On October 22, 2021, Reuters reported that Federal Reserve Chairman Jerome Powell says he finally “think[s] it’s time to taper” the Fed’s massive bond-buying program aimed at injecting extra money into the recovering U.S. economy. Jan Hatzius, chief economist at Goldman Sachs, says that U.S. economic growth is “clearly slowing.”
If this shift away from economic stimulus is leading you to wonder whether it’s time to add more diversification to your portfolio, I have a suggestion for you that fits right in with the Halloween season: Make sure to look not once, but twice, before choosing assets.
Websites may suggest ways to buy gold that don’t involve actually holding the real thing.
Here at U.S. Money Reserve, we hold an annual costume contest around Halloween. It’s a fun tradition, and it got me thinking: We’re not the only ones who get “dressed up” from time to time. The same thing also happens to certain assets—in particular, gold exchange-traded funds, or ETFs.
Gold ETFs are funds that are managed by a third party and traded on stock exchanges. These funds can include, but aren’t limited to, physical gold and stocks in gold mining or gold refining companies.
There are several ways to diversify with gold-related products, and gold ETFs are a legitimate choice that many select for their portfolios. But it’s important to know that buying shares in a gold ETF is not, as some websites may suggest, a substitute for owning “real” gold. The only way to do that is by purchasing real, physical gold.
On September 9, 2021, CNBC wrote that “if you only focus on saving…your cash [will] lose its value due to inflation, and as a result you could struggle to keep up with the cost of living.” So building a portfolio is a smart, proactive way to help protect your wealth in the long term. However, the article continued by saying something I very much agree with: “Risk tolerance is a measure of [your] ability to comfortably stomach losses, and it’s very different for everyone. This is why it’s important to not just copy another person’s [personal] portfolio—they may be more or less comfortable with riding out heavy losses compared to you.”
In other words, everyone’s financial situation is unique, which means that everyone’s portfolio can be just as unique. Some may prefer to diversify with alternative assets through a self-directed IRA—or simply buy a little physical gold or silver to store away as a legacy to pass on to future generations or as a hedge against possible inflation.
These are all fine options, but just as you may be proactive in protecting your wealth through diversification, you can also be proactive in carefully researching each asset before using it as a store of wealth. It’s the same as looking under the hood before you buy a car—or, in Halloween terms, making sure it’s one of your friends hiding behind that werewolf mask before you give them a hug.
Building your portfolio can be fun and exciting. Just don’t let your excitement lead to carelessness.
When I take my kids out for trick-or-treating, they’re so excited that you would think they’ve already eaten a pumpkin-shaped bucket full of sugar. That’s why, when we get back home, I always tell them to take their time and make their newly acquired candy last. Rushing in and grabbing everything in sight may sound fun, but it increases the odds of their regretting it later when a sugar-filled stomachache comes.
The same goes for our portfolios. We should be careful to not rush ahead without planning first and do our due diligence when it comes to ensuring that we’re picking the right assets for our unique portfolios. Otherwise, we might wind up being the ones holding our financial “stomachs” after making a few too many uninformed choices.