For some stock market investors, hope springs eternal. But in the year ahead, you’ll be far better off if you don’t count yourself among them. Let’s face it—the odds are not in your favor. Many mutual-fund managers and market analysts are beginning to prepare investors for lower returns from stocks and bonds. And today’s ugly drop in response to China’s once again going off the rails is a timely reminder of our vulnerability to problems not of our making.
Yes, the market did well last year. But think of a rubber band that keeps stretching. At some point, it’s bound to snap. And drops in market prices are more apt to occur sooner.
According to Mike Barclay, portfolio manager at the Columbia Dividend Income mutual fund, “You have to be realistic and think the outsized runs we’ve had – in 2013, for instance – are pretty unlikely….Trees don’t grow to the sky.”
Growth in the worldwide economy is already anemic and earnings growth for larger U.S. companies has slowed down. Stock prices, when compared to corporate earnings, are anything but cheap, which doesn’t bode well.
In fact, more and more experts are growing pessimistic. Recently, in anticipation of “downside risks to the global economy, the International Monetary Fund reduced its 2016 outlook for global growth to 3.6 percent from 3.8 percent.
For those needing further proof, stock newsletter guru Mark Hulbert warns the risk of a stock market crash in 2016 is greater than it was in the dot-com era.
Still, some can’t let go of the idea they can get rich through the great paper chase, although the reasons and rationalizations are growing more and more far-fetched. Maybe they need to roll the dice with the stock of a different company. Maybe they should try a value stock instead of a growth stock. Or maybe they need a momentum stock to push them over the top for a glorious return.
Guess what – it’s all paper. At the end of the day, no matter how you play the game, paper is what you’ll have, instead of a tangible asset that holds real value. The reason I like gold, especially now? It’s not often there’s an opportunity to acquire a hard asset priced below its cost of production—a situation that, by definition, can’t last.
When you acquire gold – either for direct possession or through your IRA – you invest in an asset that’s automatically fueled by a shaky world economy. Also, now that the Fed has raised interest rates, a jump in the rate of inflation is much more likely in the near future. When that jump happens, you’ll be there, grinning, when the crowd flocks to gold and drives up its price.
If you’re holding stocks that show a profit, now’s the time to take those profits – and take your money off the increasingly-shaky table – and move to an undervalued asset like gold. You’ll have a secure head start on what’s already a difficult year.