How Robo-Trading Could Destroy Your Retirement SavingsPaul-Martin Foss
When looking at their investment portfolios, most investors just look at headline numbers. They’re more interested in how the stocks in their portfolios are performing rather than why they’re performing that way, or how those stocks are traded. But the way that stocks are traded today behind the scenes is very important, and it has changed significantly over the past couple of decades. More importantly, those changes could have severe negative repercussions for investors who fail to understand those changes and protect their assets accordingly.
Talk to any older or retired broker, private equity analyst, or hedge fund trader and you’ll commonly hear them lament how everything today is computerized. No longer do you have analysts poring over balance sheets and assessing the next best value stocks to invest in. Today everything is left to computer algorithms that look for minute changes in the value of stocks to execute buy and sell orders in mere fractions of a second. Even a few hundredths of a second in delays today can mean millions of dollars in potential profits lost.
No one pays much attention to that when markets are booming, so they fail to appreciate how all of this automated trading can affect investors when the boom gives way to a bust. Once a market rout starts, automated trading programs will execute sales orders at certain price points. With by some estimates up to 80% of stock trading now being done by computers, a real stock market crash could not only occur quickly, it could occur far more quickly now than it ever could in the past.
Investors need to be aware of these trends in stock market trading. Between passive investing and automated trading, the risk of sustaining huge losses by staying in stocks too long is all too real. During the financial crisis stock market indices lost over 50% of their value, and many individual investors saw losses even greater than that. The next time around could be even worse, and the warning signs are already here and signaling danger ahead.
There’s only one sure way to avoid losses in stock markets, and that’s by moving assets into gold. Gold always performs well when stock markets turn south, and the next few years will be no different. In fact, gold has already performed magnificently this year as investors have flocked to it to protect their assets, and it will only continue to perform in the future. If you’re concerned about the safety of your retirement savings, it’s time for you to start looking to invest in gold to make sure that you don’t lose out during the next market crash.