By: Aaron Lavinthal – 07/25/17

Casino America Part III: Lucky Number 7?

Time to celebrate!  The U.S. economy has been in recovery from the trough of the Great Recession now for over 7 years!  Since that timeframe, the markets have soared to all-time highs and investors are rejoicing in jubilant fashion!  The Dow has gone from 6,547.05 up to 21,641.20 (up 330%+), the S&P has shot from 676.53 to 2,480.24 (up 366%+), and the Nasdaq has catapulted from 1,268.64 to 6,424.13 (up 506%+)!  So why is it that everyone is talking about a recession and a pending economic downturn?  Let’s look at our history in years that end with a “7” since we are in 2017:

In ANY investment strategy, there must be just that…. STRATEGY.  Many factors make up decisions for putting a mix of investment vehicles into portfolios.  The driving factor behind this theory is to diversify your portfolio to ensure that no matter what the economy does, your portfolio can continue to grow, or at least not lose.  Let’s look at the examples in the first paragraph within the stock market.  Notice the enormous gains that have been made in three of the top indices.  Now pull out your financial statements since 2009.  Has your portfolio gone up as much as 500% or more?  Unfortunately, enough, we RARELY hear of anyone who has been able to accomplish this.  If I were you, I would be LIVID with my advisor, someone I pay for their “expertise” who can’t even come close to matching what the index has done!  Why should you be happy with 4% returns knowing the market has moved this much and someone you are paying hasn’t helped you participate?

More importantly, let’s look at our present economic structure as it relates to history and gambling.  In gambling, the number 7 has always been lucky.  If we look at the number 7 as it relates to history and the economy, we are smacked in the face with a jarring opposition, so what can we expect for 2017?

            Let’s dissect the current economic environment to give us a better understanding of how we can protect our finances and create protection for our wealth to avoid having an unlucky ’17.  We’ve been fortunate enough to reach beyond the halfway point without calamity, but what is in store for the remainder of the year?  To best understand the answer to this question, let’s dive into different sectors of the markets.

            As we have already denoted in paragraph 1, the stock market and its indices have been on a tear for years!  After we were granted permission (as a nation) to hit the “enter” button and print trillions of dollars (QE or Quantitative Easing), part of that money was openly reported to have found its way into our stock market.  Big deal, right?  It has become a HUGE deal!  The Fed and Central Banks have taken it upon themselves to inject liquidity into our stock market.  This has been great for targeted stocks and indices but has only hurt the American citizen within their retirement and investment portfolio.  You may be scratching your head at this point as that last statement sounds counterintuitive, but let me explain.  Big businesses have not been able to post considerable or even recognizable gains in over 7 quarters!  Additionally, most of the movement in those indices have been supported by a small fraction of companies accounting for upwards of 85% of their movement.  IT’S ALL SMOKE AND MIRRORS!  Google recently beat earnings by over $30 billion, and expert billionaires, like Shark Tank’s Kevin O’Leary, are on television saying it was a great move but he is going to take his profits and run!  If you remember “Casino America: How Much Are You Gambling,” I spoke about professional gamblers and investors versus the amateur.  The professional knows to take his principal off the table to start playing with the house’s money.  The amateur will let it all ride or maybe take a fraction of profits leaving his lion’s share for the “house” to win back.  Who would you rather be in this equation?  To add insult to injury, your portfolio probably hasn’t held most of those companies or were participating in the indices that have posted between 3-500%+ in gains.  Why else would hedge fund billionaires, financial advisors, and money managers tell you to expect 4% growth in your portfolio annually?  Who is making all this money?

Well, if you peel back the onion a bit, you may find that the only ones’ profiting are the very ones you pay to give you advice and let you participate in the action.  Now, we’re not saying the stock market is a bad place to put your money.  Actually, the stock market is imperative to investors to find yield over a given duration.  The problem lies in the fact that you don’t really get to see any of that yield.  This becomes an even bigger problem when we dissect that these people controlling your money and these markets are gambling YOUR life savings, YOUR retirement, and YOUR hard-earned wealth!

Remember, the HOUSE ALWAYS WINS.  A traditional portfolio that is WELL-DIVERSIFIED will consist of various investment vehicles that carry various types of investments.  For example, a 55-year-old man with a steady career and family who would like to retire at 65 might have 50% stocks, 25% bonds, 10% real estate, and 15% in physical gold.  By allocating his investments in this manner, he can offset most economic uncertainties with various parts of his portfolio.  Let’s bring this situation up to the present.  Most investors are scrambling to find yield in the stock market, but are liquidating their hedge or diversification plays to chase the stock market up.  In doing so, they effectively have thrown their portfolio’s balance askew and have opened themselves up to volatility they would not normally have seen.

Sound familiar?  It should as this is the same rationale that was used in the dot-com bubble when everyone was selling positions to buy tech stocks.  It happened just a few years later as everyone thought they were a real estate guru and were left holding a bag of I.O.U.’s after the Great Recession.  Don’t let past mistakes repeat themselves and keep you on a path to financial destruction.  We currently are sitting over 7 years into this bull market, and the stock market is at all-time highs.  If we listen to one of the wealthiest investors in the world (Warren Buffett), there are deals to be had by merely re-balancing your portfolio to adhere to one of the oldest investing principles known, BUY LOW AND SELL HIGH.  This raises the question, which part of the portfolio needs to be rebalanced?

            Let’s start at square one for rebalancing a portfolio.  One must take into consideration their age, family structure, income level, debt level, retirement plans, and overall objectives.  We have just learned that the stock market is at all-time highs and is currently regarded as overbought and due for a correction.  If a majority (or all) of your portfolio is invested in the stock market, NOW is the time to rebalance this part of your portfolio.  If you are a student of the “old school”, your portfolio probably consists of a 60/40 stock to bond ratio.  If the stock market falls apart, which part of that strategy is going to save your wealth?  Both assets are backed by faith in the almighty dollar and paper investment vehicles driven by dealers at the casino.  When we take into consideration how the largest corporations have been keeping their stocks afloat, it may raise a red flag that they cannot continue down this road without significant change.  Businesses are the backbone to our economy.  They can help all classes of people as they provide jobs and support various sectors such as real estate, however, if these same companies who are amid expansion suddenly start to deteriorate, a tragedy of epic proportions will cascade through all classes of citizens.  Companies (at this point) will begin to downsize which will cause our unemployment numbers to rise, household debt to rise, the real estate market to soften considerably as homeowners can no longer afford their mortgages and car loans.  Additionally, the very same individuals who were supporting these companies (employees and shareholders) will see their stock portfolios and retirement shrink dramatically!

If this isn’t bad enough, all that strain and pressure will eventually fall back on the banking industry for holding the note on these properties and loans which could yield a pandemic domino effect catapulting our economy into a scenario worse than the Great Recession.  The wall has continuously been growing to stop the velocity of this proverbial snowball.  It took most Americans 7 years to recover from that episode, and some haven’t even fully recovered yet.  Most adults can relate to Will Rogers when he declared, “it is easier to lose money than it is to make it.”  Let’s state the obvious, YOU CAN’T LET THAT HAPPEN AGAIN!  Nobody wants to wait another 7 years just to get back to where they are financially at present, and if you are a retiree, you don’t even have that time!  What is it that savers, investors, and retirees can acquire now, so they don’t incur counter-party risk, can financially liberate themselves from the casino and ensure the return of their money?

If we harken back to paragraph 1 and 2007, we notice precious metals are at their cyclical lows.  I mention 2007 because it would have been more prudent to have bought your financial protection in physical metals PRIOR to the Great Recession.  Let’s look at a real scenario for implementing the metal into your portfolio.  Imagine you had $100k portfolio in stocks in ’07.  Let’s compare how it would have done on its own versus how it would have done had we diversified the recommended 25% into gold.

We can see in the graphic above, the two columns on the left represent your diversified gold and stock portfolio.  The standalone column to the far right represents your portfolio with only stocks.

By merely adhering to the “buy low, sell high” investment principle, we can rebalance  the portfolio just 3 times over the same 7 year duration and gain the result below.

As you can see, by diversifying your position into gold you can monetarily come out WELL ahead of the position that remained solely in the financial advisor recommended “buy and hold” or “just wait it out…it will come back up” stock market position without diversification.  Given the opportunity again, what strategy would you choose?  We are at a crux and crucial inflection point where you must ask yourself, did I learn from previous mistakes and change things so I don’t wind up in a bad spot again, or do you roll the dice and gamble your hard-earned life savings and retirement away praying that “this time is different?”

Gold and physical precious metals have been touted as the BEST safe-haven asset.  In certain forms, it cannot be manipulated, can be physically held within your retirement, can be physically stored where you see fit, can privatize your wealth outside the system, further diversify your portfolio, AND grow substantially as the remainder of your portfolio decreases with the value of the I.O.U.’s you’re presently carrying in your back pocket, stashing in your mattress, or letting the banks “hold” for you.  Physical gold should ALWAYS be a staple in your portfolio strategy.  The amount you allocate will change as the economic landscape fluctuates, but one thing will remain constant…YOUR PROTECTION THROUGH PHYSICAL GOLD DIVERSIFICATION.  If you would like to explore your options within physical gold diversification and how to implement strategies presented in this piece, call the experts with Scottsdale Gold & Silver to schedule a consultation with an experienced Wealth Coach.  Your life savings, financial future, retirement, and family well-being are worth it.  Will you break the cycle and make 2017 a lucky year?

 

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