn to stock trading. It’s an attractive “side hustle” for a time when Uber driving is less attractive. If all you have is $100, that’s okay.…Where all this leads is uncertain but I suspect it won’t be good.”
