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Be a Good Boy Scout with Your Finances

A single bad market event can have catastrophic effects on your retirement funds so it is important to have safeguards in place to help reduce the possibility of waking up one morning and finding your nest eggs broken. The brokerage community insists that if you are just patient enough your portfolio will rebound, but what if it doesn’t?  In today’s article Dennis Miller takes a look at some steps you can take to help protect your life’s savings.~  Tim McMahon, editor.

ID-10079242Mastering the Art of Financial Backtalk

By Dennis Miller

Alan Greenspan has popped back into the limelight and confirmed some of my worst fears (not that they needed much confirming). Here’s a recap of statements Greenspan made at the New Orleans Investment Conference:

  • The Federal Reserve’s primary mission is to support out-of-control government spending. To do so, it’s “created” trillions of dollars. Regardless of who is in office, politicians can’t help themselves.
  • Spending will continue. If the Fed tries to reverse the trend, there will be a significant market event. If it keeps doing what it’s doing, significant inflation is inevitable.
  • A lot of people will be hurt.

Frankly, Greenspan’s candor surprised me, but my colleagues who attended the conference confirmed a series of reports I’d read. All this means that seniors and retirement investors, particularly those holding the majority of their wealth in US dollars, are holding one foot off a cliff. There is a better way.

Should you buy gold? That depends. A solid portfolio has 10-20% (depending on your comfort level) in core holdings for catastrophe protection. What are core holdings? Precious metals certainly fit that bill, as does farmland, certain foreign currencies, fine art, and various other tangible assets. Now is a good time to review your core holdings. If you’re adequately protected from the big, bad event, then you don’t need more.

If, on the other hand, you need to up your catastrophe protection, precious metal prices are making it an attractive time to do so. Remember, these investments are there to protect you and your family. They are the ultimate safety net, and it’s worthwhile to consider where you own these assets. Keep some of your insurance where it cannot be easily confiscated.

We live in dangerous economic times. At Miller’s Money, we’ve cautioned our readers about the possibility of a “significant market event” and the possibility of high inflation, and we’ve shared step-by-step guidance for those who are do-it-yourself money managers.

And while I encourage all investors to do a year-end portfolio audit with these concerns in mind, many financial advisors disagree over what a well-protected portfolio looks like. I often hear from income investors who’ve spoken to their advisors about high inflation concerns, only to be brushed off. Many report firing their advisors because they thought their nest egg was at great risk and the advisor refused to listen.

Don’t accept the brush-off. Whether your go-to guy is a fee-based CFP, a stockbroker, or a well-intentioned adult child, sit down and review your portfolio in depth with the worst-case scenario mindset. Ask yourself:

  • What happens if there are five-plus years of double-digit inflation?
  • What happens if the market drops 50% or more and doesn’t rebound?

This is not a drill, folks. These are distinct possibilities.

It’s unfortunate when a trusted adviser brushes off your concerns as unrealistic or insignificant. Here are some typical responses you might hear:

  • No need to worry about inflation. It’s less than 2% and under control.
  • Not to worry. You have a little money invested in TIPS.
  • You are well diversified within our family of mutual funds. You are protected.

Don’t let this sort of arrogance keep you from protecting yourself. Here’s what I’d say to those three comments respectively:

  • I know what the current inflation rate is, but it might go much higher. How can I protect against high inflation destroying the value of my life savings?
  • TIPS do not hedge against inflation. They don’t even keep up with inflation. They’re a terrible investment.
  • How does a family of funds in all US dollars and US companies protect me if the dollar rapidly declines?

Act like a Boy Scout. There is no downside to preparing. It’s much, much easier to prepare and be wrong than to try to recover after a disaster hits—especially if you’re over age 60. There’s good reason the Boy Scout motto is, “Be prepared!”

Alan Greenspan is an insider if there ever was one. Hearing his concerns clearly expressed is cause for a complete portfolio review—sooner, not later. There’s nothing to lose and much to be gained. When Greenspan talks about high inflation and a significant market event, how much more warning do you need?

When you boil it down, it’s pretty simple. You might have to make some adjustments to protect against inflation and market exposure. The right adjustments will reduce risk and have minimal effects on your investment income. On the flip side, doing nothing may have negative, life-altering consequences.

If you’ve never done a full audit of your portfolio, the right financial adviser can pay dividends (pun intended). That’s why the Miller’s Money Forever team published The Financial Advisor Guide, a timely, independent special report that shows you how to pick the best adviser for your unique needs. Click here to learn more about The Financial Advisor Guide and how to access your copy today.

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The article Mastering the Art of Financial Backtalk was originally published at millersmoney.com and has been reprinted by permission.

Photo Credit: Image courtesy of  ddpavumba at FreeDigitalPhotos.net

About Dennis Miller

Over the course of his career, Dennis Miller has consulted with many Fortune 500 companies, training hundreds of executives to effectively communicate the value of their company's products to their customers. Among his many multinational clients are: GE, Mobil, Shell, Schlumberger, HP, IBM, Corning Glass, Eastman Kodak, AC Nielsen, and Johns-Manville. More....