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My portfolio took a 20% loss in just a month and I have noticed that gold is pushing $3,000 per ounce. Historically, it has been very easy for me to liquidate gold. There is a trusted business that buys it at spot price (95%).
With the current state of domestic and global affairs, I’m at a loss as to how to keep my economic stability in check. Any suggestions whether I should purchase and/or maintain my current shares of stock or buy gold instead?
I am deeply disturbed that the market may continue to spiral and inflation will rise. If this continues, should I purchase shares and hold my breath for the next four years, or buy more gold? I am a middle-aged individual and do not have much discretionary income.
The markets are reacting to Trump’s trade war and I don’t know how this is going to end.
What do you recommend?
Nervous About Everything
Related: Trump’s trade war has rattled investors — uncertainty is a call to action
Dear Nervous,
Investors and economists, like you, all wonder whether these tariffs are a political game.
Relax! Don’t you just hate it when people tell you to relax? It has the opposite effect. It’s more likely to make you feel annoyed and even more irritated than before. So don’t relax, but do relax, about the future of the American economy. It’s been through a lot — the Great Depression, the Great Recession, wars, the COVID-19 pandemic — and it’s still here.
Worry a little bit, but don’t let it take over your life. Tariffs ultimately push up the cost of goods, deter the foreign import of goods and reduce competition for domestic producers. This index that measures the cost of supplies increased to a 33-month high of 62.4% last month — reaching a level not seen since the inflation concerns of 2022 — from 54.9% in January.
When the S&P 500 lost 22% in 2022, I tried not to pregrieve my retirement by following every last dastardly twist and turn. You can seek out safer havens for your money, but I urge you to look at the long term. If you move a chunk of your portfolio to precious metals like gold, government bonds and/or your currency of choice, you may regret it later.
Your question is a puzzle wrapped in a mystery. You don’t give much granular details on your portfolio, but I’m stumped as to why and how it fell 20% in one month when the S&P 500 has fallen just over 1% since the start of the year and 4% over the last month. Who is your financial adviser? Do you have one? Are you picking individual stocks?
I’m stumped as to why and how it fell 20% in one month when the S&P 500 has fallen just 4% over the same period.
For example, 401(k) plans offer mutual funds, exchange-traded funds (ETFs), target-date funds, index funds and money-market funds, among other investment options. Investing in individual stocks is not unlike gambling: You’re increasing the chances of a big payday like this fellow who invested in Nvidia NVDA, but you’re also playing Russian roulette with your hard-earned dough.
As to your question about gold: Mark Hulbert, a regular contributor to MarketWatch, recently pointed out that although gold has risen of late, it would be premature to attribute that rise to tariffs. In fact, he devised a chart in his story, with gold’s inflation-adjusted performance since 1916, showing that gold typically suffers when tariffs are high.
Gold didn’t trade freely until the 1970s, he points out, and has soared since then when there were very few changes in the average tariff level. “These complexities mean it would be going too far to confidently assert that tariffs are outright bearish for gold,” Hulbert wrote. “But that doesn’t mean high tariffs are necessarily bullish for gold, either.”
Gold doesn’t always perform as you might expect during times of economic and political uncertainty.
Here’s J.P. Morgan Wealth Management’s take on gold as a classic safe haven: “Economic factors, like currencies, interest rates and inflation, typically have a limited impact on precious-metals prices. For example, the price of gold increased 12.8% in 2009 amid the economic and financial crises and as the Federal Reserve ramped up its quantitative-easing campaign.”
Gold did not behave like a traditional safe haven during COVID-19. “The price of gold followed the general direction of the S&P 500 SPX index lower; gold lost 4.9% of its value on March 12, 2020,” the bank adds, “while the S&P 500 index dropped by approximately 10%. Indeed, the Swiss franc outperformed the U.S. dollar as a safe-haven asset during the pandemic.”
But it warns: “The price of assets like gold is often unpredictable, and it can be volatile even during market crises. Using cash as a safe haven also implies risk, as the dollars or other currency you hold in your account can drop value in the event of devaluation or inflation. It is important to be aware of the risks associated with different financial safe havens.”
Tariffs push up the cost of goods, deter the foreign import of goods and reduce competition for domestic producers.
I’m not trying to deter you from investing more in gold or tell you to stay with your current plan. Something, as I said, seems off with it. But if you are 50 years of age, the typical rule of thumb would be to invest 50% in stocks and 50% in safer havens like bonds. It’s just a guide; your own financial situation, health and risk tolerance will play a factor, too.
Trump has threatened tariffs of 25% or more on imports of semiconductors and pharmaceutical products. He raised tariffs on imports from China by 10% and promised an additional 10%, while 25% tariffs on imports from Canada and Mexico took effect this week. (On Wednesday, he announced a one-month exemption for Canadian and Mexican auto tariffs.)
Everyone has an opinion. Speaking to CBS on Sunday, Berkshire Hathaway CEO and Chairman Warren Buffett said of tariffs: “They’re an act of war, to some degree.” On Bloomberg’s “Odd Lots” podcast, Ray Dalio, founder of hedge fund Bridgewater Associates, called the tariffs an “economic heart attack.” They’re not only billionaire investors — they know how to coin a viral soundbite.
The truth is that no one really knows what will happen next to the state of global affairs. As economists Shiro Armstrong and Tom Westland wrote in the East Asian Forum: “What is needed is collective action led by Asia and Europe — where trade openness is an economic and political security imperative — not against the United States, but for the global public good of an open, rules-based economic system.”
Go for a long hike, turn off your phone and, only after that, call your financial adviser.
Related: ‘I’m convinced the U.S. will be drawn into World War III’: How do I prepare my finances?
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Previous columns by Quentin Fottrell:
Why am I so afraid to retire?’ I’m 60 and lost $1.2 million in a divorce. Can I rebuild my life?
I’m 69 and only have $121,000 in my 401(k). How can I repair the damage of the past?
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