Global investment markets don’t just seem scary these days, they are scary.
What’s more, the instability of modern markets, and their roller coaster volatility, is something we’d better get used to because it’s here to stay. Fundamentals that have traditionally guided our investment decisions are in a state of upheaval, and investors, both big and small, are yanking their money out of equity markets and investment instruments like mutual funds and ETFs.
2015 will go down as a year of transition for many reasons. Chief among these is the fact that we transitioned from a world economy led by the United States to a global economy where the U.S. is just one economic power among many.
While this change to a globally-connected economy is significant, what’s more relevant for today’s investors is that 2015 also marked the transition from a marketplace where greed was the dominant motivator to one where fear rules.
This is a seismic shift precisely because for much of our lives the sole motivation guiding investments was greed. So fundamental was this ethos among investors that in 1987 it was immortalized in the movie "Wall Street," with Gordon Gekko, a corporate raider played by Michael Douglas, proudly proclaiming, “Greed – for lack of a better word – is good.”
What Are We Running From?
This new anxiety is what turns an overvalued stock market in China into a global rout. The fear that Greece, for example, a nation the size of Colorado, might leave the European Union can move markets in Asia and the U.S. We’re all on a hair trigger, poised to sell at the slightest hint of trouble. Hedge funds and mutual funds have been pummeled by capital outflows as investors claw to get their money back.
Fear is a Poor Investment Adviser
There’s no doubt we have good cause to be anxious. Mega-players like hedge funds use high speed (also known as high-frequency) trading platforms that protect them from downside losses, but individual investors don’t have that advantage. That’s why they take the hits unprotected when markets panic.
Fear also leaves small investors, the ones who will actually need their 401(k) funds during retirement, at the mercy of seesawing markets. The catch-22 for individuals, the one who have the most to fear from instability and volatility, is that their well-founded fear kills their returns.
The Surest Path to Relaxed Investing
One of the bedrock principles of conservative investing is diversification; dividing your money between various asset classes. Since markets have become increasingly unpredictable, and you don’t have the advantage of high-speed trading, it’s more prudent than ever not to keep all your investment eggs in one basket. This is particularly true for those in their 50s and older, who won’t have time to recover from a severe market hit.
Splitting your investments between stocks, bonds, cash and liquid hard assets provides insulation from price volatility in any single asset class. It’s also considered a best practice to readjust that asset allocation annually; gradually moving funds away from high-risk investments like stocks, and into safer classes like bonds, cash and hard assets like real estate or precious metals as retirement nears.
Finding the Right Mix for Your Needs
In this new age of permanent volatility, it’s crucial to periodically reallocate your investment mix and adjust the percentages to fit your age and risk profile. As you near retirement, tucking a portion of your wealth into liquid hard assets like precious metals, with the gains sheltered in a gold IRA, puts those funds safely beyond the reach of volatile markets and increasingly irrational currency policies. It also protects their buying power from the ravages of inflation.
Making retirement plans should be fun and optimistic, not an ordeal where you feel compelled to check your balances every day. It’s still possible, but the key is committing to protecting your wealth from the increasingly inescapable volatility of our globally connected markets. - newsmax
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