A recently retired reader friend is worried about, inflation, deflation, bonds, stocks, banks, and gold.
My friend is better off than most. He has a small retirement nest egg but he is fearful of a 2007-2009 kind of drawdown. That’s a reasonable fear to say the least.
He’s 60-40 or so in stocks and bonds, mostly funds, with a bit of gold. All of his savings are in an IRA. His number one concern is loss of principle.
Anyone heading into retirement with no concerns is 1) somehow oblivious to the risks or 2) has so much money it does not matter what happens.
Potential Problems
The dollar could collapse.
Defaults can wipe out junk bonds.
Funds carry selloff and liquidation risks.
Gold is gold but it can fall in price.
Inflation can kill long-term bonds
Deflation may kill equities.
Stocks and bonds may fall for years, even if there is no recession, simply because of valuation and sentiment changes.
Related; To Buy or Not To Buy Bonds
Losing Sleep
Someone worried about nearly everything cannot possibly be getting much sleep with all these recent stock market gyrations.
To reduce risk as much as possible, one needs to largely get out of the market, especially mutual funds.
Treasury Ladder
A TreasuryDirect bond ladder is one of the safest places to be.
Contrary to popular hype, the US is not going to default on treasuries.
TreasuryDirect does not support IRA accounts. However, banks do offer CDs for IRA accounts.
Someone with a $1,000,000 portfolio can easily construct a TreasuryDirect or CD Ladder to preserve principle.
There are not as many banks offering IRA CDs but there are enough of them. From BankRate.Com, I came up with these rates.
CD Rates
Those who expect inflation will mock such rates. So will those who expect a dollar collapse.
Those who think deflation, and those who think an equity or junk bond collapse is coming would appreciate those rates.
Yields are the highest in about a decade, and they can be locked in.
Moderate CD Ladder
Bankrate came up with this “Moderate CD Ladder” for an $800,000 investment.