In days gone by, mattress stuffers hid all their money somewhere in or around their home – in the backyard, in cans, between the pages of books, in the walls, in a cookie jar, and even under a removable section of floorboards.
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A recent article in the Wall Street Journal talked about the new generation of mattress stuffers. People increasingly don’t trust anyone or anything, a response to falling home prices, crashing stock prices, bank troubles, and government ineptitude.
It’s something we don’t talk about much, but an increasing number of people are taking matters into their own hands to prepare for the next crash. Needless to say, these people aren’t optimists!
They’re pulling their money out of the stock market and stuffing their mattresses the 21st century way.
Stuffing money in treasuries
Instead of actually stuffing cash into their mattresses, they’re buying treasury bills, the safest of all investments. Most financial experts refer to these and other treasury securities as risk-free investments.
Stuffing money in gold
New generation mattress stuffers are also buying gold coins in record amounts. You may have noticed an increase in the number of ads on TV about gold. This flight to safety has been evident after just about every financial crisis, as people return to the gold standard.
Who is primarily driving this trend?
Many baby boomers have taken a huge hit to their portfolios just as they near retirement. They are the driving force behind this trend because they don’t have time to recover from the recent stock market losses before they retire.
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What if you’re not ready to retire?
If you’re not close to retiring, it’s crucial to think clearly about this new mattress stuffing strategy. There are definitely some pros and cons.
Pro: We should own a well-diversified portfolio.
Experts tell us to diversify, diversify, diversify. Typically, the more diversified we are, the better. A diversified portfolio might include stocks, bonds including treasuries, real estate, and perhaps some commodities like gold. Diversification generally delivers the best return given the overall risk.
Pro: Treasuries should be part of most diversified portfolios.
Until recently, a lot of people found treasuries kind of boring because they didn’t deliver enough return. That’s because they aren’t considered risky at all, which is also why they are an essential component of a fully diversified portfolio.
Pro: Gold may also be a wise investment as a small part of a diversified portfolio.
Gold and other tangible assets usually perform best in times of high inflation. So gold can serve as “insurance” against such times. The reason that people often flock to gold in times like these is that, historically, it has been an acceptable way to pay for things.
Con: If you put all of your assets in treasuries, your returns will be much lower.
This lower return is not unjustified. After all, you’re investing in an asset that’s considered to be risk-free. The problem with this strategy is that you may not end up with as much money as you need for your retirement.
Con: It’s dangerous to put a significant percentage of your assets into gold coins.
If experts recommend gold at all (and many more are these days) as part of your portfolio, most suggest keeping it to around five percent of your total assets. Unlike treasuries, gold carries risk – its price goes up and down. One other tidbit – gold has underperformed most other assets historically.
Con: There’s no cash flow with gold.
Treasuries pay interest at regular intervals. You don’t earn any money on a gold bar or a gold coin. The only way to make money by holding gold is to sell it at a price higher than what you paid for it.
Next time, we’ll take this discussion a step further. We’ll apply some real world numbers to help you with your diversification decisions.
We are so thankful that you took the time to read our post today. Until next time, here’s to your bigg success!
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(Image in today's post by jillmbatt)
You’re probably familiar with the term “battle scarred,” which refers to the scars from wounds received in combat. Most of us are fortunate to not have to engage in real warfare where the scars are visible (i.e. physical) and invisible (i.e. mental). Our battles are more esoteric so our “scars” tend to be only the second kind – mental.
