Investing for Retirement

Investing for retirement is pretty simple if we are talking about a 20 to 30 year old just starting out in the workplace. Unfortunately, 20-30 year olds are generally not the least bit interested in retirement. They are interested in spending, not saving. They want to invest in the next great toy or just blow their paycheck having fun.

Americans in general have a dismal record where savings and investment are concerned. Over the past few years, Americans have hovered around zero to negative savings. At the same time, they have dug themselves into record debt.

With the popping of the real estate bubble and the following domino effect we are now experiencing (end of ’08), many Americans are thinking survival and not retirement.

Nevertheless, if it is possible for any working person to find money to save and invest, that should be a number one priority. First, one must get out of debt, but that is not the focus of this article. It will be assumed that you have the capability of saving a minimum of $100 a month.

If you are young, common wisdom would dictate that you divide your savings/investments roughly between low-risk, medium-risk, and high risk. Low risk would include high interest savings accounts, money market accounts, and Certificates of Deposit (CDs). Medium risk would involve mutual funds, bonds, treasuries, and Exchange Traded Funds (ETFs) among others. High risk would be mainly stocks.

In the past, you would gradually move from high risk investments to medium risk and gradually toward mostly or only low risk. But today, those who are past 50 really cannot follow the tried and true path. The world of money is not what it used to be.

Because of the government’s ongoing failed economic policies, low risk is no longer an option. By lowering the fed fund rate to 1%, the same thing Greenspan did to get the housing bubble going, Bernanke is destroying the growth capacity of savings, money market accounts, and CDs. Those already on fixed incomes are being devastated so that we might try to save irresponsible banks and Wall Street.

The money you might make from these low risk investments doesn’t begin to touch the rate of inflation. Even if inflation was at the level the government claims, rather than at least several times higher, these low risk investments would essentially be losing you money.

Instead of encouraging savings by raising interest rates to reasonable levels, the government has come to believe something that has never happened in the history of the world. They believe that we can bring our economy back by spending. This must be because the borrow-and-spend orgy of the past five to seven years has worked out so well for us.

What it means for retirement investing is that you are forced to at least invest in medium risk vehicles just to maintain your principal. This places incredible financial as well as emotional stress on American workers trying to make a living and put something aside for retirement as well.

In many cases, only high risk investments might bring a large enough return to actually allow you to retire at a reasonable age. And this comes at a time when just about any investment in the stock market looks like a very high risk. The current market volatility suggests that no one knows what is happening and certainly no one knows what is going to happen.

The same folks who kept calling a bottom in the housing market and a bottom in the stock market are now walking around with signs saying, “We are doomed!” When even the so-called experts are leery of the market, what can the average worker do to try to create a little wealth for retirement?

Some will tell you to get back into the blue chips or get back into housing or financials because the bottom is in. Don’t believe it. A simple look at the economy will tell you that the subprime fiasco is not over. More loans will be reset in 2009. More houses are upside down in their value versus loan status. More banks are going to fail, regardless of government throwing our money at them. More jobs are being lost. This recession is far from over.

Is there, then, a safe haven for your money, a place where you might actually make some money in the coming five to 10 years? When the market plunges due to economic forces, nearly all sectors fall with it, even those that are sound and have great potential.

For these stocks, ETFs, or mutual funds, the current bloodbath represents an opportunity to buy in cheap if you have the stomach for it. You look for investments that will not only be able to weather the current economic storm. You look for investments that will thrive BECAUSE of the current economic storm.

And what might that be? Commodities. Specifically, energy (oil, gas, coal, alternative energy, etc.), base metals and materials (for building and industrial uses), food (because we will continue to eat), and precious metals. All of these and other things as well (such as lumber) fall under the category of commodities.

Commodities are in a long-term bull market, a market that has five to 10 years or more to run. Commodities have suffered along with the greater market, but this is just a correction. They will come back and signs are that they are coming back already. Obama’s pledge to deal with the nation’s infrastructure immediately gave a boost to materials and construction companies.

So if you want to make more than inflation takes away from you, you will need to take some risks. A safe play might be a commodities mutual fund or ETF. This would give you exposure to a wide variety of commodities. Then put some of your money into more specific sectors. No matter what happens, oil is going back up. Supply and demand requires it. The precious metals are going to go back up with a vengeance.

Look at commodity mutual funds and ETFs and look for individual sectors that are going to be more than recession proof. They will thrive. Buy physical gold and silver. The dollar is going to continue down its slippery slope, despite recent strength. The government does not want a strong dollar. We are looking at a weak dollar and high inflation. Gold and silver coins or bullion could save your life.

Be smart and be brave. There are no guarantees, but keep your head about you and take the plunge.