If there’s one thing Wall Street investors can count on, it’s that the market always corrects, and sometimes it crashes. Stock-pickers pride themselves on finding equities that stay afloat even during tough economic times, from gold streaming stocks to legacy companies that thrive in recessions, such as Kimberly Clark (the makers of Kleenex, Huggies, Cottonelle – essentials Americans always need to buy) or Coca-Cola and Anheuser Busch Inbev. It’s not for everyone though – anyone who’s not a professional investor can’t reasonably commit the time to research companies thoroughly enough.
But just because you’re more of a mutual funds-and-bonds type of investor doesn’t mean you shouldn’t have a strategy for dealing with a market correction. Major crashes seem to be speeding up, with crashes recorded in 1987, 1999-2000, and 2008. Already 11 years on from the last big crash, many are getting ready for the next one.
So-called “defensive investment strategies” feature diverse solutions, but they all aim for a few key features:
- Balance between riskier and conservative assets to mitigate stock losses and prime your portfolio for recovery;
- Include inflation hedge assets that won’t lose value when cash does;
- Reduce third-party risk by increasing direct control over assets.
Among the assets that do this best are precious metals, specifically gold and silver.
Gold and Silver Are Safe Havens
Market correction is one thing, a bump in the road before a recovery, but economic catastrophes can wipe out portfolios and retirement savings. Precious metals are uniquely positioned in a catastrophe due to the confidence investors have in them. You see it in countries going through hyper-inflation or economic collapse: everyone with the means starts putting their money in gold.
A Weak Dollar Is Good for Gold
There are several reasons a weak U.S. dollar bumps up gold prices. First of all, the metal is sold in U.S. dollars, so when the dollar’s value weakens, it’s easier for foreign markets to snap up, pushing up demand.
Second of all, it means that one of the world’s top safe haven currencies isn’t doing what it should do – preserve relative value. When that’s the case, investors, don’t stick around for long, seeking other assets that will meet their goals.
Bullion Is Easy to Buy
Other conservative assets like real estate can be lengthy transactions involving a lot of legal steps and paperwork. By comparison, you can get your gold and silver online from trustworthy dealers in short order.
Government Debt Could Be a Big Crisis
In the aftermath of the 2008 financial crisis, the world saw how bad sky-high government debt can be, as Greece had to be bailed out by its EU partners, and bigger economies like Italy and Spain came precariously close to the same fates.
With U.S. government debt hitting $22 trillion, some are wondering if a debt crisis could cripple the world’s biggest economy. A contraction caused by government debt would leave few assets besides gold unharmed.
Both precious metals have a place in your portfolio. Few assets are better at achieving defensive strategy goals. Make sure you invest before the next market crisis.