How gold protects you from stock market losses
For centuries, gold has been considered a safe haven in difficult times. Gold investments can provide stability and reliable returns during periods of economic downturn or uncertainty. Other assets, such as stocks, tend to suffer in these periods.
Of course, stocks are still worth investing in. But you can't rely on them alone. By investing in gold, you can enjoy peace of mind in knowing your portfolio won't be completely wiped out in the event of large stock market losses. In this article, we'll explore how investing in gold can shield you from the ups and downs of the market.
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How gold protects you from stock market losses
Here's how a gold investment can insulate your portfolio against stock market risks.
It provides diversification
A successful portfolio needs diversification to ensure consistent, positive performance over time. This means having a mix of high-risk, high-reward assets and low-risk, moderate-reward ones.
Investing in gold can be a smart way to ride out otherwise destructive economic conditions. It's not at the mercy of market fluctuations the way stocks are — in fact, it tends to shine in tough times. For this reason, experts recommend keeping 5% to 10% of your portfolio in gold.
"Gold has been used as a currency and store of value for thousands of years, and it has proven to be a reliable hedge against inflation and economic instability," Hanna Horvath, CFP, recently told CBS News. "By adding gold to your investment portfolio, you can help protect your assets from market volatility and potential currency devaluation."
It often performs well when stocks perform poorly
One reason gold is an ideal counterbalance to stocks is that it tends to do particularly well when stocks falter. Gold prices rose in six of the eight largest stock market crashes of the last 40 years, according to GoldSilver. Take the period from 2007 to 2009, for instance. In this recessionary environment, the S&P 500 plummeted by 56.8% but gold prices went up 25.5%.
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It provides reliable returns
Stocks may have the potential for high returns, but they're also highly volatile. In recent months alone, we've seen stock values drop as a result of everything from interest rate hikes to bank failures. Gold prices, on the other hand, have historically held steady over time. Gold's value may go up and down in the short term, as any asset can, but as a long-term investment, it's a solid bet.
"Since 1900, the U.S. dollar has fallen 97% versus gold," says Gregory Lawrence, CFP at Lawrence Legacy Group. "Gold has made 612% since 2000 versus the S&P 500 with dividends up 348%"
The bottom line
While stocks have their place in your portfolio, it's essential to balance their inherent risks with more conservative assets that hold their value when stocks are down.
Gold continues to show resilience in times of economic uncertainty. In fact, it's during these times that it does especially well. Investing in gold can help cushion the blow of significant stock market losses — a safeguard that can prove extremely valuable throughout the course of an investor's lifetime.
