Author Zora Neale Hurston once wrote, “Ships at a distance have every man’s wish on board. For some they come in with the tide. For others they sail forever on the horizon, never out of sight, never landing.” This sentiment touches on the economic reality of most American’s today.

Wages have stagnated for more than three decades. Moreover, data from the Brookings Institute shows that 44% of Americans of working age (18-64) generate a median annual earnings of less than $20,000. While these numbers present a sobering picture for the present, the downstream effects are even more grim according to the Economic Policy Institute (EPI).

In their wide-ranging analysis, the experts at the EPI have determined that the share of families with retirement savings has declined since the Great Recession. All their data points to the same conclusion: a retirement savings shortfall is a threat to most Americans. In fact, their most alarming finding is that “most families—even those approaching retirement—have little or no retirement savings.” Pension plans have largely become a relic of the past, and meaningful 401K retirement plan participation remains weak. Many American’s simply have not fully recovered from the fallout from the 2008-2009 financial crash.

The final statistic from the EPI report gives dimension to just how dangerous the looming retirement crisis has become. The analysts write “retirement inequality is greater than income inequality even in peak earning years.” Those familiar with the intensifying state of income inequality will understand just how worrisome this conclusion is.

As American’s face these challenges can they find any solutions with an investment in gold? They answer may be yes.

Gold is a unique component of a retirement portfolio because it addresses three key challenges at once.

First, gold offers the possibility for capital appreciation that is not bounded by the rise and fall of the equities market. In other words, gold commonly moves in isolation to stocks and bonds. This relationship means that gold can be thought of as a counterbalance to the whims of the market. This fact is important given that a severe market downturn, like that seen during the Great Recession, can decimate a retirement portfolio. Even those who are older, but not nearing retirement, face heavy risks given that they often tap into retirement funds amid a job loss.  

Second, gold is free from the counter-party risk present in stocks and bonds. Counter party risk is the danger that another party involved in your investment will fail to act in your best interest.  When you engage in a contract with another group (“party”) you always face the risk of the other side failing to meet their obligations. Stocks, bonds, derivatives and options all carry this risk because there is always a chance that the other side will default. In such a scenario a company may file for bankruptcy. Gold is not subject to counter-party risk because there is no CEO, CFO, or board of directors to act inappropriately.

Third, gold is disconnected from the structural problems underpinning the retirement savings crisis. American’s do not have retirement savings because their wages have stagnated while the cost of living has increased annually. This imbalance has forced more Americans to borrow to survive. The loans are accumulating, but the repayments are slowing, or even stopping. This trend will likely bring about further destabilization to the economy risking losses across many asset classes. In a period like this gold often performs well as a safe haven.

Savvy investors are making moves today for the realities of tomorrow.

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Since ancient times, gold has been an important medium of exchange, store of value and wealth building asset. In today’s modern world, it is gaining even more importance.

Central banks around the globe continue to gobble up physical gold bullion for their vaults. Recently, the Dutch central bank publicly stated that they see gold as the key to rebuilding after a financial system collapse.

How much gold have central banks been buying? Though the end of October (the most recent data available), central banks purchased almost 562 tonnes of gold, which brings total reported global gold reserves at 34,500.8 tonnes. The current amount of physical gold holdings in central bank vaults around the globe is now only 10% off the all-time high at 38,491.2 tonnes, which was seen back in 1966.

Over 50 years later from the all-time high, central banks are refocusing on building gold reserves. In October, Russia and Turkey were the largest buyers of gold, with Serbia, Uzbekistan, United Arab Emirates and Mongolia also sizeable buyers.

Official published data shows the United States as the world’s largest gold holder in December with 8,133.5 tonnes of gold. Germany is in second place at 3,366.5 tonnes with the IMF, Italy, France and Russia rounding out the top six.

China is officially the world’s seventh largest gold owner with official reserves at 1,948.3 tonnes. However, there remains rampant speculation that China could own significantly more. It is commonly known among economists that even general economic data out of China is massaged by government officials and not always accurate.

How much gold should you own?

Dennis Gartman, former editor and publisher of the Gartman Letter, said in December he recommends investors hold 30% of their assets in gold over the next decade. He called the biggest threats ahead the rising levels of populism and trade protectionism and the rising possibilities of real war between the U.S. and China.

Diversification into tangible assets like physical gold is a proven and effective portfolio diversifier. Investing in gold is something tangible that you can hold and touch. It is also a private investment. Many trust attorneys and retirement planning professionals recommend bullion as an efficient and discreet method of transferring wealth to the next generation.

Wall Street firms are forecasting gains of a minimum 10% in 2020 in gold, with some even pointing higher. BofA Global Research recommends buying gold on dips. “In 2019 gold confirmed a six year base and start of a multi-year uptrend to a new all-time high. In 2020 we favor buying the dip for a rally to 1586, 1690 and 1750,” a December BofA Global Research report said.

As central banks increase their diversification to gold in preparation for what lies ahead, it is worth thinking about your assets. Do you own enough gold to rebuild after a financial collapse, like the Dutch central bank has discussed? Don’t delay. Prices are expected to climb even higher in 2020.

Diversification is the first rule for any long-term investor. The idea is simple: spread your money across several investments. If one fails, the others will be there to pick up the slack. Diversification makes sense in any market. It is the time-tested strategy that is as fundamental to investing as gravity is to the world of physics. However, something seems to be changing.

Diversification is disappearing, but why?

In a global economy more assets are correlated. As more countries and businesses become reliant on one another more assets are moving in lockstep with one another.

Consider research which uncovered “a rise of cross-asset correlation between select asset classes.” The research reflects “an average correlation increase of 33% between the test periods 1990-2000 and 2006-2016.” This heightened correlation is a problem because, “a significant market event or correction can be compounded by a period of highly correlated assets across integrated financial markets.”

A significant market event is looking more possible than ever given the heightened level of the inflation-adjusted price-to-earnings ratio (CAPE ratio). Today, this figure is higher than it has been at almost every point since 1880. An elevated CAPE suggests that stocks are overvalued. Previously, a high CAPE has preceded market crashes. This risk appears worrying in a highly correlated market.

This new characteristic of investing in today’s markets has led some to question ideas about traditional portfolio construction. It seems that simply diversifying across different companies is not enough. Effective investors must diversify across asset classes. The new question, however, is “how much do I allocate towards other assets, like gold, to ensure a balanced approach?”

Here, research offers some answers. Data from State Street in cooperation with the World Gold Council has determined that “gold has had low or negative correlation with major equity indices since 2000.” Additionally, their research shows that gold also has a low, or negative correlation to major bond indices.

The data also shows that gold has delivered positive returns during nine of eleven “black swan” events such as “Black Monday,” the 2008 financial crisis, the subprime meltdown, and the flash crash of 2010. Gold has also delivered positive returns in periods of both low, and high inflation, though does best during periods of high inflation.

Their work is a clear indicator that gold plays a crucial role in the formation of any portfolio that is designed to withstand the inevitable rise and fall of equity, and fixed income markets.

So, what is the right portion of gold to hold in a portfolio?

The same body of research suggests that holding anywhere from 2%, 5%, or 10% can improve the Sharpe ratio of the portfolio. The Sharpe ratio is a measurement that enables investors to gauge the risk/return balance of a given investment. Therefore, by holding more gold, investors can improve the risk profile of their total investment strategy.

True diversification today means something different than it did in the past. Investors need to cast a wider net to safeguard themselves against an increasingly correlated market.

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Investors are starting to think about the start of a new decade. They have reason to question the future. Consider a recent move by Bridgewater Associates, the world’s largest hedge fund. The company has placed a $1 billion bet that markets around the world will decline by March of 2020.

The bet comes at a time of unprecedented prosperity in the S&P 500 which reached 23 highs so far this year. Many, like the leadership at Bridgewater Associates, are questioning if the market can continue its bull run which is already the longest on record. Today, diversification seems as important as ever. For many, investments in gold can serve as an attractive alternative to the uncertainty behind traditional equity and bond holdings.

New research from the World Gold Council provides a far reaching view of what 18,000 survey participants believe about gold. Those included come from India, China, the US, Germany, Canada and Russia.

More than half of those surveyed in the US, India, Germany, and China trust gold more than other currencies, and 67% of all survey participants agreed that “gold is a good safeguard against inflation/currency fluctuations.”

The researchers also looked at what drives demand for gold. They learned that there are three key factors underpinning the retail investor’s decision to buy gold. The study shows that 44% bought gold to manage risk via diversification or simply by shifting money away from more volatile investments to gold, which they believed to be more stable. The study also reported that 31% bought gold on the “recommendation of a financial advisor or a friend.” Finally, 29% bought gold because they believe the price to be low, or experiencing an upward trend.

Those buying gold are likely to be focused on the long-term. The research shows that 64% of those who have previously invested in gold would purchase again in the future. Those who have not purchased gold are taking note of the loyalty existing gold purchasers display. Of those surveyed who have never purchased gold, 38% stated that they are open to buying in the future.

It is also interesting to note that despite the timelessness of gold and it’s longstanding place in the history of commerce, many of those who buy today are being driven by robo-advisors. These programs, driven by algorithms, provide investment recommendations after considering a host of data input by the user. The data indicates that in China 45% of retail investors use this technology to formulate their investment plans.

These robo-advisors appear to be filling a knowledge gap given that the same data shows that half of the participants said that they never hear the media mention gold. Moreover, two-thirds of retail investors stated that they lack the knowledge they believe is necessary to buy gold. Of this group 28% state “I don’t know enough about it to buy it,” and 22% state “I don’t understand what drives price.” It is clear that the value of more research into gold would help investors construct more diversified portfolios.

As 2020 nears investors have an opportunity to rebuild their portfolios to embrace the looming uncertainty in the investment market and the world at large.

Call Blanchard today at 1-800-880-4653 for a personalized portfolio review and individual diversification recommendations based on your long-term financial goals and risk tolerance levels.

Interested in reading more up to date market news? Subscribe to the Blanchard newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Gold is up nearly 20% this year as investors pile into the precious metal for safety amid geopolitical uncertainty and trade war woes. Rational investors are buying gold for good reason.

Many stock investors may be tripping over a psychological investing pitfall known as the Endowment Effect.

This is a proven cognitive bias in which investors overvalue the worth of stocks that they own, and thus hang onto equity positions perhaps longer than they should. Why? The mere fact of ownership creates a psychological bias that it is worth more.

As the U.S. stock market climbs to all-time highs driven in large part to the low interest rate environment fueled by the Federal Reserve, equity valuations remain toppy and stretched.

Some stock market investors may be caught up in a Pollyanna view of the stock market.

Researchers first identified the Endowment Effect through experiments conducted with ordinary coffee cups.  Ownership of a cup of coffee triggered a response where people demanded substantially more to sell the cup than if they did not own it.  How much? Once owned, sellers required about twice as much to sell the cup as they were willing to pay to acquire it.

The Endowment Effect essentially put blinders on investors and blocks the ability to consider financial events rationally.

How to overcome this mental investing trap

Here are three tips to help you beat back this sneaky psychological mind trick as you plan your investment strategy for 2020:

1. Be open to new information about the stock market and the economy. The Endowment Effect reveals a strong tendency to stubbornly stick to the old investment strategy despite new and better information.
2. Be objective. Consider potential negative factors. The Endowment Effect creates a tendency to focus on the positive factors (Pollyanna view) while disregarding potential negative or changing signals.
3. Create an investing plan and stick to it. Long-term investors do best when you develop and implement a clear investment process. This includes a well-diversified portfolio to offset and mitigate equity market risk.

Rational investors bought gold with a vengeance in 2019. Goldman Sachs recently reiterated its $1,600 an ounce price target for gold. If you haven’t fully diversified your portfolio, consider new information and review current economic and political conditions from an objective standpoint.

Call Blanchard today at 1-800-880-4653 for a personalized portfolio review and individual diversification recommendations based on your long-term financial goals and risk tolerance levels.

Interested in reading more up to date market news? Subscribe to the Blanchard newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

Investors are starting to think about the start of a new decade. They have reason to question the future. Consider a recent move by Bridgewater Associates, the world’s largest hedge fund. The company has placed a $1 billion bet that markets around the world will decline by March of 2020.

The bet comes at a time of unprecedented prosperity in the S&P 500 which reached 23 highs so far this year. Many, like the leadership at Bridgewater Associates, are questioning if the market can continue its bull run which is already the longest on record. Today, diversification seems as important as ever. For many, investments in gold can serve as an attractive alternative to the uncertainty behind traditional equity and bond holdings.

New research from the World Gold Council provides a far-reaching view of what 18,000 survey participants believe about gold. Those included come from India, China, the US, Germany, Canada and Russia.

More than half of those surveyed in the US, India, Germany, and China trust gold more than other currencies, and 67% of all survey participants agreed that “gold is a good safeguard against inflation/currency fluctuations.”

The researchers also looked at what drives demand for gold. They learned that there are three key factors underpinning the retail investor’s decision to buy gold. The study shows that 44% bought gold to manage risk via diversification or simply by shifting money away from more volatile investments to gold, which they believed to be more stable. The study also reported that 31% bought gold on the “recommendation of a financial advisor or a friend.” Finally, 29% bought gold because they believe the price to be low or experiencing an upward trend.

Those buying gold are likely to be focused on the long-term. The research shows that 64% of those who have previously invested in gold would purchase again in the future. Those who have not purchased gold are taking note of the loyalty existing gold purchasers display. Of those surveyed who have never purchased gold, 38% stated that they are open to buying in the future.

It is also interesting to note that despite the timelessness of gold and its longstanding place in the history of commerce, many of those who buy today are being driven by robo-advisors. These programs, driven by algorithms, provide investment recommendations after considering a host of data input by the user. The data indicates that in China 45% of retail investors use this technology to formulate their investment plans.

These robo-advisors appear to be filling a knowledge gap given that the same data shows that half of the participants said that they never hear the media mention gold. Moreover, two-thirds of retail investors stated that they lack the knowledge they believe is necessary to buy gold. Of this group 28% state “I don’t know enough about it to buy it,” and 22% state “I don’t understand what drives price.” The value of more research into gold would help investors construct more diversified portfolios.

As 2020 nears investors have an opportunity to rebuild their portfolios to embrace the looming uncertainty in the investment market and the world at large.

Want to read more about diversifying your precious metals portfolio? Take a look at our proven diversification strategy here.