Special Subscriber Alert: Time to Reduce Risk

The stock market is living in a dream world.

Traders and money managers, focusing exclusively on higher earnings and relatively benign monetary policy, are ignoring sky-high valuations, narrowing market breadth, and an economy that’s showing underlying weakness in housing and auto sales and signs of real strain in consumer finances.

They’re also blithely accepting that pro-business tax reform is right around the corner—despite the manifest political difficulties of achieving that—and ignoring the upcoming Washington, DC trifecta of passing a budget, preventing a government shutdown and raising the debt ceiling, none of which is in the bag by any means.

And they’ve been in deep denial about how serious the problem with North Korea is, brushing off the missile test over Hokkaido island, in Japanese air space. The United States is bound by treaty to defend Japan, a core Pacific ally for more than 70 years.

And most of all, they’re in denial about the ability of the current president, Donald J. Trump, to deal with these potential crises, which could reach a crescendo in the fall. I would say, in fact, that traders and investors are so invested in the wishful thinking that tax reform will bring great profits to Wall Street and corporate America, that they are as delusional about this president as his most hardcore supporters.

But at GoldenEgg Investing®, we try to take a more clear-eyed view of these things, and here’s what we think:

Risk is rising rapidly. I believe the risk of a war in the Japan/Korea region is now 25-50%, and the risk of a nuclear exchange is 10%–not high, but not trivial, either.

I also think the risk of a government shutdown is 25-50% and the risk of a default is 10%, again not high but not trivial.

If these two crises—North Korea and the D.C. showdown—coincide, the risk is even higher. And that’s not even considering the ominous reports in the Jerusalem Post that Israel has warned Russia it will attack Damascus if Iran is allowed to continue its expansion in Syria. Folks, we ain’t seen nothing yet.

I don’t believe in selling everything in a panic but I do believe in sensibly reducing risk at a time when Wall Street is wearing blinders. So, for the first time ever, I’m suggesting GoldenEgg Investing® subscribers sell small positions, mostly in stock, and invest the proceeds into gold mutual funds and ETFs.

Gold has recently had a nice run and it’s probably due for a pullback, but if things heat up in the fall, it’s good to take out an insurance policy now, when most traders are still at the beach. So here are our suggested changes, which already have been made on the GoldenEgg Investing® website:

Best Ideas investing plan

Sell 5% in Guggenheim S&P 500 Equal Weight Financials (RYF)

Buy 5% SPDR Gold Shares ETF (GLD)

Plans for Everyone

Millennial/Gen X plan:

Sell 5% Vanguard Total Stock Market ETF (VTI)

Sell 5% Vanguard FTSE All-World ex-U.S. ETF (VEU)

Buy 5% GLD

Buy 5% Vanguard Short-Term Bond ETF (BSV)

 

Standard/Conservative plan:

Sell 5% VTI

Buy 5% GLD

 

Retiree plan:

Sell 5% SPDR Bloomberg Barclays Intermediate-Term Corporate Bond ETF (ITR)

Buy 5% GLD

 

Vanguard Plans 

Millennial/GenX, Standard and Conservative plans:

Sell 5% Vanguard Total Stock Market Fund (VTSAX)

Buy 5% Vanguard Precious Metals & Mining (VGPMX)

Retiree Plan:

Sell 5% Vanguard Intermediate-Term Treasury Fund (VFIUX)

Buy 5% Vanguard Precious Metals & Mining (VGPMX)

 

Fidelity Plans

Millennial/GenX, Standard and Conservative plans:

Sell 5% Fidelity Total Market Index (FSTMX)

Buy 5% Fidelity Select Gold (FSAGX)

 

Retiree Plan:

Sell 5% Fidelity Short-Term Treasury Bond Index Fund (FSBIX)

Buy 5% Fidelity Select Gold (FSAGX)

 

Schwab Plans 

Millennial/GenX, Standard and Conservative plans:

Sell 5% Schwab Total Stock Market Index (SWTSX)

Buy 5% ETFS Physical Swiss Gold Shares (SGOL)

 

Retiree Plan:

Sell 5% USAA Intermediate-Term Bond Fund (USIBX)

Buy 5% ETFS Physical Swiss Gold Shares (SGOL)

 

We are not recommending any changes in T. Rowe Price plans.

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