If you’re saving and investing, it’s probably for a reason. For most people that means saving for retirement. And that requires a long time horizon and a great deal of discipline. It also leads to a great deal of uncertainty, as the 30-40 years or more of saving and investing will almost necessarily mean that investors will have to face at least two or more recessions.
While it can be tempting to think that you can just put your money into stocks and hold onto them for long-term average gains of 7-8% or more, the reality is that you’re going to face numerous ups and downs in your investing returns. If you have the foresight to see those downturns coming and protect your investments accordingly, you’ll do better than those who blindly keep their money in stock markets.
Stock Market Performance Over the Past 20 Years
Just looking at the history of the Dow Jones, we can see that the index reached an all-time high of over 11,700 points at the beginning of 2000, but the bursting of the dotcom bubble sent markets well lower. It took over six years before the Dow regained those highs. That’s six years of basically zero growth. If you had been investing for years before 2000, you would have spent six years waiting, hoping for some growth to your retirement assets, to no avail.
The next bull market run was stunningly short, with markets topping out a year later in October 2007 at just over 14,100 points. From there markets fell precipitously over the next year and a half, bottoming out under 6,500 points. That was a decrease of about 55% from their high in 2007, and a decrease of 45% from their high in 2000. So again, if you had been investing in stock markets for years or decades, your assets would have been worth 45% less in 2009 than they would have been in 2000. And you wouldn’t have regained your full value until 2011.
Gold’s Performance Over the Past 20 Years
That’s 9-11 years of investing with nothing really to show for it. If only there had been an asset that could have protected investors’ wealth and left them in a position to benefit from the stock market rebound. There is, and it’s gold. Gold has helped investors for centuries to protect their assets from financial turmoil and economic crisis. And it will continue to play that role for years to come.
Gold has been much derided by financial market commentators whose focus is always on the latest and greatest stocks. But gold’s performance over the past two decades has far outstripped that of stock markets.
At the beginning of 2000 gold was only trading at around $290 per ounce. But by the time stock markets regained their previous highs in October 2006 gold had nearly doubled in price. A year later gold had gained over 25%, up to nearly $750 per ounce. And by the time stock markets reached their nadir in March 2009 gold was trading at $920 per ounce. That’s a more than 400% gain in price from 2000 to 2009 while stocks lost 45%.
Gold continued to gain from that point on, reaching all-time highs a few years later. And while its price may have dropped since then, it’s poised to make another run over the next few years when stock markets take their inevitable tumble.
Assets Need to Be Protected Before the Crash
Anyone who is looking objectively at the economy and at stock markets realizes that things are on shaky ground. Between a weakening job market, ongoing trade wars with multiple countries, and a Federal Reserve-created asset bubble that is about to burst, stocks are certain to drop over the next year or two.
Those whose assets are tied up predominately in stocks will see massive losses if they don’t take steps immediately to protect their retirement savings. And the best time to protect savings is before the crash occurs. Once the crash starts, no one wants to sell, thinking that the next rally is just around the corner. That’s particularly true during this current stock market run, which has seen stocks continue to push towards record levels.
Then investors hold on until the very bottom, and just when things are at their worst is when many investors decide to sell out. They lock in their losses, then miss out on the recovery. Rather than getting out before the crash starts, they try to eke out every last penny of gains, losing their shirts in the process. It’s far better to get out before the crash and protect your assets with gold.
Gold’s Long-Term Performance Outstrips Stocks
Most investors probably don’t realize that over the long term gold outperforms stock markets too. Since the closing of the gold window in 1971, gold’s average annualized returns are around 7.5%, versus 7.3% for the S&P 500 and the Dow Jones. Gold’s performance this century is even more phenomenal, with average annualized gains of 9%, versus 5% for the Dow Jones and 4.3% for the S&P 500.
That ability to keep pace not just with inflation but also with financial assets such as stocks is part of what has made gold such a popular asset with investors of all types. With the world economy set for a slowdown in the near future, the time has never been better for investors to get into gold.
This article was originally posted on Goldco.
