Three Investments To Consider For Your Retirement Portfolio (GLD, SLV)

Kerri Shannon:  Americans used to ride a “three-lane highway” into retirement: a traditional pension, Social Security, and individual savings plans, like 401(k)s.

But the recent economic downturn packed a devastating punch to many 401(k) accounts, U.S. households have dipped into savings to make ends meet, and debt-laden federal, state and local governments will have trouble meeting pension and Social Security obligations.

The 2011 Retirement Confidence Survey released last week by the Employee Benefit Research Institute showed 27% of workers are “not at all confident” about their retirement, up 5% from a year ago.

“Americans’ confidence in their ability to afford a comfortable retirement has plunged to a new low,” the report said.

Concerned workers and retirees have to consider rising inflation and volatile markets as they decide how to invest, but some experts say these investors aren’t taking enough precautions. A study by the Society of Actuaries found 55% of retirees said they had an inflation-protection strategy, but that number might be higher than reality.

“That’s higher than my experience talking with people at the seminars I teach,” Steve Vernon, a prominent retirement educator and co-author of the report, told Reuters. “I think, there’s a say/do gap there, where people say they’re planning for inflation, but they’re not.”

Some retirees are aware of retirement portfolio threats, but aren’t sure of the best ways to protect their savings.

The following letter is from a Money Morning reader in that exact position. She and her husband invested in bonds, long-term Treasuries and stocks, but worry that current economic conditions won’t offer them the best returns. Money Morning Contributing Editor Martin Hutchinson offers his take on what retirees should consider when choosing their asset allocation.

My husband and I are retired, living mostly on Social Security and a few required minimum distributions (RMDs) from some IRA mutual fund accounts we have. I have been navigating the market for the last 20 years myself, a long time, but not a lot of money; some is better than none, or perhaps not true anymore? I have listened to Jon Markman since 2002 and more often than not he is pretty close to the game.

I am waiting for CD rates to start to go back up with inflation. I am concerned about the bond bubble — should I be moving more into stocks? I thought I would, but that I would wait for a downturn in the stock market for a better exchange.

My other concern is the devaluation of the U.S. dollar. For simple people with simple means, what’s the best hedge against the U.S. dollar?

– Long-time reader Janet K.

Martin Hutchinson: I think the rise in bond yields is quite likely short-term, as is a resurgence in inflation. Equally, the stock market looks fully valued to me. So there are three things you should look at:

  • Treasury Inflation Protected Securities (TIPS) – which will rise in nominal value as inflation hits.
  • Emerging market and Japanese stocks (Japan looks to me the one rich-country market that is not currently overvalued, and should benefit from reconstruction expenses).
  • And gold or silver, probably through the exchange-traded funds SPDR Gold Trust ETF (NYSE:GLD) and iShares Silver Trust (NYSE:SLV) – but for no more than 10% of the overall portfolio.

Written By Kerri Shannon From Money Morning

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