In 2007, the Global Financial Crisis (GFC) caused havoc in the financial markets. Retirement savings were lost or decimated by the crash.
Banks failed, homes were being foreclosed every minute, companies went bankrupt.
It was a time when many questioned whether the economic system we took for granted would survive.
Comparing Gold and the Dow Jones
During the period of the GFC, the savings and investments of many retirees were held in the stock market in stocks and mutual funds. This meant it was a stressful time for many who saw their investments fall dramatically or disappear entirely.
Let’s look at how the Dow Jones Industrial Average (DJI) fared during this time. The DJI is an index that tracks the stock prices of a basket of companies. It is a bell weather of U.S. financial health.
Prior to the GFC, the highest point of the DJI was on October 9, 2007 when the value of the index ended the day at 14,164.53. The markets would not see the DJI this high for over 5 years.
The DJIA fell until it reached the bottom 18 months later on March 9, 2009 at a level 54% lower than the peak. The market stood at 6507.04.
If you invested in a DJIA tracking mutual fund, you would have lost 54% of your stock investments in 18 months.
It took until March 5, 2013 before the market reached and passed the pre GFC high. Which meant the market had gone nowhere for 5 years, 4 months and 25 days. See our chart below:
So how did gold fair during the GFC? Does gold deserve its reputation for being a “flight to safety”?
The spot price of gold was $728.80 on October 9, 2007 – the day if the peak of the DJI before the GFC. Over the next 5 years, 4 months and 27 days the DJI went nowhere and the spot price of gold rose 117%.
It was not a steady climb to its new value of $1584.25, it never is. There are smaller peaks and troughs along the way.
However, gold proved its worth as an asset for those investors who understand the need for diversification in their portfolio and the need to include an asset class (precious metals) that does not move in lock step with the stock market.
What This Means for Retirees – Editor’s Opinion
We have shown that over a 5+ year period, during a financial meltdown not seen since the Wall Street Crash of 1929, that gold provides a safe haven for investors’ funds.
This information is particularly important for retirees and those planning to retire in the next 10 years. Let me explain.
Financial crashes in the future are inevitable. From the $19 trillion and growing U.S. national debt, the $101 trillion in unfunded liabilities of the U.S. government to the effects of Federal Reserve money printing – there will come a time when the financial system implodes.
Too much credit for too long cannot go on forever.
So in preparation for a crash – whenever it is – a retirement investment strategy needs to consider purchasing gold today to prepare for the crash of tomorrow. When the crash happens, it will be too late to buy gold at a fair price as demand shoots through the roof for the ‘safe haven’ of value.
As retirees we cannot easily survive financial crises and losses to our wealth. We simply do not have the time to recover our losses.
The DJIA took over 5 years 4 months to recover to its pre-GFC level. The first 18 months of that period incurred a drop of 54% before stock prices began to turn around. There is a need to place some, not all, of our investments in an asset that has different characteristics from the stock market. In other words… gold.
If you had $100,000 of your retirement funds in gold at the start of the GFC, over a 5+ year period you would have seen your wealth increase 117% to $217,000.
- Your gold would not have gone bankrupt.
- Your gold would not have been diluted by the Federal Reserve.
- Your gold would not need a bailout.
- Your gold would sit in a secure vault and silently play its role as a store of value.
Gold is your ultimate “Sleep Well At Night” (SWAN) investment. The SWAN acronym is a favorite of renowned economist Mark Skousen.
We recommend our readers research how they can open a gold IRA account and begin to protect a significant portion of their wealth.
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