Part of the euphoric attitude surrounding markets today is the emergence of 401(k) millionaires. With the ubiquity of social media and the increasing amount of exhibitionist behavior that it enables, more and more Americans are bragging about the huge sums of money they now have in their retirement accounts. But amassing a million dollars worth of retirement assets and keeping those assets at that level throughout your retirement are two different things. If investors aren’t careful, they may get cocky and assume that the current bull market will last forever. Finding out that it won’t could be a very painful and expensive lesson.
Diversification Is Essential
Looking at the portfolio makeup of some of these 401(k) millionaires, we see something not surprising but nonetheless concerning – they often are invested 100% in the stock market. Investing your assets in international equity funds, small- and mid-cap equity funds, and S&P 500 equity funds has been a great way to grow wealth over the past two years as stock markets have gone on an amazing bull run. But once stocks start to pull back, all those gains will be given up.
Now perhaps some of these investors don’t have access to other investment opportunities through their 401(k) plans, in which case we can’t fault them entirely. But then it’s up to them to start looking for alternative investment vehicles such as bond funds, mutual funds, brokerage accounts, or alternative investments such as gold and silver. Remaining in stock markets when the likelihood of a correction grows stronger by the day is a very risky move.
Stock markets lost over 50% of their value during the last financial crisis, so the risks of not diversifying away from stocks are immense. With the Dow Jones Industrial Average having recently reached 26,000 points, it’s far more likely that the index will hit 16,000 in the next couple of years than that it will hit 36,000.
It’s not just stocks that are in a bubble either. Bond markets have seen a steady decline in yields for over 30 years, a bubble of unprecedented length. There aren’t that many investors or traders alive today who even remember the last bond bear market. During the early 1980s the prime rate reached above 20 percent, a far cry from its current 4.50% level. But if interest rates were to start rising back to normal levels, bond investors would certainly feel the losses too.
How Gold Can Help Diversify
That’s why it is important to diversify your portfolio by including non-financial assets. Stocks and bonds will rise and fall along with Wall Street, but assets such as gold and silver won’t. In fact, gold and silver tend to rise in value as stocks decrease in value. They rose in value during the bear market of the early 1980s, they rose again during the financial crisis, and they will rise again during the next financial crisis. Gold has served as a protector of wealth in times of crisis for centuries, and it will continue to do so for centuries into the future.
A portfolio that had invested 30% of its assets in gold and 70% in assets matching the S&P 500 would have outperformed a 100% S&P-matching portfolio by nearly 60% during the financial crisis, and would still be greater in value today. That’s how powerful gold can be in protecting a portfolio’s wealth.
And with gold still well off its financial crisis-era highs, there is still significant growth potential for gold in the coming years. In fact, over the past 40+ years gold has outperformed stock markets in terms of annualized average growth. That’s with stocks at record highs and gold with a lot of room still to grow.
With a gold IRA, existing 401(k) or IRA assets can be rolled over into an IRA account that offers all the same tax advantages as a traditional retirement account. You can enjoy gold’s wealth protection and price growth while still benefiting from the tax laws that protect IRAs. And in most cases those transfers can be made without incurring any tax liabilities at all. So if you want to keep those millions you have worked hard to put away and grow your retirement assets, it’s well worth your time and effort to look into investing in gold.
Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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