When most regular investors think about stocks, they are thinking about cash-value stocks. That is, stocks dependent on the value of currencies like the U.S. dollar or the British pound. Cash investments are highly lucrative in the short term. However, in the long term, there’s a particular risk all cash stocks face: economic uncertainty. During times of financial crises or fears, the value of currency drops. Investors who only have cash stocks will lose significant amounts of wealth when this happens.
The Vulnerability of Currencies
The 2008 financial crisis showed everyone why having only cash wealth can lead to disaster. More recently, Brexit dealt global markets a significant blow. Soon after the vote was announced, about $2 trillion dollars worth of value simply disappeared from the global market in a single day. That’s more than what the global market lost in a single day during the 2008 Great Recession.
Economic crises are inevitable. In the immediate future, there’s no telling that another Brexit or a housing market crash couldn’t happen. Right now, global markets are facing great uncertainty. The effects of Brexit, though dulled, are still affecting pound stocks. The political crisis in the Middle East, and what a possible escalation could do to oil prices, is also affecting the confidence of global markets. That means your cash stocks could disappear overnight if you are not careful.
The Best Way to Protect Wealth During Times of Uncertainty
When the financial markets go on a downward spiral, there’s one price index that always rises: gold. Gold investments are priced inversely against currency investments. When a certain currency goes down because of economic problems, the gold prices inversely go up. Therefore, gold is a time-honored asset to hedge your wealth against potential currency devaluations.
Following Brexit, gold was valued significantly more than all the major world currencies. At its height, gold had a 4% value over the U.S. dollar this year following Brexit. Investors who lost money because of Brexit could therefore be assured that gold made sure their wealth didn’t disappear entirely.
There are two ways to benefit from gold during a financial crisis. If you have gold assets, you can trade some for double or triple the original purchase price in the immediate aftermath. Demand for precious metal stocks like gold naturally rises following major economic events. Brexit is an example. The demand for gold assets were so high following Brexit, traders made more money in the single day during the first Brexit week than they had during any given month in 2015.
The second way is basically to hedge your portfolio against potential losses. If you had retirement savings in British pounds during Brexit, you would have lost a good amount during the crisis that followed. However, if you had gold in your portfolio, you would have been able to cover some of those losses.
Invest in Gold
Buying gold coins, bullions and putting funds into ETCs are the best ways to invest in gold to protect your wealth. Investing in the stock of gold mining companies is not the smartest option. These stocks are ordinary cash stocks subject to similar problems as other non-precious metal stocks. Therefore, it’s important to have solid gold assets.
Gold coins are the most liquid as they don’t have to be locked up in a vault somewhere. Depending on your needs, do invest in gold. Otherwise, you could lose all your monetary assets if an event like Brexit happens in the near future.