Preparing for retirement can be an incredibly daunting task. Considering everything that’s going on in the market and around the world, reliance on Social Security and company-provided retirement plans are becoming more and more dangerous. However, there is one steadfast way to protect your retirement. By converting a portion or your entire 401K to gold or other precious metals, you can ensure gains in down times.
As a matter of fact, gold has been looked at as a safe haven for investors for decades, taking advantage of it as a hedge against loss.
We could see a market correction relatively soon. A market correction by definition is anytime the stock market plummets by 10% or more over a relatively short period of time. In these cases, tons of investors lose a great deal of money. However, smart investors who hedge using gold tend to minimize losses and often times realize gains. Here’s why I expect there may be a market correction soon.
Historically high stock valuations – Anytime stocks are valued higher than they should be, it’s a cause for concern. To get a good idea of where stock valuations are today, I like to look at the Schiller PE ratio; which is a simple ratio that compares the price of stocks to earnings in the S&P 500. Under good conditions, that ratio usually stands around 16. However, today we’re seeing it at 26.5; more than 10 points above average. Simply put, that means that investors are grossly overpaying for stocks under current market conditions.
Geopolitical unease – Currently we’re seeing a feud between Russia and Ukraine that has dragged the Eurozone further into economic woes. Saudi Arabia is working hard to drive the price of oil down and put pressure on American energy producers. ISIS is still a threat in the Middle East. We all know that in times of war and geopolitical unease, the stock market generally reacts in a negative way.
The end of federal stimulus – The Federal Reserve has been going through the process of quantitative easing throughout the past several years. Investors have been banking in on easy money in the market caused by the purchase of billions of dollars’ worth of bonds per month by the Federal Reserve. However, quantitative easing has come to an end. As a result, investors are being forced to take a closer look at their portfolios in order to continue realizing gains.
Market corrections are nothing new. As a matter of fact, they have happened quite a bit throughout history. History tells us that when the market starts to correct, major investors start looking toward gold as a safe haven investment. As a result, as the market continues to fall, the value of gold continues to rise. Therefore, any losses that were experienced through the decrease in stock prices are generally made up for in gains on gold purchases.
Final thoughts with everything going on in the stock market and around the world, it’s hard not to be concerned with what may be coming in the market. However, by converting your 401k to gold it’s possible to protect yourself against losses that many people are sure to be experiencing soon.
(Scott Bilker is the founder of DebtSmart.com and author of the best-selling books, Talk Your Way Out of Credit Card Debt, Credit Card and Debt Management, and How to be more Credit Card and Debt Smart.)