Woodstock Financial Advisor – Third Act Retirement Planning —

What can I put my money in that will protect my portfolio in stormy markets?

This is a question that I was recently asked by one of my clients in their 60s who is looking to have their wealth so they can continue to use it, especially if they live into their 80s. It’s a wise question that all of us should ask, because it’s relevant to us being stewards. We can ask it at any time in our lives, from the moment that we save our first dollar. We always want to know the condition of our portfolio and where it stands at any given point. I’m not suggesting that we check our portfolio’s value every single day; however, I am suggesting that we know where we’re putting our money.

Proverbs 27:23-27 — Know well the condition of your flocks, and give attention to your herds, for riches do not last forever; and does a crown endure to all generations?

Advice from a Man with a Net Worth of $2 Trillion

The amazing thing about this question is that it’s answered in an ancient text by one of the wealthiest people that’s ever walked the planet. This person had a peak net worth of about $2 trillion. And according to one article, there have only been four people with a higher net worth in the history of the world: Genghis Kahn, the Emperor Shenzong of Song, Akbar I, and Augustus Caesar are said to have had more money than this person. The person we are referring to is King Solomon of Israel.

For Jewish and Christian people, the advice I’m about to share from the fifth wealthiest man was said to be inspired by the God of the universe, the maker of the whole world. Here is what King Solomon wrote in Ecclesiastes in chapter 11:2:

“Invest in seven ventures, yes. In eight: you do not know what danger may come upon the land.”

And that was the New International Version.

Another version, the New Living Translation, reads, “But divide your investments among many places, for you do not know what risk might lie ahead.

And perhaps the most famous one for those of us that memorized this verse at an early age, from the King James Bible, “Give a portion of seven and also to eight: for thou knowest not what evil shall be upon the earth.”

Solomon was given 25 tons of gold every year as king, which would amount to $1.5 billion every single year in gold, and he was said to be the wisest ruler in the history of the world. Be it kings, emperors, or presidents, King Solomon is considered by many to be the wisest of all rulers because of his God-given wisdom (1 Kings 3). For those of us that have read the Bible, the wisdom that Solomon had is not attributed to Solomon himself, but instead to Solomon’s maker. Solomon is telling us what to do and answering the question that my client asked me: What should I do to preserve my portfolio in stormy markets? God cares about each one of us so much that he addressed this question in his word through King Solomon of Israel, most likely His wealthiest (in money terms) servant of all time.

In this article, we’ll go over some ideas for how you can invest in stormy markets; then, we’ll finish up with King Solomon’s advice.

Bonds

One way to avoid stormy markets is to invest in individual bonds, corporate or government. You can hold them for the duration of the bond and you will get back face value and the guarantee of what the bond is offering if the issuer of the bond does not default. That is the key to understanding. If the bond defaults, the good news is that you will be first in line to receive the company’s assets in front of the common and preferred stockholders. So that’s number one.

CDs

Number two would be CDs. CDs are very low-paying, but they’re safe and guaranteed by the banks. They also have FDIC insurance protection from the federal government. You can put your money into CDs and likely make around 1%, and you don’t have to worry about stormy markets. It’s kind of like the servant that was given one talent. He took the talent and buried it in the ground, never using it. He didn’t take any risks with it, and God called him a wicked servant. He said, “Why didn’t you at least put the talent in the bank so it could earn interest?” So, to not be considered a wicked servant, we should at least put our money into something like a CD. It won’t go up and down with stormy markets; however, it’s going to be eroded by inflation. And of course, with the amount of money printed during the pandemic, CDs have been eaten alive. The purchasing power that they’ve maintained for their investors has been extremely weak, particularly in the past decade with money printing and stocks and real estate skyrocketing.

Wine

The third thing we’re going to talk about is wine. Yes, wine, the fermented grapes that so many people drink and, oftentimes, unfortunately, become addicted to. Wine is something that I’ve purchased myself, and it’s an excellent inflation hedge. I get it through Vinovest.co, and vino is not correlated with the global stock market. So, whether we’re talking about the S&P 500 or foreign stocks, they’re both highly correlated. So I’ll just say the global stock market, because they’re all essentially performing together. But fine wine has had close to double-digit returns over the last 30 years, and they improve my portfolio diversification because they don’t have a high correlation to the global stock market. They’re great for inflation, and by adding this to my portfolio, it reduces my volatility. In fact, through Vinovest, I’m able to maintain 100% ownership of my wine. It’s stored in trustworthy, world-class facilities. vinovest.co

The other thing that raises the price of wine is global warming. In places like France, they are having to move the wine vineyards further and further north because it’s getting so warm. They’re not able to produce the kind of volume of wine and grapes that they could before. In addition, we continue to see an increase in hurricanes, earthquakes, tsunamis, and all other types of natural disasters, and this bodes well for those that invest in wine. Those types of things will continue to drive up wine prices, in addition to the phenomenal money printing that we see going on as the whole world embraces socialism at large.

FREE RETIREMENT VIDEO

But before you read #3, here is a link to our free retirement video that will show you how to avoid running out of money in retirement and potentially increase your retirement income:

https://go.thirdactretirement.com/video

Rental Home

The fourth thing is investing in a rental home. Of course, that can become a stormy market and go down as much as 50% in overpriced areas. However, with rental homes, you’re producing income, and as long as you’re producing income, you’re not going to feel the volatility until you sell it. You won’t completely avoid stormy markets, but it will give you diversification. It will give you a solid income where you won’t feel it as long as you don’t sell it.

Farmland

The fifth thing that I want to go over is farmland, which is similar to wine. You can invest in farmland on Acretrader.com. Farmland has had a very good long-term track record and has had lower volatility. Since 1990, the S&P 500 has had a volatility of 17%, while farmland has had a volatility of 6.7. Farmland has a very low correlation to most other investment assets, so it gives us an opportunity to get away from the financial system. It’s also another great inflation hedge, as the large federal deficit and money printing create the potential for significant inflation. It’s also a real asset that produces a commodity: food. https://www.acretrader.com

So, over time, inflation equals higher crop income. People like to say that farmland is like gold with a yield. It’s got low historical volatility, which suggests that there’s going to be limited downside in those bad years for farmland. As we look at farmland, we can see that the long-term return has been around 11%, according to Acretrader.com, whereas the S&P 500 has been around 12%. And it really has gone back to 1990 and has produced really good returns right around that of the S&P 500, and you’re not tied to the performance of the S&P 500. With a growing global population, and increasing natural disasters in relation to wine investing, farmland gives investors an opportunity to avoid stormy markets.

Principal Protected Notes

Number six is the principal protected notes. These are notes issued by banks, and I’ve been investing in them for my clients for a very long time. You get a guarantee of principles. For example, RBC will issue these, and they have full principle protection and maturity. So if you invest a hundred thousand into it and hold it to maturity, you’ll get at least a hundred thousand back, even if the underlying market that you’re linked to goes down. So it gives you the potential to link yourself to the equity markets. It also helps you to seek growth or income in your portfolio. And it has an investment term of four to 10 years. Thus, principle protected notes, or even equity link CDs, are types of securities and assets that my clients can purchase in their accounts at Charles Schwab.

Indexed Variable Annuity with Downside Protection and No Commission to Buy

Something that I’m using with my clients more often is index variable annuities. We hear annuities can be bad, and they certainly can. They can have huge commissions. With my clients, I use an annuity that has no commission to get in, no commission to get out, and if clients put their money in one week, they could even take it out the next week with no penalty. However, they won’t get protection. My clients benefit from 20% downside protection on the S&P 500, as well as the opportunity to participate in 225% of the gain over a six-year period. But my clients don’t have to hold it there for six years. I work with Lincoln Financial Group, which offers annuity to planners like myself, and it has been great for my clients.

As we look back at the history of the S&P 500, there have been 529 six-year periods going back since December of 1971. And only 12 times during that time period has the S&P 500 outperformed gains of 200%. So with my client’s being able to participate up to 225%, it covers a huge percentage of what’s not going to happen. If you divide 12 by 529, there is a 98% chance that the stock market will not do better than 200% over the next six years. And to me, I think it’s even better now because the stock market has done so well over the last 12 years. And there have been no more than 20% losses in any of the 529 six-year periods studied. During the 529 six-year rolling periods taken at the end of each month, the S&P 500 has had 22 15% losses at the end of six years. So there’s even less chance. Going back to 1971, there’s only a 1% chance that there’ll be more than a 15% loss at the end of six years. 

So far, the annuity that I use for my clients at Lincoln Financial Group has been great. It’s called the Lincoln Level Advantage Index Variable Annuity, and it’s really benefited my clients.

Diversification with Non-Correlated Assets or Investments

As we close out on number eight, we return to the wise advice that we had from one of the wealthiest people to walk the earth. More importantly, his advice was inspired by his maker, whose wealth could never be measured by a human mind. The advice was to diversify what you have because we don’t know what type of danger is going to happen. We don’t know what’s going to happen to the US dollar. We don’t know what’s going to happen as far as stagflation, inflation, or deflation go.

So if you put together a portfolio of non-correlated assets, for example, long-term treasury bonds, gold, foreign stocks, US stocks, rental home(s), and you mix in things like wine and farmland, you’ll have amazing diversification.

Instead of putting all of your money into the stock market, you could put it into one of these index variable annuities, where you have protection in case the stock market goes down. That allows you to participate in the wonderful inflation protection that the stock market has provided millions of investors over the decades, but you get protection and you don’t have to participate in the full force of a collapse.

Free Call with Tommy

If you’d like to set up a free call with me, there’s no cost or obligation to discuss your portfolio. I’d be happy to go over it with you and discuss how to invest to protect your portfolio from stormy global markets. I will also give you a 2nd opinion on your portfolio. https://calendly.com/thomascloud/retirement-ready-success-call

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