Inflation at 39-year highs. Stocks in correction territory. Fears about Russian military action into Ukraine. Federal Reserve rate hikes. Pick your poison. Financial markets are unraveling fast and there is panic and fear running wild on Wall Street.
After three years of S&P 500 gains in the 18-31% area (historically abnormal, by the way), the stock market is returning to reality. The worst performing stocks in 2022 are already down almost 90%. Here’s a list.
TDH Holdings -89.42%
Astro Aerospace -88.89%
Aligos Therapeutics -76.15%
Vantage Health -63.41%
Gex Management -63.33%
The tech-heavy NASDAQ composite index shed an incredible 13.5% as of late January – and the month isn’t even over yet. The S&P 500 has traded as much as down 10% for the year.
The consensus on Wall Street is that stock market losses will likely get worse before they get better – with overall S&P 500 declines stretching as much as down 20%. Are you ready for what lies ahead?
That brings us to an important quote for our times. As the famous investor Peter Lynch said: “Know what you own, and why you own it.”
One of the essential principals of successful investing is diversification – across non-correlated assets. Gold is a non-correlated asset to the equity markets, which is the key characteristic that makes it so valuable to investors looking to diversify their portfolios and protect their wealth.
Demand for gold already picked up this week as fears over military conflict between Russia and Ukraine flared. Historically, investors flock to gold during geopolitical conflict as the yellow metal performs as a safe-haven investment and holds its value when other asset classes fall.
With inflation running near 40-year highs at 7%, the value of gold is easy to see. Over the last 50 years gold has provided an average annual real return of 12.7% when US CPI exceeded 5%, compared to negative returns on average for both US equities and bonds, according to State Street Global Advisors.
Indeed, a January 25 Wall Street Journal article stated: “One asset holding up through the early 2022 market turmoil: gold. Rising geopolitical tensions in Europe and a slide in major U.S. stock indexes has sent investors rushing into the haven metal.”
Experts agree. The historic low liquidity period is ending. The Federal Reserve is going to pull back on some of its easy monetary policies that have supported the stock market’s recent rise. As the Fed pulls the easy money rug away and the stock market crumbles further in the face of raging inflation, investors who own gold will sleep better at night knowing that a portion of their wealth isn’t simply disappearing as equity prices collapse.
What do you own now in your portfolio? And, as legendary investor Peter Lynch said, do you know why you own it?
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