When it comes to our economy, uncertainty will always be a factor. No one can ever say for sure what the future will bring. This is what makes diversification such a powerful tool—it allows you to control your portfolio’s level of risk exposure, keeping you within a range of risk that you’re comfortable with as events unfold.
But when we see economists and analysts making predictions that differ vastly, that can also give us pause and make us wonder what level or range of risk we’re actually okay with accepting. That’s what we’re seeing right now, as our economy faces an unprecedented situation borne of a global pandemic and the resulting economic and supply issues, as well as record levels of government and consumer debt.
So the question is: When faced with not just uncertainty, but increasing uncertainty, how do you make decisions regarding your financial future?
Economists still don’t know if we’re headed for a recession or a “soft landing.”
On February 17, 2023, NPR released an article in which Raghuram Rajan, economist and professor of finance at the University of Chicago’s Booth School of Business, put things very simply: “We don’t quite know what’s going on.”
Specifically, our economy seems to be giving out mixed signals about whether a recession is coming or if we’re already in one. Inflation remains high, as does government and consumer debt. Dana Peterson, chief economist at The Conference Board, told NPR that not only is a recession currently forecast, but that “our leading indicators suggest that it’s happening right now.”
But on that same day—February 17, 2023—Barron’s published an article that begins with this line: “Let’s start by stating the obvious—the U.S. isn’t in a recession, and it very well might not be headed for one.” Meanwhile, the U.S. Bureau of Economic Analysis shows an increase in U.S. gross domestic product (GDP) in Q4 2022, and unemployment remains historically low at 3.4%, according to the U.S. Department of Labor’s Bureau of Labor Statistics January 2023 report.
With economists and analysts disagreeing on what’s happening right now, much less what may happen in the future, I like to turn my attentions inward.
When uncertainty is on the rise, I like to reexamine my portfolio and reconsider my risk exposure.
“How comfortable are you, right now, with your asset allocation?” That’s the question I like to ask myself whenever it seems like more or greater economic uncertainty is on the way. Sometimes, I’m very happy with how my wealth has been allocated—I’ve always been a big proponent of careful research and making well-educated decisions (which is reflected in U.S. Money Reserve’s massive library of free educational materials). Other times, I may decide that I’ll experience a little more peace of mind if I throttle back a little and reduce my overall risk exposure or put a little more of my portfolio into gold or other precious metals.
These types of decisions don’t have to be made entirely based on market research—after all, when professional economists can’t seem to agree on where our economy stands, we may not fare any better with our own research. Instead, sometimes portfolio decisions can be made based simply on how comfortable we are putting our money into historically riskier assets during times of economic uncertainty.
There’s no right or wrong answer—everyone’s financial situation is unique, and everyone’s acceptable level of risk exposure is unique. What’s important, in my opinion, is that we feel comfortable with how our wealth is allocated.
Physical gold is often used as a hedge against uncertainty and can offer peace of mind.
As of February 20, 2023, gold is still trading above $1,840/oz. Many Americans turn to physical gold as store of wealth in times when they want less of their wealth allocated to volatile paper-based assets like stocks. Having the ability to hold a portion of your wealth in your hands as a tangible asset offers a certain peace of mind, and gold has a long history of being used as a hedge against economic uncertainty.
But physical gold is much more than a short-term solution for those looking to reduce overall risk exposure. Diversification can help increase a portfolio’s long-term health as well, and physical gold can play an important role in any diversification strategy. Physical gold can also be an ideal addition to a retirement portfolio through the use of a gold or precious metals IRA.
How much risk you choose to expose your wealth to today can be just as important as how much risk you choose to accept over the long term. That’s why learning to listen to yourself and trust your own instincts can be powerful when it comes to protecting your wealth in the long term—especially when even professionals can’t agree on what the future will hold.