We all remember when the Great Recession turned people’s 401(k)s into 201(k)s. Retirement accounts took a beating. “The nation’s 401(k)s and IRAs lost about $2.4 trillion in the final two quarters of 2008,” reported The Atlantic.
So what could we have done differently to help protect, or hedge, our retirement accounts? Consider these six tactics for helping to reduce risk in your retirement portfolio for the coming years.
1. Diversify Your Portfolio.
Diversification of the assets in your portfolio can limit exposure to any single asset class, according to financial services provider Fidelity. Diversification helps shield your portfolio from volatility.
To diversify your portfolio, you might allocate a percentage of your money to stocks, another percentage to bonds, another percentage to precious metals, and so forth. The percentages you pick should align with your short-term goals, long-term goals, and risk tolerance.
You might also diversify your portfolio by keeping assets in different retirement accounts. For example, you may opt to put some of your portfolio in an employer-sponsored 401(k) and some in an IRA.
To further diversify, you might consider a self-directed IRA in addition to a 401(k). A self-directed IRA enables you to purchase and hold alternative assets, such as real estate or precious metals. You may even be able to roll over some 401(k) assets into a precious metals IRA.
2. Consider Gold.
Gold in the form of bars and coins can serve several purposes in a portfolio, such as acting as a hedge against inflation and providing a safe haven amid market volatility. And of course, gold can help diversify your portfolio.
Gold “has a history of holding its [position]—and even rising—when other asset classes are under pressure. In fact, it was one of the few [asset categories] with positive returns during the worst days of the 2008–2009 financial crisis,” according to financial services provider Charles Schwab.
Remember, however, that you cannot hold physical gold in a traditional 401(k). You’ll need to put precious metals into a self-directed IRA.
3. Rebalance Your Portfolio.
Aside from diversifying your portfolio, it’s essential to rebalance it as needed.
“Rebalancing a portfolio is the process of changing the weightings of assets in an investment portfolio. To rebalance a portfolio, an individual buys or sells assets to reach their desired portfolio composition,” Investopedia notes.
For example, you might choose to reduce the allocation of stocks in your portfolio from 50 to 45% and boost the share of precious metals from 10 to 15%. In this case, you’re putting less weight on stocks and more weight on precious metals.
4. Keep Cash on Hand.
A certain share of your portfolio should be cash since it can retain its performance even when the markets dive.
“Cash is the ultimate defensive asset,” says Mark Riepe, managing director and head of the Schwab Center for Financial Research. “Plus, it’s a great way to hold an emergency fund. Even aggressive investors should consider keeping at least 5% of their portfolio in cash.”
5. Look at Alternative Assets.
Another approach you might take to safeguarding your portfolio is holding some alternative assets. This could include assets that aren’t directly tied to the ups and downs of Wall Street, such as real estate or precious metals. If too many of your assets are connected to the stock market, your portfolio could suffer from wild swings because of market volatility.
6. Review Your Portfolio Piece by Piece.
While you may be automating some elements of your portfolio, like regular deposits into a retirement account, you don’t want to put your portfolio entirely on autopilot. It’s wise to review your portfolio regularly—for example, once a year.
By doing this assessment, Schwab points out that you can determine whether your portfolio mix still matches your risk tolerance and goals. You then might decide that your portfolio needs to be diversified more than it is now.
Learn more about how you can protect your retirement from market volatility with precious metals. Download our free Gold Information Kit and call U.S. Money Reserve for a free one-on-one consultation.