Hope springs eternal in the minds of many investors, who are optimistic that stock markets will regain their former high levels. But with the Dow Jones now closer to 20,000 points than 30,000 points, that isn’t likely. Still, there are major reasons not to invest in stocks and corporate bonds right now aside from just the possibility of a stock market crash.
Hyperinflation Wipes Out Owners
Many investors treat stock ownership as a form of gambling rather than investment. They don’t realize that as stockholders, they are owners in the company. And as owners, they are the first ones whose investments are wiped out in the event that the company fails.
Under standard bankruptcy procedures, creditors are first in line to be made whole in the event of bankruptcy. Stockholders are generally last, or almost last.
With the Federal Reserve now engaging in trillions of dollars of quantitative easing, having added $1.4 trillion to its balance sheet just in the past three weeks, there’s a very real chance that much of that money will end up creating significant inflation, if not hyperinflation. Unlike in 2008, when much of the initial burst of quantitative easing ended up tied up in bank reserves, less than half of the growth in the Fed’s balance sheet is ending up as increases in bank reserves or in the monetary base.
That’s worrying, because inflation that runs out of control can strip investors of everything they’ve worked so hard to achieve. If inflation begins to run rampant, the value of stocks will quickly become worthless, as their share prices will be denominated in increasingly devalued dollars. In a worst case scenario, with companies going bankrupt due to rising prices and an inability to buy necessary inputs, shareholders will be wiped out completely.
Bonds Aren’t Any Better
On the flip side, bondholders aren’t necessarily in any better shape just because they’d be first in line after bankruptcy. With a corporate debt bubble currently over $10 trillion, many corporations are in poor financial shape. The number of corporations whose debt is rated as junk, or whose debt is being downgraded into junk status, continues to grow.
In the event of a hyperinflationary crisis and widespread bankruptcies, bondholders will be wiped out. For one thing, inflation eats away at the real value of their bonds. If you hold $100,000 in corporate bonds and the inflation rate rises to 100% per year, the value of your bonds has just been cut in half after one year. And the worse inflation gets, the worse bondholders fare.
How to Protect Yourself
Investors need to protect themselves in advance of a hyperinflationary crisis, because once the crisis is at hand it’s often too late to protect yourself. By that point, it’s every man for himself.
As we’ve seen from hyperinflationary crises in recent history, those with tangible goods and tangible investments fare better as a nation’s currency begins to deteriorate. That includes investing in gold, silver, and other precious metals. Investors who trust in the value of financial assets such as stocks and bonds find out the hard way that inflation wipes out the value of their investments.
Don’t let the wave of inflation that is certain to ensue wipe out the value of your investments. Contact the experts at Goldco today to find out how you can protect your retirement savings with gold and silver and defend yourself against certain future inflation.