It is too easy to dismiss gold during an equities boom. The riskier a market is, the more people flee gold funds, gold EFT funds, and other components of typical gold IRA plans. Too many investors get blinded by the seemingly solid gains of equities and find themselves all caught up in 'slam dunk' upward trajectories of key segments of the equities market. Tech stocks, in particular, are known for fast gains within otherwise ridiculously short periods of time. It is very easy to buy into the thinking that these stocks, and the market in general, will only continue to go up as long as the underlying economy isn't comatose. Yes, it would be too easy to buy into this thinking. Sadly, this type of thinking will not end well.
Any equities and investment market must eventually deliver solid value. Unfortunately, much of the crazy P/E ratios of a booming stock market are propped up by an unhealthy level of buzz which ignores basic market fundamentals. Red hot markets ignore these fundamentals at their peril. These fundamental truths are not going to go away. Skyrocketing stock prices in a bubble market can only prolong the day of reckoning when underlying fundamental value reigns supreme. This happened in 1929, 1987, 2001, and 2008 and is poised to happen again. The rules haven't changed regardless of how crazy stock valuations may get. And when it comes to fundamental values, no investment option delivers better than gold. Investing in a gold IRA can help protect your net worth from irrational stock market bubbles while also giving you the flexibility and assets you need to capitalize on a stock market crash.
The Bubble Equity Market
Thanks to margin buying and buzz, stock market bubbles, especially dealing with NASDAQ-listed tech stocks, quickly take on a life of their own. It takes a small trigger like a hot IPO to lift other stocks in the same category. This, in turn, triggers appreciation among related classes of stock. This appreciation keeps going until even unrelated stocks are affected positively. Once market greed is triggered, everyone starts playing catch up and, given the buying power of massive hedge funds and mutual funds, the effect is multiplied and exaggerated. Once this process starts, it gets harder and harder to scale it back. It almost seems that fund managers are basing their buys not so much on tried and proven rock-solid market fundamentals like P/E and industry growth but on whether other fund managers are buying a particular stock. In other words, buzz and quick appreciation drive stock prices more than the actual ability of the underlying company to make money and increase income over time.
In addition to the herd mentality of fund managers described above, another key driver of the current and past bubble equity markets are government initiatives. Many economists and equities industry observers and critics say that Alan Greenspan's ridiculously liberal interest rate policies paved the way for the Dot Com Crash of 2001 and also laid the groundwork for the much bigger Financial Crash of 2008. Sadly, it appears that the US Federal Reserve hasn't learned, and it has launched a Quantitative Easing program that uses government debt to soak up funds. This flood of dirt cheap money has fueled a bubble equity market not just in the United States but in many emerging markets all over the globe.
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Gold Versus Bubble Assets
If you are on the fence regarding getting a gold IRA, you have to remember that this type of IRA is built on one of the most-recognized, respected, and accepted measures of value in history-gold. Compare this with, for example, Twitter stock. Twitter doesn't make any money and is on the record as saying that it will be a while until it starts registering a profit. Gold, on the other hand, has value right now. It is both a measure of value as well as an industrial component. Many electronic devices have gold parts. Gold is in heavy demand the world over for jewelry. When you get a gold IRA, you are investing in solid value. When you buy bubble assets like Dot Com stocks (whether in the Web 1.0 or Web 2.0 variety), you're basically investing in buzz. That's the bottom line.
The Inevitability of Bubble Crashes
Just like in the physical world, what comes up in equities market has to eventually come down. It might not be very easy to predict but a correction is going to happen once an external financial shock triggers a collective wake-up call for market players. This happened in 2001 and 2008, and it will happen again. This is a historic pattern. Market corrections can range from 20% to 70% deterioration in present asset values. This is precisely the kind of net worth deterioration a gold IRA protects you from. Sadly, figuring out the 'spark' that will trigger an equity market correction isn't very easy. Considering how interrelated the global equities and debt markets are, the trigger can occur in far-off places. Regardless, the pain will be felt on Main Street, not just Wall Street.
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Getting a Gold IRA to Hedge against Crashes
When you get a gold IRA, you are essentially buying an insurance plan against your other investment portfolios. You are insured against market crashes because gold often increases in value tremendously during periods of great uncertainty and market fear. Moreover, your gold IRA offsets the potential losses you suffer with your other portfolios because you can sell some of your gold IRA assets to buy rock-bottom stock equities to ride the market back up as it recovers. This is precisely how many smart hedge fund managers navigated the 2008 crash.
Long-Term Value versus Short-Term Growth
Investing is all about managing long-term value while positioning yourself to capitalize on short-term gains. This is precisely what a gold IRA empowers you to do. Your gold IRA helps cushion a potential crash in other asset classes and investment types. Your gold IRA also enables you to cash in some appreciated assets to swoop in on depressed equity values. As a result, you can lock in low asset prices while waiting for the market to recover. All the while, your gold IRA continues to appreciate in value as the market remains depressed. As the market recovers, you move more assets into your gold IRA to provide further cushioning and security for the future.