The market is in turmoil, with stocks suffering a sharp haircut on Wednesday and remaining flat on Thursday… but the world’s wealthy aren’t sweating.
They’re buying art.
On Wednesday, Christie’s had 12 pieces sell at auction for $10 million or more, while five pieces sold for $20 million or more. This is up from 2016, when Christie’s had five paintings sell for at least $10 million.
Included in Wednesday’s sale was Roy Lichtenstein’s 1965 Red and White Brushstrokes, which sold for $28.2 million – above the low estimate of $25 million.
The 1% know one key thing about managing their nest egg that too many people overlook, but you don’t need to have millions to take advantage of it…
Don’t Get Mauled
Every rally ends. It’s a sad fact of the market. Stocks don’t rise in a straight line. Every bull market has a bear market.
I know I’m not telling you anything that you don’t already know, but I think sometimes we forget that eventually the party is going to end, and no one wants to be stuck with the bill when it comes due.
My first experiences with the stock market were in 1999 when I started working for a big brokerage firm. There was a constant buzzy excitement in the air that left you feeling like anyone could become a millionaire in a short time period. People were constantly giving up the usual nine-to-five gigs to become day traders. Tech initial public offerings (IPOs) were rolling out almost daily and immediately shooting to triple-digit gains despite the companies having zero profits and mountains of debt.
It was like going to a frat party. Everyone was drunk on this market.
And then we reached September 2000… and everything started falling apart. The market put in new low after new low for months until we finally tagged a bottom in 2002. The S&P 500 lost 50% of its value from its highs.
The S&P 500 didn’t return to that high again until October 2007 – and then promptly lost it all again at the start of the Great Recession.
Am I saying that Wednesday’s sharp pullback is the start of a new bear market for stocks?
Nope, absolutely not.
I am saying that this week’s pullback is a friendly reminder that stocks aren’t the only game in town. Properly diversifying your portfolio can ensure that your nest egg doesn’t get mauled in the next bear market. Diversification is your edge.
More Than One Basket
With the S&P 500 climbing nearly 10% in 2016 and still up another 5% in 2017, the temptation is to keep your portfolio mostly invested in stocks since many other assets just aren’t keeping pace. But if you’ve got all your eggs in a single basket, what happens when the bottom suddenly and unexpectedly falls out of that basket?
Gold is a safe haven.
Even this year, when stocks are up and traders are anxious, the price of gold has climbed nearly 9%. It’s critical that you have some exposure to physical gold.
A second piece to the allocation puzzle is rare tangible assets. While this is a small piece of your portfolio (generally only 5% to 7%), it is a critical piece that too many investors overlook.
Rare tangible assets – such as rare and ancient coins, stamps, art, autographed and/or historical documents, rare books and watches – tend to see consistent growth while being uncorrelated to the market. What we’ve seen is that most of these items are held in the hands of avid collectors who don’t rush to sell their items just because the market is crashing. This consistent growth in value not only adds to your overall portfolio when the market is doing well, but when stocks are lagging, these items help to offset any potential losses.
And while you might not have $28 million to drop on a rare Lichtenstein, you can gain exposure to physical gold and rare tangible assets for much smaller amounts and still keep partying as the market pulls back.