When a Laser-Focused Portfolio Met the Crisis
We are currently assisting a new client that for the last several years had placed (you might say bet) his entire 401k on the energy sector. Over these years, he saw the value of his portfolio rise in value manyfold, beating any market index or diversified portfolio. He knew he needed to diversify, but he kept postponing the decision because the rewards for delaying it were coming in constantly. The result? In the recent oil market crash, he lost 75% of his portfolio within just one week. Put yourself in his shoes as he saw a $250,000 portfolio turn to $70,000.
When your portfolio met the crisis
Seeing your own portfolio lose value as it was hit by the COVID-19 market crash, you might find comfort in this tale of energy sector woe and say “But he was not diversified at all. I only lost 16%.” Here is where the issue lies:
How much you’ll lose in a market correction depends on how well you’re diversified. A portfolio invested in any single sector will get hit the hardest when the sector gets wiped out. Since all sectors are cyclical, they’ll all get hit sooner or later. But even limiting your portfolio to financial assets like stocks and bonds is not True Diversification. If your portfolio was beaten down during the recent crash—as most portfolios were—it means you aren’t really diversified outside of Wall Street’s dollar-denominated financial assets. Those are the assets that crashed, and if your portfolio crashed with them, you, my friend, are not diversified—regardless of what your financial advisor (who should really be called “financial asset advisor”) is telling you. The goal of a portfolio is to grow and to avoid major losses, which take years to bring back and then some to offset the loss of our dollar’s purchasing power. The goal is not to hold a certain type of asset, whether it’s stocks, bonds, real estate, or gold and silver. If the stock market lost 16% and you lost 16%, then if the market lost 55%—like it did after 2008—you would also lose the same, and that is just too much.
True Diversification requires a different type of asset
True Diversification of financial assets like stocks and bonds never means acquiring other types of stocks and bonds. Assets that can truly diversify stocks and bonds should be the exact opposite of financial assets. These diversifying assets should have the exact opposite character. They should be debt-free, third-party risk-free, and real (not paper) physical assets that serve as store of value and tend to go up in price when financial assets go down. Gold and silver are that perfect tool of diversification. The proof is simple: All our clients that were sufficiently diversified in physical metals didn’t lose a cent of their portfolios in the crash. Instead, their portfolios grew in value.
The history of how gold helps you during market crashes
The price of gold has appreciated dramatically over the last 20 years, rising in value by over 6 times. Over those years, we had a few stock market crashes, and each time the price of gold shot up. This is the way gold can insure your portfolio during market corrections, like the one we are experiencing now. The chart below is a great example of this inverse relationship, which occurred over the past five stock market corrections. In each case, gold proved its value in helping your entire portfolio recover during financial instability. This is how a portfolio is diversified.
So far in this cycle, the pattern has continued. The stock market went down, and the price of gold went up, so any of our clients that followed our advice to allocate 20%–30% of their portfolio to gold didn’t experience a loss of value. Heck, they saw their portfolio value rise. They didn’t lose sleep over their finances and didn’t feel stressed. How about you? Is your portfolio up since the crash? Are you confident about your portfolio and about the market going forward?
So, here’s the conclusive evidence:
- Your portfolio is unprotected from market crashes if it isn’t truly diversified.
- Gold has a proven track record of helping you avoid losses during market crashes.
- Had you taken action and added gold to your portfolio, your financial situation would have been different.
Most people delay making financial decisions that should have been made before real danger occurs. They need a sense of urgency, a bigger crisis, a real pain, a deadline to move them, a way where they can ensure they avoid making mistakes.
Here’s how we can help. Give us a call for a free consultation. We specialize in helping people who never invested in physical metals, and we can explain the process and what benefits you can get based on your specific circumstances. You don’t need to make a decision, and we won’t push you to make one. We’ll just tell you what you need to know in order to pull the trigger when you are ready. Most people will wait for the crisis to hit them hard, and then they will scramble to save what is left. I believe you worked hard to earn your savings, so you deserve financial peace of mind now. It is just a phone call away.
Stay healthy and safe.
Joseph Sherman, CEO