We buy insurance on our houses, our cars and even on our artwork and jewelry.
But that's not the case with our retirement savings – the money we spend our working lifetimes to amass – the money that will be our sole means of support once we stop working.
With our 401(k)s, IRAs and other socked-away savings, we're content to "let it ride."
That's a reckless and ulcer-inducing investing strategy.
And, as we'll show you in a minute, it's even riskier than most of us realize.
The thing is, it doesn't have to be that way. Investing is not the same as gambling. That's certainly not how the pros on Wall Street do it. They "insure" their savings, using special "hedging" plays that provide real insurance against a stock market sell-off.
Why shouldn't you do the same?
In fact, in our new Private Briefing special report – "The Seven Investments You Have to Make in 2013" – we've uncovered the best "stock-market-crash insurance" policy that we've seen in years.
It was recommended by resident investing expert Shah Gilani, a retired hedge fund manager and entrepreneur who knows all of Wall Street's tricks … and is willing the share them with you.
Most types of "crash insurance" – like stock-market "put" options – require specialized knowledge and sophisticated calculations to implement. They can be expensive. And they have a short lifespan.
Not this insurance strategy.
It's simple to implement. It involves one transaction. And it's currently trading at a bargain-basement price. In fact, Shah explains it all in simple terms in our research report.
But do you really need it? Why not just "let it ride?"
Here are three current reasons we think that's a really bad idea:
- The Economy Is Weaker Than It Appears: Stock prices today are based on how healthy the economy is expected to be in the future – six, 12 or 18 months from now. And the U.S. economy isn't nearly as healthy as the bulls would have us believe. Although growth during the current quarter is expected to be better than the wheezing 0.1% advance seen during the final three months of last year, contrarians say the real impact of the Fiscal Cliff tax hikes and the sequestration budget cuts won't be seen until later this year. And consumers – who account for 70% of U.S. economic activity – seem to agree: Consumer confidence was expected to rise from 77.6 in February to 78 in early March; instead, the University of Michigan measure plunged to 71.8. And the February retail-sales increase of 1.1% that was seen by so many as evidence of a recovery with real muscle? Well, Barron's says that's really due to consumers digging deeper to pay for more-expensive gasoline – and not from sales of discretionary items … "the fun stuff you buy when you're feeling exuberant."
- America's Middle Class Has Been Kicked in the … Wallet: Remember, it's the long-term health of the economy that determines the long-term health of the stock market. And one of the main fallouts of the Great Recession is that the hardworking Americans who have traditionally kept the country's economy (and thus its stock market) motoring along have been hammered by the one-two punch of rising living costs and stagnant wage growth. From 1993 to 2011, the Top 1% of U.S. earners saw their incomes rocket 58%. For the rest of America, income rose only 6%. And that disparity keeps getting worse. Since 2000, adjusted for inflation, the median U.S. household income has actually dropped by more than $4,000.
- The Bears Are Hibernating, and That's a Clear Warning: Hall of Fame slugger Willie Stargell once said the secret to baseball success was to "never get too high, and never get too low." Stargell would've been a great investment advisor. Just as overly dour bearishness causes investors to miss big rallies, euphoric bullishness often presages big declines. And right now – just after the Dow Jones Industrial Average posted 10 straight winning sessions over the prior two weeks (its longest winning streak since late 1996) – stock-market bears seem to be missing in action. Investment advisory services polled by Investors Intelligence found the number of bears fell from 21.1% the week before to 18.8% last week. Meanwhile, the number of bulls shot up from 44.2% the week before to 50.0% last week. But the "spread" (difference) between the bulls and bears shot from 23.1% to 31.2% in just one week. A spread of 30% or more puts the stock market "in dangerous territory," meaning the risk of a correction is high, the report concluded.
Does this mean you should dump stocks en masse?
No way. The road to lifelong wealth is still paved with stocks.
But here are the two things that these insights (and other just like them) do tell us:
1. First and foremost, it's become a "stock-picker's market," meaning you can't just buy stocks and expect to build wealth – you have to buy the right stocks.
2. Second, and nearly as important, you have to take steps to manage your risk. And that includes buying insurance against a downturn.
Thanks to the "crash-insurance" play Shah contributed, our "Seven Investments You Have to Make in 2013" special report achieves both of these objectives. It also contains six profit plays … including our experts' top picks in precious metals, energy, biotechnology, healthcare, international commerce and high-tech. They're already off to a good start, and we think there's more to come.
(These same "gurus" hit it out of the park last year, too. Our "Best Investments" report for 2012 contained five picks – and generated peak gains of 153% (technology) and 142% (precious metals).)
If the stock market and economy have you worried, you're not alone.
In late February, the National Institute on Retirement Security found that 55% of Americans are "very concerned" that the lousy economy is hurting their retirement prospects. And 30% of those polled say they're concerned whether they'll even be able to retire.
And even with the bull-market rebound in stocks that started four years ago this month, Americans are actually more worried about their retirement finances today than they were at the end of the Great Recession back in 2009. That's according to a Pew Research study released in late January.
In other words, even after benefitting from a historic rebound in stock prices, U.S. investors haven't forgotten how a bear-market move can savage their retirement savings.
So, clearly, lots of Americans are worried about a stock-market correction.
But you can set yourself apart by actually taking steps to protect yourself – by insuring yourself against a correction or crash.
We'll be glad to show you how …
The best part is, you can sign up now – and get "The Seven Investments You Have to Make in 2013" – absolutely free. We're offering a risk-free two-week trial for new subscribers right now.
Just click here for the details.
And don't miss the video interview below for more details on the market "insurance policy" you have to have.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.