The Time for Hands-On Investing is Now

A Critical Moment for Investors – Time to Take Control

For those who have been cruising on "auto-pilot" in the stock market, lulled by the optimism that the good times would simply continue, it’s probably time to shift gears and get in the driver’s seat. The markets have been sailing on the appearance of smooth waters, but as more investors are understanding now, beneath the surface the waters have been more troublesome. It’s important to recognize that history tends to repeat itself, especially for those who forget the lessons of past bubbles, and for the majority of financial advisors today who have never practiced during a bear market such as the dot-com implosion.  The dot-com bubble is a prime example of what can happen when speculative enthusiasm and irrational exuberance overtake fundamental analysis and rational valuations. And now, we’re seeing some of those same patterns reemerge, particularly in the AI space, where expectations may be running ahead of reality.

Recent market action underscores the risks. The S&P 500 Index dropped 2.3% on Monday, triggered by news of DeepSeek, a Chinese AI startup that has emerged as a serious competitor to the U.S.’s biggest players, such as Nvidia. Venture capitalist Marc Andreessen referred to this as a “Sputnik moment”— a reference to the 1957 satellite launch that triggered the Space Race — hinting at the larger geopolitical and technological implications of this disruption. AI companies, such as Nvidia, saw their stock price plummet 17% in 1 day, a jarring wake-up call for many investors who had never seen significant losses like that in their largest holdings, that tech giants are historically the most vulnerable to the threat from a competitor’s innovations. Despite this volatility, however, the sell-off didn’t spread across the entire market. The broader S&P 500 wasn’t as affected, with the median stock up 0.7% on the day. This contrast highlights that diversification remains a crucial strategy — one that investors may have forgotten as they concentrated their portfolios in the tech-heavy, AI-driven stocks that have dominated the market.

The Gold Standard: A Hedge Against Volatility

Given the volatility and uncertainty plaguing the market, especially as speculative bubbles around AI continue to grow, the need for diversification — and stability — has never been clearer. In the face of market overvaluation, rising global debt, and economic instability, the hedge against volatility that has stood the test of time is gold. While the stock market and fiat currencies are highly susceptible to fluctuations, gold has proven time and time again to be a stable store of value, especially in times of uncertainty. Central banks around the world have been taking steps to stockpile gold to protect their reserves. Simultaneously, our generation’s most successful portfolio managers are warning amateur investors and their financial advisors that the markets have as much, if not more, risk in them today than they have ever seen in their careers. The reality that amateur investors have the largest allocation to the stock market as recorded in history (40% of household wealth) and unrealized leverage in the form of 2x and 3x passive ETFs, leaves these successful portfolio managers to conclude that families are in very precarious positions in the markets.

Considering that the primary reason to own gold is wealth preservation, most American financial advisors, let alone amateur investors, are shocked to realize that gold has outperformed the stock market throughout the millennium. In periods of market turmoil, such as during the 2008 financial crisis or the COVID-19 market crash, gold prices surged as investors sought safety from volatile markets. More recently, gold’s resilience in 2023, amidst broader stock market declines, reinforced its role as a reliable hedge against financial instability. Its track record of preserving wealth during periods of market turbulence and economic upheaval is well-documented, making it the perfect asset to hedge against the current global financial situation. In times like these, stability vs. volatility should be the guiding principle for any portfolio. 

Protecting Your Retirement Savings

While the markets appear to be stabilizing as the week has progressed, know that frequently in history, sharp price declines may be followed by more tranquil trading sessions only to continue their downward trajectory when investors realize exuberant valuations have not come close to being corrected.  As of the close on Wednesday, Nvidia as the market bellwether traded another 4% lower today, underscoring that investors need to look at these stocks as risk assets. As the market faces potential headwinds, it’s crucial to consider how these fluctuations could impact your long-term financial goals. Protecting your retirement savings should be a priority, and a simple, effective way to do this is by reallocating a portion of your portfolio into gold and silver. A physical Precious Metals IRA offers an alternative to protect your hard-earned retirement savings. By transferring your retirement funds into a Precious Metals IRA, you take steps towards safeguarding against inflation, adding what history has shown to be a reliable store of value, and proactively diversifying your retirement savings against market volatility.

Reach out to our team today to take charge of your financial future – 610-326-2000 or info@stjosephpartners.com

God bless 

Precious metals are not insured and carry no guarantees.