The current U.S. bull market turned nine years old in March 2018. In just a couple of months, it will take over the number one spot: the longest bull run in history. But bull runs don’t last forever. Learn how you may be able to protect your portfolio from any market fallout.
But bull markets don’t go on forever. As great as they can be, for as long as they last, they all eventually die – it’s one of the realities of our cyclical economy. Something always comes along eventually to slay the bull. Usually, it’s the onset of higher interest rates. This time around, however, there are plenty of factors poised to take out the soaring market. Among them:
Inflation. Inflation is back, and now close to a six-year high; in June, the Consumer Price Index registered a year-over-year increase of nearly 3%. Although the Federal Reserve already has raised rates twice so far in 2018, they’ve made it clear that two more hikes are coming this year – and who knows how many more will follow?
Debt. Debt at all levels – from household to business to government – is frighteningly high. Total nonfinancial private and public debt is roughly 245% of global gross domestic product. For perspective, consider that just before the 2008 global financial crisis, that figure was “merely” 210%.
Trade Conflict. According to President Trump, tariffs could ultimately affect up to $500 billion in goods. America’s principal trade target, China, has already retaliated in earnest and there’s no quick end in sight to the deteriorating trade climate. Professional investors such as those at Bank of America and asset managers such as GMO’s Ben Inker anticipate that losses in equities-oriented portfolios could be as much as 40% as a direct consequence of a trade war.
Weak Economy. It is a supposedly strong economy that serves as the foundation for the climate of higher interest rates. But looks can be deceiving. Read between the lines of all the “great” news about a “robust” economy, and you’ll find such truths as 43% of U.S. households can’t afford monthly basics like food and rent, and that there’s a record number of Americans out of the work force.
Legendary Business and Economics Experts Say Disaster is Lurking
The gathering of economic storm clouds has prompted predictions of impending market doom from some of the most respected minds in business and economics. Former Reagan budget director David Stockman, speaking about the possibility of stock market crash in the near term, recently declared there’s “a doozy just around the bend.”
Desmond Lachman, a former economist for both Salomon Smith Barney and the International Monetary Fund, wrote in a piece for U.S. News & World Report that we’ll soon be plagued with “another 2008-to-2009-style global economic and financial market crisis.”
And business icon Microsoft cofounder Bill Gates said back in February it’s a “certainty” we’ll see another financial crisis on the scale of 2008 “in the near future.”
Is YOUR portfolio ready for the next bear market? Take a look at the damage done to the S&P 500 during the bear markets of the last 50 years…
S&P 500 Performance During Bear Markets
(Data Source: Yardeni Research, Inc.)
Average length of previous six bear markets: 1.5 years
Average percentage decline of S&P 500: -41.8%
Good News – When One Asset is Struggling, Another Usually Is Thriving
According to the law of the conservation of mass, everything must go somewhere. Matter is not really created or destroyed, but always exists in one form or another.
The same idea generally applies to cyclical economies. When the forces that help create growth in equities markets change to another form, other asset classes tend to thrive. Precious metals is an example of such an asset class.
There are numerous examples of gold and silver moving well during extended periods when equities are under pressure. The decade of the “Great Inflation,” the 1970s, is one such example. The Dow Jones Industrial Average registered a stunningly weak 2% return from January 1970 to January 1980, but gold soared 1,500% and silver skyrocketed 2,100%.
Another example is the first decade of the new millennium. From April 2001 to August 2011, the stock market returned just 10% during a volatile period in American history that saw the burst of the dot-com bubble, the horrendous 9/11 attacks, and the global recession. During this time, however, gold climbed 650% and silver topped 900%.
Stock-Only Portfolio Performance During 2008 Financial Crisis
(based on performance of S&P 500)
HOWEVER…had you allocated 35% of your portfolio to gold by October 2007, your portfolio could have actually GROWN during the crisis, to $507,500 by December 2009.
Stocks & Gold Portfolio Performance During Financial Crisis
(equities based on performance of S&P 500)
Note the difference: $507,500 vs. $350,000! And if you had allocated HALF of your portfolio to gold by October 2007, your portfolio could have reached $575,000 by December 2009.
(Disclaimer: These numbers are for illustrative purposes only and nothing in this article should be construed as advice, including advice as to what percentage of a portfolio should be allocated to gold. Many experts generally recommend that precious metals constitute 5-10% of a well-diversified portfolio. Some may recommend different amounts. You should consult with your own advisors to determine what is right for you.)
It’s Not Enough to Be Aware – You Have to Act
As the graphic above helps illustrate, physical gold is largely uncorrelated with equities, which makes it an excellent asset to seek effective diversification. Unless you own it, however, gold will be of no help to you if a bear market picks up where the current bull leaves off and crushes the stock market by 40% or more. You must proactively move into the assets that could help relieve your portfolio when traditional assets are tanking.
If you’ve been considering purchasing physical gold and/or silver for your retirement portfolio – or purchasing more – you probably have questions. Get answers by calling Augusta Precious Metals at 855-242-4121. Speak to one of our knowledgeable gold and silver professionals, who can provide you with any information you seek about acquiring precious metals to offset potential negative effects of this bull run in the U.S. stock market. Remember, too, you can own physical gold and silver inside of an IRA. This is still a little-known truth among investors and something you likely won’t hear from your financial advisor. Want to know more? Don’t hesitate to ask the Augusta team member you speak with.