How would you have liked to have been warned about the drastic decline in the financial markets prior to The Great Recession?
By J.P. Dahdah, Founder & CEO of Vantage
If alerted, would you have taken swift action to protect your retirement savings from major loss? Hindsight is always 20/20. Given the historical losses experienced by millions of Americans, everyone would have liked to be alerted first, right? The warning signals of market corrections are usually there, but we tend to ignore them. Characteristically, big decreases in overall market conditions come after a surge of growth, so we are predisposed to a sense of confidence that blinds us from the warning signs that a decline is forthcoming. We wait too long to take action because we are fearful of missing out on the potential gains. Our inner voice begins to say things like “what happens if I sell my investments now and the market keeps going up?” Markets of all asset classes behave in cycles, ongoing ups and downs. In case you haven’t been paying attention, the stock market has been on an impressive growth run for many years (first signal). The Federal Reserve has increased rates consistently for over a year (second signal). Ten years ago marked the genesis of the Great Recession, which in turn indicated the beginning of a new cycle. Most market cycles last anywhere between 8-12 years. We are in that range now, so it’s safe to predict that a correction is looming (third signal).
When will this correction take place? No one knows for sure. No one can predict the future with certainty. But I think it is safe to presume that it will occur within the next 6-18 months so now is the best time to prepare to protect your retirement portfolio.
This is your official warning!
Should you panic and throw your entire investment strategy to the curb? No. But I do encourage you to take notice of these signals and not ignore them. This is not the time to be greedy or passive in evaluating a retirement savings protection strategy to ensure your IRA’s balance doesn’t take an unnecessary hit.
So what can you do to help protect your IRA? These 3 alternative investment strategies can help create a non-correlated hedge to the increased volatility on Wall Street holdings.
- Increase your allocation to alternative fixed income opportunities – Interest rates are going up and bond yields are trending down. With the majority of Americans being advised to keep 40% of their overall portfolio in fixed income allocations (i.e. bonds, treasuries, bond mutual funds), many will potentially experience a major hit to their overall performance as these traditional fixed income holdings fail to deliver the expected yields. Consider redirecting your fixed income holdings to secured private lending strategies which can produce returns between 8-12%. You can choose to make these loans directly to an individual borrower, a company or private credit fund.
- Diversify into tangible assets – Consider rebalancing a portion of your IRA savings directly into real estate. You can invest in any type of real estate category, including but not limited to, residential, commercial, industrial, hospitality, raw land and storage facilities. Investigate the geographical real estate locations that are underpriced and poised for growth.
- Identify a private company with growth potential that needs capital – Publicly traded companies that have been household names for decades are now being disrupted or filing for bankruptcy. Examples include Sears and Toys R Us. Remember, the stock market is the exit strategy for successful private company investors. Popular brands such as Uber and AIRBNB are great examples of private companies that have grown massively and will make scores of multi-millionaire alternative investors once they IPO on Wall Street. You don’t have to be a unicorn hunter to achieve double or triple digit returns in the private market. There are many great entrepreneurial stories of enterprises that need fuel to continue scaling and can produce exciting performance. The illiquid nature of these private equity investments can also help reduce overall portfolio volatility and alleviate the emotional roller coaster commonly felt during a stock market correction.
Savvy investors believe in true diversification. Alternative investors take it a step further and obtain true diversity by including a mix of non-publically traded options. The intent is to stabilize overall portfolio performance, and with some non-traditional strategies, aimed at obtaining a higher return on investment with private offerings.
Will you pay attention to the voices suggesting that you increase your allocation to protective IRA alternative investment strategies in anticipation of a stock market correction? The choice is yours, but don’t make me remind you that I told you so if you decide to do nothing until it’s too late.
Happy alternative investing!