A Better Way to Invest

A Better Way to Invest

A Time-Tested Strategy to Optimize the Health and Wealth of Your Portfolio

THE BIG QUESTION: HOW SHOULD YOU STRUCTURE YOUR INVESTMENT PORTFOLIO?

Diversification used to mean spreading your portfolio amongst various asset classes. Back in the 1950’s and ‘60’s, for example, it was recommended to restrict your equity position to less than 1⁄3 of your liquid assets. Today, stock brokers have successfully shifted the paradigm, convincing investors to put up to 90% or more into equities, through a varied level of aggressiveness or risk within a stock portfolio. This is not diversification!

The investment industry specializes in bull markets. But history offers irrefutable proof that this strategy only works 60% of the time. Since 1877, the market has spent 60% of its time being up. But what about the remaining 40%? And what about the lengthy time bullish investors had to patiently wait for a recovery in prices to cover the losses incurred from the 40%? Things might go well for you for a while, seeming like you can do no wrong, until suddenly profits evaporate in a major cyclical event.

Such an event is partly a function of natural market dynamics, but the problem is made much worse by central bank (Federal Reserve) policy that continually pumps money into the economy. This continual increase in the quantity of money creates successive bubbles, such as in tech stocks in the late 1990’s, real estate in the 2000’s, and the stock market in the 2010’s. When those bubbles get too large, they pop, effectively wiping out millions of investors. As the bubble is forming, it’s hard for investors to lose; but when they pop, it’s very hard to win.

HEDGING AGAINST THE MARKET

Gold is the secret to building an investment portfolio that not only survives—but actually benefits from—the market’s ups and downs. Consider the longterm track record of investing in stocks, bonds, and gold over the past five decades. If you invested $1,000 in the U.S. stock market 50 years ago, with dividend reinvestment your money would grow to approximately $112,000. If you followed run-of-the-mill financial advice and invested 75% in stocks and 25% in bonds, your portfolio would have less risk, but returns would be much lower. $1,000 invested 50 years ago with annual rebalancing would be worth just $93,000.

What happens if you add gold to your portfolio?

THE MAGIC HAPPENS WHEN YOU COMBINE STOCKS AND GOLD

The same $1,000 invested in a portfolio of 75% stocks and 25% gold 50 years ago, rebalanced annually to the same 75/25 ratio, would be worth more than $125,000. Compared to stocks alone, you would have 10% more. And compared to the conventional 70/30 stocks-and-bonds portfolio, your total return would be almost 40% higher! The other big reason to add gold to your portfolio is its lower volatility, or in plain language, fewer dramatic ups and downs.

Gold usually has an inverse correlation with the stock market, so when stocks go down, gold has the tendency to appreciate. Thus, a balanced portfolio of stocks and gold has a significantly lower risk of a large drop, as illustrated by the example of 2008.

 

A TOOL FOR SUCCESS

How can you take advantage of hot markets without leaving yourself vulnerable to massive downturns?

The McAlvany Financial Group and ICA have been faced with these questions for decades, and have come up with a unique – and uniquely successful – solution.

It’s called The Investment Triangle.

With three sides, it’s an inherently stable way to organize your portfolio. The sides adjust, so you can make each one longer or shorter based on various market conditions, but in doing so you can maintain a stable platform on which to support yourself financially for the long term. It removes the pressures of timing for short term trading, and you will find that two sides tend to bolster the portfolio while one side is lagging.

1. BUILD THE FOUNDATION BEFORE YOU BUILD THE HOUSE

Thinking of it once again as a triangle, you’ll see that the base is insurance. That base is the starting place for every investor, as it forms the foundation on which you should build your portfolio. It consists of physically held gold, silver, platinum, and palladium. Tangible precious metals are both money in their own right and critical insurance that your wealth will never be wiped out. These metals are inherently valuable; they can always be exchanged for other items of worth and their inherent value can never be erased. Even in a hyper-inflationary scenario, or one that is sharply deflationary, they hold their value by maintaining purchasing power. This fact has now been borne out over thousands of years, and will not go away; it is inherent in the nature of these metals – especially gold. This foundational side of the Investment Triangle should be built first because it is the most stable, and the one best able to support the other two sides of the triangle.

2. NEXT, MAKE SURE YOU CAN ADJUST TO CHANGING CONDITIONS

The liquidity side of the triangle is the second one you should establish. It consists of such categories as cash, money market securities, checking and savings accounts, short-term certificates of deposit, and even Treasury bills. This side of the Investment Triangle represents your liquid assets and allows you to move quickly to adjust to market changes – whatever their nature. Because it is currency based, it is constantly being eroded by inflation, so it’s important not to over-invest in this category and to support it with a sound foundation of precious metals. However, with your liquid assets you can adjust to changing circumstances by purchasing more insurance assets, acquiring more growth and income assets, paying bills, or purchasing household items or food if the situation calls for it. It’s a crucial side to keep you from getting caught and squeezed by unforeseen shifts in the market.

3. NOW YOU CAN TAKE ON SOME RISK AS YOU SEEK REWARD

The third leg of the triangle, growth and income, represents such investments as stocks, bonds, annuities, mutual funds, or other investments not normally kept in cash or gold (like investment real estate, for example). This side of the triangle typically carries the greatest risk and offers the possibility of the greatest reward. It’s almost all people think about when they think of investing, and they therefore put too many of their assets in this category. In a bubble economy, it often ends up being an all-or-nothing scenario, or – more accurately in most cases – an all-and-nothing scenario where investors ride the wave up to its crest and then down to its crash on the beach, unable to sell in a falling market.

IT’S A TOOL THAT WORKS!

This market weakness is turned into a strength when the triangle is used as it is intended. When any side becomes significantly larger than the others, or larger than required by market conditions, it should be reallocated to the other two sides. By systematically adjusting skyrocketing stock assets into cash or metals, the all-and-nothing scenario is changed into a powerful way to increase wealth over time. And the same necessity to maintain balance pertains to the other two sides of the triangle if they should experience outsized growth relative to the others.

This is a thoughtful, disciplined way to manage assets that provides safety, versatility, and growth. All that is necessary is to use it, and to do so thoughtfully and faithfully. In short, the Investment Triangle makes a reasonable appraisal of the world we live in and positions your portfolio for the best and worst of times.

Do you have additional questions or want to get started?

Simply fill out the information below and schedule a free consultation with an advisor and schedule a free consultation or call

(800) 525- 9556. During our call, we’ll discuss your current portfolio and the steps you can take to ensure it’s meeting your expectations and goals.

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