During times of economic distress or turmoil, many investors look to keep their assets safe from loss. While there’s no such thing as a completely risk-free investment, there are some assets, such as precious metals, that have a reputation for protecting wealth during tough economic times.
Sure, there are probably many investors who stick to “buy and hold” investing, riding out recession after recession, but they violate Warren Buffett’s number one rule of investing: never lose money. Certainly, you’ll probably lose money on some investments at certain times, but you want to try your best never to lose money overall.
The problem that many investors faced in the 2008 financial crisis was that they weren’t prepared for the crisis. They were reassured by the Federal Reserve that problems in the subprime mortgage market were largely contained and wouldn’t spill over into the rest of the economy.
As a result, when stock markets started their downward spiral, many investors refused to believe that it was really happening. At their worst, markets lost nearly 55% of their value. And some investors lost even more than that.
Those kinds of losses can be not only demoralizing, but also catastrophic to those who are depending on stock investments for their retirement savings. As it was, it took years for stock markets to regain their pre-crisis highs.
If you’re nearing retirement and sitting on a nice little nest egg in your 401(k) and IRA accounts, can you afford to take a major loss when stock markets correct? Can you afford to wait years before your investments recoup those losses? Or will a market correction destroy your dreams of retirement?
Maybe it’s time to start reassessing your portfolio and to start thinking about how to protect it. Here are five ways that gold can help you safeguard your retirement savings.
1. Performance During Crises
Gold is perhaps best known by many investors for its performance during financial crises. In the aftermath of the 2008 crisis, the gold price nearly tripled, leading many investors to wish that they had had the foresight to invest in gold.
Having been belittled by the financial mainstream throughout the stock bull market of the 1980s and 1990s as an outdated relic with no role to play in an investment portfolio, gold really shone after 2008, and it hasn’t faded since. Right now, gold is poised to continue an impressive streak of growth that has been building for years. And in the event of a long overdue collapse in stock prices, the gold price could really take off.
2. Portfolio Diversification
Diversifying your portfolio is as simple as not keeping all your eggs in one basket. Just like you wouldn’t keep all your assets in one bank account, you don’t keep all of your investments in a single account, stock, or asset class.
Gold sometimes gets overlooked when it comes to portfolio diversification, but it shouldn’t. And with modern investment products such as a gold IRA, diversifying your existing retirement account assets can be easier than ever.
One of the major concern’s investors have with shifting funds from retirement accounts is the potential for tax hits or penalties. Since a gold IRA has the same tax treatment as any other conventional IRA account, you can roll over or transfer assets from an existing 401(k), TSP, IRA, or similar account into a gold IRA tax-free.
3. Gold Is Highly Liquid
The fact that gold is highly liquid is a major benefit both for buying and selling the yellow metal. You’ve probably seen signs or advertisements for companies offering to buy gold. Many towns have coin shops where casual investors or collectors can buy or sell gold. And international gold markets operate around the clock, 24/7.
If you need to buy gold, there are numerous options available to you. And if you need to sell gold, you will normally always be able to find a ready and willing buyer.
4. Low or No Default Risk
An investment in gold brings with it low or no default risk. If you buy gold to store at your house, the default risk is zero. The only risk you take then is that of potential theft.
If you store your gold with a depository, as you would if you invest in gold through a gold IRA, the only risk you take is that the depository might not have your gold available when you need it. But the likelihood of that happening is nearly zero. In fact, there’s probably a greater risk that your bank will fail during a financial crisis than that a gold depository will fail to get you your gold.
5. Gold Is a Stable Store of Value
Over the long run, gold has a tremendous ability to maintain and even increase its purchasing power. Whereas the dollar has lost 85% of its value since 1971, gold’s value has increased tremendously.
Take a man’s suit for instance. In 1971, that suit would have cost $69, or two ounces of gold. Today, those two ounces of gold are worth more than $3,500, which would buy you many very nice suits. And $69 today would only get you a decent dress shirt. That’s the power that gold has versus the dollar. And that’s why so many investors trust the protection of their hard-earned retirement savings to gold.
Time to Start Thinking About Gold
The right time to protect your assets is before they start losing value. Too often you’ll see people hold on to assets that are losing value during a crash. They keep hoping against hope that the decline is only temporary. Then they finally give up hope and cash out at the very bottom. Not only have they sustained major losses, but they’ve also forgone the ability to make any new gains in the future.
That’s obviously not what you want to happen to your investments. And that’s why preparing ahead of time can pay dividends when a crisis occurs.
With the economy facing higher inflation, continued unemployment, and growing uncertainty about the future, it’s more important than ever to start thinking about gold and the role it might play in protecting your investments. Whether you’re interested in learning more about a gold IRA, wanting to squirrel away some gold coins in your sock drawer, or just exploring the options available to you, the precious metals experts at Goldco can help inform you about all the ways gold can benefit you.
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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