Why Investment Diversification is More Important than Ever — and What Role Lear Capital Founder Kevin DeMeritt Says Physical Precious Metal Assets Can Play
In the current economic climate, if your portfolio isn’t earning what you’d hoped, revisiting your investment plan could be helpful, according to Kevin DeMeritt, founder and chairman of gold and precious metals firm Lear Capital.
Traditional IRAs may have had a particularly challenging year, with the Dow Jones Industrial Average, S&P 500, and Nasdaq indexes all eventually entering into bear market territory at various points.
Inflation can also affect your savings efforts. Although it has retreated somewhat from the 9.1% peak it reached in June 2022 — inflation’s highest level in more than 20 years — Americans are likely facing higher interest rates to bring down inflation closer to the Federal Reserve’s desired 2% range.
As the Fed raises the federal funds rate target range and interest rates go up, mortgages, auto loans, and other expenses can rise, according to Kevin DeMeritt — which can have a damaging effect, including potentially constraining consumers’ current ability to spend money.
“Slowly but surely through inflation, the purchasing power drops through higher interest rates,” the Lear Capital founder says. “Your bills go up; everything else is going up — that’s why they’re saying 2023 is going to be the year of the recession.”
Higher Costs’ Short- and Longer-Term Impact
The heftier prices you pay for goods and services due to inflation can decrease the amount of discretionary money you have — and potentially reduce the amount you’re able to save. Elevated costs could also possibly weaken your future purchasing power by eroding the value of what you’ve already saved.
If the amount you’re trying to build up to retire needs to increase, you may have to work longer to save more.
Research has indicated that’s a concern for many Americans. As of mid-2022, more than a fifth — 21% — had reduced their retirement savings efforts because of inflation; a quarter said they’ll need to delay retirement because of it. One in 10 doesn’t think they’ll ever be able to retire, according to another recent survey.
“At today’s inflation rate, in seven to eight years, [the value of] your money would drop almost in half,” Kevin DeMeritt says.
Inflation’s effect can be a particularly pressing issue if you’re approaching retirement age.
“People should really think about their retirement accounts, especially if you believe inflation’s going to be a problem over the next five or six years and you’re close to retirement,” Kevin DeMeritt says. “Because we don’t want your dollar bill to be cut in half in 10 years, and your retirement plans evaporate along with it. How you protect that retirement plan is more important today than it was 10 or 20 years ago.”
With the strain inflation — in addition to stock volatility and other economic challenges — can put on your ability to save effectively, including investments that can be less prone to fluctuations in your portfolio could potentially help balance out some of the loss you experience.
“Each year that goes by, if I’m losing 7% of the value of my paper money purchasing power, I need something to offset that,” Kevin DeMeritt says. “Gold is going to be a great alternative because it happened, in the past, to be one of the better assets that can offset that inflation rate. You’re going to see, over the next five or six years, demand will continue to increase for precious metals.”
Gold traditionally has been more stable than some other types of investments during periods that have involved economic or social turmoil.
Gold prices actually grew 50% from September 2010 to September 2011 after the 2009 recession, according to U.S. Bureau of Labor Statistics data; separate Lear Capital research indicates gold prices shot up 147% in the 1970s when investment activity slowed. Within the same time period, silver prices soared more than 550%.
In the past 22 years, gold’s value has escalated 566% — more than twice the amount the S&P index rose.
“Gold has an inverse relationship to stocks and other types of assets,” Kevin DeMeritt says. “The volatility of gold is not going to be the same; it’s going to give you that stability.”
Preparing for Retirement With Precious Metals
Investors can utilize physical gold, silver, and platinum assets, purchased as bars or coins that possess a certain degree of fineness, to save for retirement.
“What we typically recommend for investors is to hold around 20% of their portfolio in precious metals,” Kevin DeMeritt says. “But those percentages can change based on your age. For instance, if you’re 65 [or] 70 years old, gold is not going to produce an interest payment or rent, but it will help you offset losses with the drop in stocks and other things. If you’re looking for income, we want to push that 20% down to maybe 5% or 10% to make sure you have enough.”
Precious metals, according to DeMeritt, can help provide a safeguard by hopefully performing fairly consistently, even if stocks and other investments aren’t.
“It’s a great diversification tool,” he says. “Gold has outperformed the stock market since 2000. If you would’ve placed $100,000 in stocks, that would be worth about $325,000 today. If you would’ve placed 80% of that in stocks [and] 20% in gold, that’s worth about $385,000 today. You picked up an extra $60,000 in your bank account.”
Lear Capital’s IRA Portfolio Comparison Calculator will allow you to see what effect including gold, silver, or a combination of both precious metals in a portfolio would have over time.
“Gold and silver have historically performed very well in times of inflation,” Kevin DeMeritt says. “With inflation and [a] recession looming, people should consider precious metals as a hedge against some of that economic uncertainty. Gold was up 300%, silver was up 500% the last time we saw inflation this high. [In] the past 60 days, gold [has been] up 10%, silver’s up 18% — if people get educated about precious metals, they’ll find it’s a great time to add at least some portion of their portfolio into that asset category.”
