It’s one thing to live a thrifty lifestyle. Your aim is always to save, whenever and wherever you can. But what you do with those savings can make a huge difference to your lifestyle now and in the future.
It never hurts to have extra cash in your bank account, but the path to real retirement savings lies through investing. Investing is how you can save more money than you could ever hope to set aside from your earnings alone.
The trouble is, if you’ve been around long enough, you know it’s only a matter of time before the stock markets crash or another recession leads to you losing a lot of money.
It can take years for stock markets to recover after a bear market, and that can put your plans and timelines at risk. What if you planned to withdraw enough money to buy a home, but a recession forces you to wait four or five years? What if your planned retirement happens to coincide with a stock market crash?
A Permanent Portfolio Reduces Your Risks
Anyone concerned about losing money in their investments should look into what’s called a “permanent portfolio.” This is a strategy for asset distribution that’s profitable in every type of economic condition. It has three main components:
- Growth stocks for expanding markets.
- Gold bullion during inflationary markets.
- Bonds during recessions.
Let’s take a look at each of these assets and how they contribute to your savings.
In some portfolios, gold is considered an unorthodox asset to own, but it’s included in the permanent portfolio as a hedge against inflation. Gold’s long-term performance makes it an effective vehicle for preserving wealth against rising prices, which is a near-constant feature of the modern economy.
As inflation fears rise across the globe today, more investors are buying physical gold to weather out the storm. It’s a good alternative to keeping large amounts of money in cash or low-interest bonds. Unless your savings are earning a high enough interest or return, you lose more purchasing power as inflation creeps higher.
These are shares in companies that are expected to grow faster than the market at large. They don’t usually pay dividends, as the companies tend to reinvest in the company’s growth rather than pay out shareholders. Investment returns come from rising share values as the company rapidly expands.
For the average investor, the best way to invest in growth stocks is through a mutual fund. Mutual funds are directed by professionals whose job is to learn about companies and find the best options for getting positive returns.
During a recession, shares typically take a hit, and investors turn to bonds as a low-risk investment. Shares grow much faster than bonds do in a growing economy, but during a recession, stock markets are too volatile, and investors go with an asset that will bring lower turns with more certainty.
Bonds become an issue when interest rates are so low that they don’t exceed inflation. That’s when the gold in your portfolio will drive your savings.
A retirement-safe portfolio is one that’s there for you when you need it. Diversifying your assets helps you reduce risks and navigate any kind of economy.