Far too many investors were essentially wiped out in the 2008 economic collapse. Those who got back into the stock market and invested well have ridden a historic bull market to impressive gains. The real estate market has also largely recovered and benefitted those who bought when prices were at a rock bottom. But, no bull market lasts forever. We saw a little bit of that prophecy come true in the last couple of weeks as stocks corrected impressively. In this article we are not so much concerned with how far the market will rise again or how quickly it will correct again. We are wondering how to protect your retirement savings before the US economy implodes again. Why are we asking this question?
Adding on to the US and Other National Debts
US News warns that a crisis is coming. They warn about asset price bubbles, mispriced credit and excessive debt on a global scale.
Another key ingredient for a global economic crisis is a very high debt level. Here too today’s situation has to be very concerning. According to IMF estimates, today the global debt-to-GDP level is significantly higher than it was in 2008. Particularly concerning has to be the fact that far from declining, over the past few years Italy’s public debt has risen now to 135 percent of GDP. That has to raise the real risk that we could have yet another round of the Eurozone debt crisis in the event that we were to have another global economic recession.
Today’s asset price bubbles have been created by many years of unusually easy global monetary policy. The persistence of those bubbles can only be rationalized on the assumption that interest rates will remain indefinitely at their currently very low levels. Sadly, there is every reason to believe that at least in the United States, the period of low interest rates is about to end abruptly due to an overheated economy.
High interest rates will choke off the US economy even as tax cuts may be providing a temporary boost. In addition, Seeking Alpha has a good article about America’s impending debt crisis and how it will end badly for stocks.
The U.S.’s enormous spending addiction has created a massive debt bubble that is going to lead the economy to its next financial crisis.
Consumer, government, credit card, auto loan, mortgage, student loan and just about any other debt you can think of is at a new record – and it won’t end well.
America’s impending debt crisis is likely to materialize within the next few years, and when it does, its destabilizing effects will be felt deep throughout the financial system.
So, how do you protect your retirement savings before the US economy implodes again?
Income versus Growth
Along the way to retirement you want to see your portfolio grow. Certainly if you invested in tech stocks like the FANG darlings in the last years you have been successful. However, with growth comes risk which is what you want to avoid when you are no longer drawing a paycheck. Dividend stocks with an unbroken history of payments are ideal. Utilities are an example of stocks that produce a steady and reliable source of income over the years. If interest rates go up the price of a utility stock will often fall but the dividend will typically remain the same and because you want income during retirement that is what is important.
Fundamental analysis is crucial to success in picking investments that will weather an economic storm. What can you expect from each and every investment in the case of a major economic downturn? And how can you prepare? Your home may have appreciated in value since the crash. If you are planning on downsizing for your retirement years it might be wise to make that move while the economy is still OK and then put your excess cash to work in a ladder of short term bonds or a well-chosen dividend stock.