The year 2020 unquestionably has been one of the most challenging years in history. The global COVID-19 pandemic has affected the lives of millions of Americans. The stock market has experienced a roller-coaster ride, and our nation endured some of the most volatile trading sessions ever, as well as the shortest bear market in U.S. history. Gold prices also reached new record highs, as individuals turned to precious metals as safe-haven assets. This year has allowed the opportunity for serious reflection. Here are five lessons we learned in 2020.
1. Diversification Is Key.
Portfolio diversification is a cornerstone of wealth management. It can help cushion the blow of big losses if similar asset classes drop in market value in reaction to the same economic crisis. Financial diversification offers the ability to decrease your portfolio’s volatility and ensure better returns.
Here’s an example of what a diversified portfolio might look like:
- 25% equities
- 20% cash
- 20% precious metals
- 15% fixed income
- 10% property
- 10% other asset types
One thing to keep in mind: This is merely an example and not a prescription for how you should allocate assets in your portfolio. You should base the diversification of your portfolio on your financial goals and needs.
“Diversification means…having a broad variety of [assets] so that your portfolio isn’t overly dependent on any single [asset]. By diversifying, you may find the balance between potential risks and rewards that may be in your best interest for your particular circumstances and goals,” according to brokerage firm Merrill, part of Bank of America.
2. Tough Times Present Great Opportunities.
Amid tough times, many of us create some sort of spending plan, prioritize our expenses, and hunt for ways to save money. A difficult period like what we experienced during the bulk of 2020 also gives us a chance to seize on appealing opportunities.
For some, those opportunities revolve around buying stocks or other equities that may have cratered but are likely poised to take off once a sense of stability returns. For others, this might mean purchasing a property in a sector like multifamily or self-storage that’s performing well during the downturn and is likely to keep performing well.
Still other folks might have viewed 2020 as an opportunity to explore precious metals like gold. In the third quarter of 2020, demand for gold as an asset rose 21% compared with the same period in 2019, according to the World Gold Council.
A Barron’s headline published at the outset of the pandemic summarizes all of this quite succinctly: “Crisis Presents Wealth-Boosting Opportunities.”
3. Saving for Emergencies Is Critical.
In April 2020, just after the pandemic became a global crisis, the U.S. unemployment rate skyrocketed to a staggering 14.7%. As the switch from 2020 to 2021 approaches, the jobless rate has declined considerably, but millions of Americans remain out of work. Among those who remain employed, some have had their work hours cut, while others face the prospect of no pay raises or bonuses.
As Americans coped with various belt-tightening scenarios in 2020, the need for emergency savings came into sharp focus. A survey conducted in September found that 61% of Americans had already run out of emergency savings or would do so by the end of the year. Experts routinely recommend setting aside three to six months’ worth of necessary expenses in case you encounter a financial emergency.
A blog known as The Mastermind Within suggests considering physical gold or silver as part of your emergency fund, as they’re both time-tested, tangible, portable assets. “Even $1,000 worth of precious metals could go a long way in making sure you stay financially resilient in a financial storm,” the blog notes.
4. Little in Life Is Predictable.
Few of us truly could have anticipated the tornado of events that enveloped the world in 2020, from the pandemic to political turmoil to social unrest.
“As humans, our brains are wired for the predictable, so making it through 2020 and all of its unpredictability has been incredibly hard,” notes Andersen Wealth Management.
But as First Western Trust explains, if you want to ensure your wealth is consistently available to support your lifestyle, legacy, charitable giving, and other priorities, you must be prepared for the unpredictable aspects of life.
First Western Trust outlines these financial options for weathering unpredictability:
- Exchange-traded funds (ETFs) and index funds
- Real estate
- Certificates of deposit (CDs)
- Commodities such as gold: Commodities can be a good way to skirt artificial inflation triggered by speculators and to provide a hedge against market losses, First Western Trust notes. For instance, the price of gold tends to go up when the dollar’s value goes down.
5. Safe-Haven Assets Never Go out of Style.
Amid a storm like the one we endured in 2020, many folks sought safe havens. These safe havens may range from hunkering down at home to surrounding yourself with familiar, comforting things.
Asset holders, too, searched for safe havens in 2020. These may have included real estate, particularly undeveloped land, and so-called defensive stocks in sectors like food and household supplies. Gold is considered another safe haven, which is defined as an asset that retains its price or even rises during a crisis.
“Gold has been one of the safest [purchases] to make throughout history. The fact that it is a physical commodity and…is not affected by the interest rate decisions made by a government makes it an effective store of [wealth],” NuWire Investor explains. “In fact, during a prolonged economic crisis, [wealth builders] tend to stockpile…gold. This also drives up its price because of the increase in demand. Gold is also one of the very few assets that increase in [price] when there is inflation.”
Putting It All Together
Now that we’ve reviewed five financial lessons from 2020, you may be wondering what they have in common. One common denominator: A precious metals IRA—which can hold physical gold, silver, platinum, or palladium—encompasses the principles wrapped in these lessons.
A precious metals IRA can help you:
- Diversify your portfolio.
- Seize on wealth-building opportunities.
- Save for emergencies.
- Lend predictability to your finances.
- Create a safe haven for your assets.
One type of account embodies the principles in all of these lessons, and that’s a precious metals IRA. It lets you diversify as you see fit, save for the future, and make moves in your time frame. To get started, request your free precious metals IRA information kit today.