I have been getting calls clients about rumors and e-mails predicting certain disasters. Many people listen to the media and are convinced that we are in a financial situation where the world will go through a massive global recession the likes of which we have never seen before. Some are also concerned that the purchasing power of the US dollar will diminish since they are printing so much money. I have had questions about getting out of the stock market due to the end of the world as predicted by the Mayan calendar. People want to arrange all their financial affairs to protect against this downturn. The problem with this is that it may never happen (remember when the world was going to end due to Y2K?) and to sit on the sidelines waiting for a catastrophic event can be costly.
Let’s talk about two of the main issues, massive devaluation of the US dollar and rampant inflation. If there were a massive devaluation of the US dollar, this means some other currency would have to step in to replace it. That currency would have to be liquid, stable, freely traded, and exchangeable. When you look at all of the major currencies, none of them fit the bill better than the United States at this time. Therefore, I do not believe it is going to happen. As far as inflation is concerned, we could have significant inflation in the future. The good news is that there are investments that perform well in this environment, stocks, real estate, and commodities to name a few.
When we build portfolios, we do not ignore the above issues. We invest in stocks, many of which are outside the US and purchased with local currencies. We also have a healthy allocation to alternative investments such as real estate, private debt, commodities and managed futures. We also shift the risk of poor stock market performance to insurance companies. Therefore, our approach is to diversify and build in risk mitigation strategies so if we were to go through a global recession, our clients would survive. We are not willing to position everything on the sidelines waiting for this event to happen since it would mean earning very little in your portfolios, which could jeopardize your retirement. We also have faith in the system and are not banking on the end of the world. One of my favorite sayings these days, “Don’t bet on the end of the world, it will only happen once and you will not be around to collect.”
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