Ask Doc Not too many years ago, it was easy to navigate financial independence in retirement.
And while advisers and brokers tried to make retirement planning look complex, you just needed to put some money in stocks and some money in bonds, and keep your wealth there for the long haul.
Nearly everybody did it. It was the easiest lesson in finance.
It was simple and dead right.
For decades, getting a good return on your money in the market seemed easy. You could just buy an index fund and watch it return 6% to 10% a year.
But if you're retired now or plan to retire in the next 10 or 20 years, that's not going to work for you anymore.
In fact, it has become a downright dangerous strategy. And if you're in your retirement and living off your savings or plan to retire shortly, this puts your nest egg in jeopardy.
Lots of folks like to think that this bull market will continue on the way it has for more than a decade. That's just not what the data tell us.
Instead, this period of extraordinary growth is simply coming to an end – just as it has time and time again throughout history.
We know what comes next in this historical cycle.
And signs are telling us to prepare for a decade of zero to negative returns in things like index funds for the market.
It's time to get defensive and put your money in the right assets today. You have a short window of time to safeguard your wealth before the greatest retirement crisis in history unfolds.
I've put together a step-by-step plan to help you prepare, including the five stocks to buy right now to still significantly grow your wealth... with the least risk possible.
If you want to learn how to protect your retirement today, click here for all the details.
Now, let's get into this week's Q&A. Please keep sending your questions, comments, and suggestions to [email protected].
Q: I know about stocks, bonds, real estate, and gold for a diversified portfolio, but I never hear anyone talk about diamonds and other gemstones. Would you consider them a viable option as an investment or are they in some different category that I don't know about? Thanks for any input you can offer. – J.W.
A: The biggest trouble with diamonds and gems is that they have individual characteristics that make them more or less valuable. The price of gold is the price of gold, while diamonds vary. Even when trying to research the change in diamond prices over time, you get prices with irregular updates and outdated information.
On top of that, the numbers we found show that a one-carat diamond fitting certain quality descriptions rose from $24,500 to $30,925 from 2010 to 2015. That's about 5% a year.
So in the end, diamonds and gemstones don't add much upside over traditional hard assets, and they come with some extra headaches and haggling.
Q: I recently closed on a home and have a substantial amount of cash that will be invested into a new home I am currently building. However, it will not be ready until the end of the year or early next year.
What short-term investment vehicles are there where I can move the cash into until I will need it six to eight months from now?
I don't want to leave it in my bank savings account and gain next to nothing if there is something better. I would like to gain some interest by investing it in the short term.
Thanks for your help. – L.H.
A: In such a low-interest-rate environment, like we're in right now, you don't have a lot of short-term places to park your cash and earn a decent return if you're also looking for safety. Assuming you don't want to risk losing the money since you'll need it for your new home, there are a few options to consider...
The most obvious places to hold cash for the short term are checking and savings accounts. The national average interest rate for a savings account is 0.06%. But some online banks, like Ally, are paying 0.50% or more on a high-yield savings account.
A money-market account ("MMA"), sometimes called a money-market deposit account, will usually have higher minimum deposit requirements. This can be as low as $500 or as high as $1,000, and they often pay a higher interest rate. But with a current national average of 0.06%, an MMA doesn't pay much more than a traditional savings account. And MMAs limit the number of times you can make withdrawals.
Certificates of deposit, or CDs, have many of the benefits of savings and money-market accounts... They pay interest and they're FDIC-insured. But when you put your cash in a CD, you agree to leave it there for a particular amount of time – usually between three months to five years – and you'll pay a penalty for early withdrawal. Right now, you'd earn around 0.50% to 0.80% if you park your cash with an online bank for six months.
As we mentioned, all of these accounts are FDIC-insured, so you don't have to worry about losing your money.
When you branch out into money-market mutual funds (or MMMFs), you do not have an FDIC guarantee. You now face the risk of loss. You have become an investor, not a saver.
They use securities like short-term Treasury bonds and T-bills, but they also use things like overnight repurchase agreements, or repos. This is a complex system whereby a bank will borrow $99.99 overnight and pay back $100 the next day. Of course, this is happening on the scale of trillions of dollars.
Because MMMFs are managed funds, you'll have to pay fees that could be 0.25% or more. And with most funds only yielding 0.04% or less, they're not worth the added risk.
So unless you're willing to risk your cash in the markets, consider sticking with a bank. And check out Bankrate to find accounts offering the best yields.
Editor's note: Our offices here at Stansberry Research will be closed next Monday, July 5 in observance of the Fourth of July. Look forward to your next issue of Health & Wealth Bulletin on Tuesday, July 6. Have a great holiday!
What We're Reading...
- Did you miss last week's special Q&A? Read it here.
- Something different: The billionaire space race.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
July 2, 2021