Here’s the thing about investing: it’s not that complicated. Yet many of us become overwhelmed by the confusing terminology. That discomfort, coupled with the fear of losing money, keeps people out of the stock market and mired in economic mediocrity. But when you don’t invest your cash sits in a ridiculously low-interest bank account, steadily losing value to inflation and currency manipulation.
It’s a shame, because it’s really easy in the modern world to put your money to work, and if your investments are structured properly, with proper diversification, investing is seriously boring. Boring is good when it’s your money on the line. Some people think you have to watch the market and do a lot of trading to make money. In reality it’s just the opposite. People who make a lot of trades, like day traders, lose money. Tending your personal investments should take less time and effort than tending a garden. You need to check on your investments and adjust them at least once a year, but no more than twice.
Diversification Is Key
This is a wild week on the market. After a sharp drop on Monday, markets are weakly positive in the wake of the first presidential debate. Those daily fluctuations can be unnerving but, if your investments are structured properly, there’s no reason to worry. An investment portfolio made up of sleepy index funds, municipal bond funds, buy-and-hold dividend funds and value funds will offer returns in line with market averages over a long period of time. Once a year you should adjust the amount of money you have in stocks and bonds to align with your age and tolerance for risk. That process is called rebalancing, and that minor tending ensures you don’t have too much money in high-risk stocks and other paper investments as you approach retirement.
The Role of Tangible Assets
As you get older your investment mix should include a greater percentage of tangible assets. For most people the one big tangible asset they have is an owner-occupied home. But while it may be your pride and joy, a house is a very tricky asset. What equity you have is subject to high transaction fees, taxes and regular insurance premiums. Millions of people who thought they had equity in their homes in 2008 discovered by 2009 that they couldn’t sell those homes for what they owed on them. Their equity had vanished like a mist.
Liquid Hard Assets
One tangible asset that’s much simpler to own, and to liquidate, is investment-grade gold and silver coins; a vital component to wealth management. Gold and silver are commodities but they’re also, in a very real sense, money. The coins even have a face value in dollars, though that number is far below the value of the metal. Gold and silver are liquid hard assets, and when you convert cash into gold and silver it buffers the value of that cash from inflation, deflation and even the devaluation of the dollar. Moreover, gold and silver coins are readily accepted by dealers and easily—and privately—converted into cash.
At least conceptually, investing really isn’t that difficult: index funds, bond funds, tangible assets and liquid hard assets. With that simple mix you don’t rely solely on paper assets that can lose value suddenly when the market crashes. But with the right mix, wild weeks like this one can be merely amusing, instead of a terrifying threat to your retirement.
