The past few months have been catastrophic for many investors’ 401(k) plans, IRAs and other retirement savings accounts.
According to the Congressional Budget Office, Americans have lost as much as $2 trillion from their retirement savings during the past 15 months. To put this in perspective, the financial damage caused by Hurricane Katrina is estimated to be $81.2 billion — which means that the $2 trillion we just lost was the equivalent of 26 Katrinas rampaging down Wall Street and into our investment accounts.
But what could you have done?
Almost everyone is shocked by the severity of the market downturn, across almost all asset classes. Virtually nobody believed the credit markets would freeze up like they have. Hardly anyone could have foreseen the U.S. government taking $700 billion of taxpayer money to bail out Wall Street.
And now we’re stuck asking ourselves, “Should I take my money out of stocks before I lose any more? But if I do, what happens if the stock market turns back around, and I miss out on all of the upside after realizing my losses on all of the downside?”
Stocks Down? Maybe it’s Time to Consider the Forex
Now more than ever it is vital to diversify your investments. And no market is more transparent, liquid and exciting as the Foreign Currency Exchange market. You too can profit from currency trading.
You Are No Longer at the Mercy of Wall Street
Conventional wisdom tells us that we have to be able to weather the storms and stick it out because the market has always been able to recover — thanks to hardworking Americans who have always brought our economy back around.
While most of us understand that concept, it is usually difficult to do. Let’s face it, nobody has particularly fond feelings for their brokers right now.
Luckily, you are no longer at the mercy of Wall Street.
You don’t just have to sit on your hands while the market works itself out. You can take action to strengthen your investment portfolio while keeping some of your money in the stock market to benefit from the eventual turnaround. You can diversify your portfolio by adding currencies to your stock investments.
Trading Currencies — Diversification in the Forex Market
Diversification is a hallmark of a well-managed portfolio, but most investors stop their diversification at the borders of the stock market. They feel that if they have exposure to the healthcare, financial and energy sectors, along with a few others, that they have appropriately diversified portfolio, and thus their risk.
Unfortunately, during times of systemic crisis, the entire stock market falls — regardless of the sectors you are invested in.
True diversification is achieved by diversifying among various markets.
Some of you may have a portion of your portfolio invested in the real estate market. That is another great example of market diversification, but it is not enough. Plus, the real estate market has been hit just as hard as the stock market during this financial crisis. And some of you may have a portion of your portfolio invested in the bond market. That’s a great start toward market diversification, but it is still not enough.
Most investors are still not taking advantage of the largest financial market in the world: the forex market.
The Forex is Never in a ‘Bear Market’
Millions of dollars have been lost from portfolios that weren’t diversified beyond stocks. With proper use Foreign Currency Exchange investing you can reduce that risk and generate profit.
Learn more about our Getting Started in Forex course.
The $3.2-trillion-a-day forex market is the most dynamic and accessible financial market on earth.
Forex stands for the FOReign EXchange — the financial exchange on which governments, banks, international corporations, hedge funds and individual investors exchange foreign currencies.
But the forex market is not just for governments, banks and large institutions any more. You too can take advantage of this exciting market as you diversify your portfolio.
If you are new to the forex market, check out the free videos and tutorials in our Getting Started in Forex course.
Diversifying into the forex market can help you reduce the risks you face in the stock market. For instance, take a look at how an investment in the U.S. dollar (USD) in the forex market could have helped you offset your losses in the stock market during these turbulent times.
Since March, while the S&P 500 (SPX) has been steadily falling, the U.S. Dollar Index has been steadily rising.
Chart courtesy of MetaStock.
Chart courtesy of MetaStock.
The gains you could have made by investing in the U.S. dollar could have made up for many, if not all, of the losses in your stock account.
The forex market also gives you unprecedented access to the major economies around the globe, which are also being affected by this global financial crisis.
For instance, did you know that the Japanese yen (JPY) has been benefiting from all of this market turmoil?
During the exuberant times that led up to the current crisis we are now in, many investors borrowed money in Japan and invested it in other countries because interest rates were so low in Japan.
Learn to Profit With Forex
When the stock market is down, smart investors look to other markets to generate profit. And no market offers more potential than the Foreign Currency Exchange market.
Learn how you can profit with forex investing.
Well, now that market volatility has increased, many investors are selling their high-yield investments and are buying back the Japanese yen they sold off. This change in supply and demand for the Japanese yen has caused the U.S. dollar/Japanese yen (USD/JPY) currency pair to fall.
Chart courtesy of MetaStock.
You can see that the strengthening of the Japanese yen — and subsequent decline of the USD/JPY currency pair — began in August 2007 when we were just starting to hear the terms “subprime meltdown” and “credit crunch.”
Of course, even diversifying your portfolio across multiple markets is no guarantee that you will never sustain any losses. Risk is risk, and the investment world is full of it.
However, by diversifying your portfolio across multiple markets, you are able to spread and hedge your risk as effectively as possible.
Getting Started in the Forex Market
You can trade in the forex market. It is available to anyone and everyone. And you don’t have to be a mathematical genius or an economist to do it. With a little forex education, you can be off and running in no time.
Don’t just sit there, leaving all of your money in the stock market to get tossed back and forth as the global economy finds its way through this mess. Take matters into your own hands and start diversifying your investments across multiple markets.
John Jagerson is a contributor to LearningMarkets.com. To learn more about him, read his bio here.
