Diversification used to mean spreading your portfolio amongst various asset classes. Back in the 1950’s and ‘60’s, for example, it was recommended to restrict your equity position to less than 1⁄3 of your liquid assets. Today, stock brokers have successfully shifted the paradigm, convincing investors to put up to 90% or more into equities, through a varied level of aggressiveness or risk within a stock portfolio. This is not diversification!
The investment industry specializes in bull markets. But history offers irrefutable proof that this strategy only works 60% of the time. Since 1877, the market has spent 60% of its time being up. But what about the remaining 40%? And what about the lengthy time bullish investors had to patiently wait for a recovery in prices to cover the losses incurred from the 40%? Things might go well for you for a while, seeming like you can do no wrong, until suddenly profits evaporate in a major cyclical event.
Such an event is partly a function of natural market dynamics, but the problem is made much worse by central bank (Federal Reserve) policy that continually pumps money into the economy. This continual increase in the quantity of money creates successive bubbles, such as in tech stocks in the late 1990’s, real estate in the 2000’s, and the stock market in the 2010’s. When those bubbles get too large, they pop, effectively wiping out millions of investors. As the bubble is forming, it’s hard for investors to lose; but when they pop, it’s very hard to win.
HEDGING AGAINST THE MARKET
Gold is the secret to building an investment portfolio that not only survives—but actually benefits from—the market’s ups and downs. Consider the longterm track record of investing in stocks, bonds, and gold over the past five decades. If you invested $1,000 in the U.S. stock market 50 years ago, with dividend reinvestment your money would grow to approximately $112,000. If you followed run-of-the-mill financial advice and invested 75% in stocks and 25% in bonds, your portfolio would have less risk, but returns would be much lower. $1,000 invested 50 years ago with annual rebalancing would be worth just $93,000.
What happens if you add gold to your portfolio?