In an investment universe dominated by paper assets, holding at least some gold bullion is an outstanding strategy. It’s not that you’re betting against your paper assets, particularly stocks. But more that your preparing your most important portfolio – your retirement plan – to be prepared for whatever might happen. The best way to do that is through a gold IRA.
If you haven’t thought about opening your own gold IRA, now is the time to consider making the move. Paper assets have been in a strong bull market since the last stock market crash. But as the saying goes, what goes up, must come down. And so it will be with stocks, and virtually all paper assets very soon.
YOU NEED COUNTER-CYCLICAL INVESTMENTS TO GO WITH YOUR STOCK PORTFOLIO
Most investors today have most of their investment portfolios invested in stocks. This has made sense since the bottom of the last stock market crash in 2009, given that stocks have moved steadily forward, never experiencing even a mild correction of greater than 10%. It’s been a virtual elevator ride for anyone employing the buy-and-hold strategy.
But a portfolio that’s invested in something close to 100% in stocks is a disaster waiting to happen. Should the stock market lose 50% of its value, you will lose at least 50% of the value of your own stock portfolio. This should be obvious after the twin stock market crashes that began in 2000 and 2007. Depending upon how their stock portfolios were constructed, many investors lost more than 50%. This was due to the fact that many were heavily invested in the most speculative stocks, since those also produced the highest gains in the previous market run ups.
But no matter how well a given asset class is performing – even stocks – you still need countercyclical investments. These have the effect of reducing your exposure to stocks, and therefore your potential losses when stocks reverse.
For example, if 60% of your portfolio is invested in stocks, and the market loses 50%, the overall loss to your portfolio will be 30%. That will hurt, but it won’t be nearly as bad as losing 50% or more, which will be the outcome if your portfolio is 100% in stocks.
Most believe bonds are the most effective counter to stocks. And while they can reduce volatility in a portfolio, it’s also important to hold other asset classes that could potentially rise when stocks are falling. These can include real estate, foreign currencies, and precious metals – most notably, gold.
THE BULL MARKET IN STOCKS IS STARTING TO LOOK TIRED
The current bull market in stocks has been running since March 2009. That means that the bull market has been going for nearly 9 years. Most bull markets in any asset class last no more than a few years, let alone a full decade. While it’s possible the current bull market in stocks can run another year or two, it’s extremely unlikely that it will go much further.
Though it’s true that the Dow Jones Industrial Average has gone from a March 9, 2009 low of 6547 all the way to nearly 25,000 today, a repeat of that performance over the next nine years is extremely unlikely.
In fact, after such an incredible run up in the Dow, the likelihood of a large loss is greater than a large gain. Investors may be at risk of a loss of 50%, 60%, 70% or more, in the hope of squeezing out another gain of 10% or 20% over the next couple of years.
This isn’t to say it’s time to abandon stocks altogether. Historically, stocks have represented what’s probably the single best long-term investment, returning an average annual gain of about 10%. Stocks, after all, represent an investment in the means of production. That means that the companies they represent virtually generate wealth.
But it’s equally true that stocks go through prolonged bull markets, only to be followed either by bear markets, or even crashes. As a general rule, you can assume that a market that’s risen for many years is due for a bear market at best, and a crash at worst.
The last thing any long-term investor should want to do is to be heavily invested in stocks at a market top. And that’s exactly where it appears we are right now.
THE GOLD MARKET IS SURPRISINGLY QUIET RIGHT NOW
Gold has been hovering in the high $1,200 range for a long time. After hitting an all-time high price at $1,917.90 on August 23, 2011, gold fell back several hundred dollars, and then settled into a narrow trading range.
Typically, whenever an investment or an asset class settles into a trading range, investors mostly ignore it. It becomes an “out-of-favor investment”, as investors move on to higher performing assets.
This has been the classic mix of stocks and gold in the past several years. Gold has languished, as investors have moved headlong into stocks. As a result, stock prices have exploded, while the price of gold has been largely flat.
But this is the exact time when investors should be taking a serious look at out-of-favor investments. Given that the stock market has run so far so fast, it’s likely that it we’ll soon see a shift over to out-of-favor investments, like gold.
That doesn’t mean that gold is set to take off in the next few months, or even in the coming year. But it does mean that now is the perfect time to put some money into the asset classes that most investors have been ignoring. Major shifts in investment values – either higher or lower – tend to be clear only in hindsight. Beforehand, and even while they are playing out, major price changes are often completely unnoticed.
THE TIME TO MAKE MAJOR MOVES IS ALWAYS BEFORE THEY’RE NECESSARY
One of the advantages to buying into an asset class before it’s necessary, is that you have an opportunity to evaluate what’s taking place in the calm of the moment. Bull markets rarely present good opportunities to buy into an investment. Prices rise rapidly, particularly in the early stages. That means that most investors fail to get the benefit of the greatest price appreciation.
Investors often wait to get into undervalued investments until well after the fact. For example, while it will be possible for many investors to buy into gold right now at under $1,300 per ounce, most will not do so until the metal approaches a new record price. That means that there will be many more investors buying in when the price of gold is approaching $2,000.
But that hesitation will mean that price appreciation from roughly $1,280 up to nearly $2,000 will be lost.
It’s not that it will be impossible to make money investing in gold in the $2,000 range. Quite the contrary. In the next bull market in precious metals and commodities, gold could easily reach the $5,000 level, or even $10,000.
The point is, if you buy in when the price is below $1,300, your investment gains will be much richer. But you can only do that by buying in now, while all is quiet in the gold market.
ACHIEVING TRUE INVESTMENT DIVERSIFICATION
Many people believe that they are adequately diversified if they are invested in a mix of stocks and bonds. This is particularly true if they hold different classes of stocks and bonds. For example, they may hold a mix of US and foreign stocks, as well as large company stocks and small company stocks. With bonds, they may hold a mix of long-term U.S. Treasury bonds, Treasury Inflation Protected Securities (TIPS), and foreign bonds. And with that kind of mix, they may assume that they’ll be well diversified.
But here’s the problem: As impressive is that mix seems, all of those assets are closely correlated. For example, a major decline in US stocks will likely affect all market sectors. It will even spill over to foreign stock markets, since all stock markets are closely connected. And while bonds are thought to be a counterweight to stocks, they’re likely to move in tandem with stocks as well.
Consider that since 2009, stocks and bonds have both risen together. They largely increased on the strength of very low interest rates, which has lifted the prices of both bonds and stocks. Should interest rates rise, not only would bonds fall, but so would stocks. For example, a stock yielding a currently healthy 3% dividend, wouldn’t look so strong in an interest rate environment where you can get a 5% return on a five-year US Treasury note.
True investment diversification happens when you hold asset classes that are not correlated with stocks and bonds. Gold is one of the best examples. A large decline in stocks and bonds could send investor money into gold and other precious metals. This means that the price of gold can rise even as paper asset values are falling.
THE GOLD IRA FROM TREASURY VAULT
One of the big advantages to a gold IRA is that you can hold actual bullion, like gold bars and gold bullion coins. This is very different than adding gold paper assets, like gold stocks and mutual funds, in an existing IRA account.
Should the value of paper assets decline due to waning confidence in the international monetary system, gold bullion will be superior to paper assets of all kinds. In fact, it may be the best port in a storm in a turbulent world.
A Treasury Vault Gold IRA can give you that kind of protection. You can hold actual gold bullion in your IRA, acting as a true countercyclical investment to all kinds of paper assets, including stocks and bonds, and even government bonds.
Should the investment world become subtly hostile, gold will represent the safest investment. Holding it in your IRA will provide the kind of long-term security that you will need in your retirement portfolio.