Lance Roberts of Houston's StreetTalk Advisors thinks everyone and their mother should move money into hard assets.
The reason: In an era of rising inflation and interest rates comparable to the 1960s and 70s, hard assets simply perform better.
"It's also psychological and fundamental," Roberts says. "When inflation picks up mildly, consumers adapt their spending, which is what we've been seeing. But let's say you go to bed when gas is at $4/gallon, then to wake up to find it's $5 a gallon. There's a shock value which is going to make you less inclined to spend."
In a recent Wall Street Journal op-ed, Roberts argues that's exactly what we're going to see happen. Wages are beginning to stagnate and food and energy prices have been eating our wallet. It's the beginning of stagflation, he writes, and it's a time when shrewd investors want their money in hard assets that will appreciate over time.
We asked Roberts to outline five steps rookie investors can take to move their money into hard assets:
Shore up emergency funds. It goes without saying that you shouldn't invest until you've prepared for financial emergencies. Whether it's a job loss, car wreck or worse, you don't want to tie up excess funds in retirement savings that you'll be penalized for withdrawing from. Three to six months' worth of expenses is a good number to shoot for, though we personally recommend you save for 10.
Save to invest. "You're going to need about $15,0000 to $20,000 to get the ball rolling," says Roberts, who recommends divvying up your portfolio in a "low-beta" 60-40 allocation of stocks vs. mutual funds. "Principal protection is most important," he says, "the idea is to keep up your purchasing power as inflation rises. You don't win a prize for beating the S&P index, but trying to do it will sure hurt."
Set up a separate savings account for a real estate down payment. "These days credit is more important than ever, so you'll want to save up no less than a 20 percent down payment for a home," says Roberts. "This way you'll have plenty of flexibility to put toward other expenses and investments." For more on saving to buy a home, read this YM feature.
Get into gold. "Gold is a hedge against economic fear, and that's where we're at now," Roberts says. "We're worried about the economy, what's happening worldwide and in politics. When we get our confidence back, gold will plunge in value, and that's when you'll want to offload it." See our beginner's guide to investing in gold.
Get into oil and gas. The idea with these is to put your money in actual oil and gas producers, says Roberts, who notes Texas' thriving jobs market, growing population and demand for energy. "Buy existing oil production and don't get carried away with speculation (aka "wildcatting"; when people invest in a well in the hopes it'll draw black gold). The odds of success are really low; there's the risk of a lot of dry holes, cracked pipe or hitting a fault line." As with any investment or expenditure, do your homework to learn about the company's management by asking the right questions: How long has the manager been there? Is the company run well? What's its track record to date, and is it facing any issues? Once you have an income stream set, you can reinvest the cash however you like.
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