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Financial crises call for new investment strategies to preserve one’s wealth. Whether you’re approaching retirement or at the early stages of your career, there are steps you should take to protect yourself from losses and insulate your portfolio from volatility.
It should come as no surprise that the overwhelming majority of high net-worth individuals flock to real assets to safeguard their wealth. In fact, high net-worth investors, on average, dedicate about 25% of their portfolio to cash, alternatives, and real assets, according to the 2018 U.S. Trust Insights on Wealth and Worth survey.
Although equities and fixed-income assets are universal investment staples, there are good reasons why so many successful investors branch out into alternatives: to achieve true diversification, minimize systemic risk, create positive cash flow, and find new profitable opportunities.
Below, I’ve put together a brief guide to strategic wealth preservation for millennial investors and retirees alike. Follow these investing rules to find out how you can protect your portfolio against recessions, volatility, and other forms of risk that jeopardize your hard-earned wealth.
Alternative Assets for Wealth Preservation
There are five main assets that every investor should consider adding to their portfolio—no matter whether they’re four or forty years from retirement.
1. Gold Bullion
Gold has long been relied on as a store of value during times of economic turbulence or volatility. For centuries, gold has maintained a strong global market demand due to its use in manufacturing, dentistry, medicine, high-technology, jewelry, and more. As a highly liquid asset and a stable store of value, gold offers investors diversification and the ability to hedge against risks in financial markets.
A recent survey found that gold is considered the safest investment vehicle for a retirement account among women aged 55 to 64. This is largely due to the price of gold remaining stable (or, often, increasing) during times of relative economic instability. Therefore, consider adding IRA-approved gold bullion to your 401(k), Roth IRA, or traditional IRA as a form of strategic wealth preservation during times of instability and economic expansion.
2. Silver and Alternative Precious Metals
Other precious metals, such as silver, platinum, and palladium are also excellent options for strategic wealth preservation. In 2019, the price of silver rose 7.6 percent on the year and managed to hit a three-year high in the beginning of September.
The grey metal saw sustained upward price movement due to increasing global demand for silver in electronics manufacturing, especially in the production of photovoltaic cells, solar panels, batteries, and RFID chips used in logistics and shipping tracking.
Although silver and other alternative precious metals have undergone periods of volatility over the last decade, silver is often sought-after by investors because it is not tethered to the expansion of global gross domestic product (GDP). Unlike gold, silver tends to perform well when global GDP increases, which provides a useful hedge against GDP-gold price dynamics.
3. Exclusive Real Estate
There are several reasons why investors should consider purchasing exclusive real estate to both preserve and grow their wealth. Maintaining rental properties provides consistent positive cash flow in the form of money left over from rent payments after paying all expenses related to housing, including one’s mortgage, insurance, and property taxes.
Savvy investors don’t bet on the appreciation of the assets they own. Instead, they put them to work to generate more income than what it costs to own them. By purchasing exclusive real estate, investors can lock into contracts that ensure positive cash flow over a defined period of time, regardless of external market dynamics.
Of course, the housing market is not immune to the effects of a recession or even outright collapse. However, over time, the real estate market works synergistically with inflation to create advantageous financial positions for investors. For instance, every significant expense associated with homeownership, such as one’s mortgage and property taxes, remain fixed over the lifetime of the asset. However, the value of one’s home (and the market price of rent) increases in lockstep with inflation.
4. Cryptocurrencies
As the U.S. Federal Reserve has made it cheaper and easier to borrow money by lowering interest rates to effectively zero, the U.S. dollar may be headed for a period of inflation. Fortunately, cryptocurrencies such as Bitcoin, Ethereum, and stable altcoins can provide a hedge against inflation and preserve one’s wealth in the case of systemic financial collapse.
The unfortunate truth is that government confiscation of gold can happen in the United States under the Gold Reserve Act of 1934. Fortunately, cryptocurrencies are immutable digital assets that exist outside the auspices of the central banking system and cannot be usurped by central authorities. Plus, cryptocurrencies can be used for cross-border payments as a fast, low-cost remittance tool.
For these reasons, cryptocurrencies such as Bitcoin are worthy, though volatile, additions to one’s portfolio for those who want to hedge against systemic risk and protect their wealth from theft or confiscation.
5. Fine Art
For those who want to add one more alternative investment asset class to their portfolio, fine art might make a worthwhile addition. According to the 2019 annual report by Art Basel and UBS Group AG, the global fine art market saw $67 billion in sales during the prior year. Indeed, many fine artworks sell at auction for tens of millions of dollars, such as Jeff Koons’s “Rabbit” (1986), which sold for over $91 million.
Those who purchase fine art at auction have the option of leasing art to public galleries or selling the piece at auction at a later date at a profit.
Putting It All Together
These suggestions for strategic wealth preservation, or what I call “SWP”, allow investors to hang onto more of their wealth over time. As the global economy faces unprecedented instability and uncertainty, it’s in every investor’s interest to hedge against risk, inflation, and asset deprecation by investing in alternative assets.
One cannot adequately diversify with stocks and fixed-income securities alone. If you’re considering adding precious metals or cryptocurrencies to your self-directed retirement savings account, check out these Crypto IRA reviews and Gold IRA reviews to help make a safer, more informed investment.
Disclaimer: This article is for informational purposes only and should NOT be considered financial advice. Speak to your financial advisor before making an investment decision and do not invest any sum of money that you cannot afford to lose.
Liam Hunt, M.A., is a financial writer covering global markets, monetary policy, retirement savings, and millennial investing. His commentary and analysis have been featured in the New York Post, Reader's Digest, Fox Business, and Forbes.
