Gold expert makes the case for precious metal to mitigate investors' portfolio losses
Google the term "stay invested" and within seconds you're presented with 130 million suggestions. It's been a much-repeated mantra during these stressful but a well-known gold expert believe this advice is “totally misguided” in the current environment.
Nick Barisheff, of BMG Group Inc, believes said the asset class was misunderstood and ignored by retail advisors, financial advisors and pension managers during normal market conditions. Many did not realise, he added, how gold becomes a safe haven during market stress to mitigate portfolio losses.
As a result, Barisheff has warned that baby boomers’ dreams of retirement are “quickly evaporating” amid the COVID-19 crisis that devastated markets last month. And with economic recovery set to take years, many wannabe retirees simply won’t live long enough to recoup their losses.
“What many investors don’t realize is that if a portfolio declines by 50%, it would have to increase by 100% just to break even,” he said.
“Most baby boomers will simply not live long enough to do that after this market crash. Investors would be better off switching to cash, and then reinvesting at close to the bottom. What is the point of staying invested in order to get dividends of 3-4%, while risking capital losses of 50-70%?
“Better still would be switching to gold, experiencing significant gains and then redeploying the gains to a diversified portfolio of stocks, bonds, REITs, gold and silver when the market has finished correcting. Gold will rise dramatically while everything else will sustain massive losses, as in every market decline.”
Barisheff said he had previously warned of a triple bubble in stocks, bonds and real estate created by central bank policies. No-one foresaw the coronavirus as being the recessionary trigger, but while the gold bull sadly acknowledged the disease’s life-threatening and demographic-changing effects, he expects the impact on the economy to be extensive.
Most major economies in Europe, Canada and the United States have been shut down, while industries are in lockdown. Most of the western world is also ravaged by fear, isolation, loss of employment, loss of income and the psychological effect of the situation. Barisheff added that the scale of this employment crunch and financial crisis is beyond the reach of governments’ assistance and many businesses will not be able to reopen once the health issues have been controlled. He said the economy may never fully recover.
For investors, this creates the "perfect storm" for gold. Barisheff’s case for the precious metal is based on sectors not having revenue and governments printing enormous amounts of money in an attempt to mitigate the crisis. Most companies with no earnings will see enormous declines in share prices, while bonds, particularly corporate bonds, will default and become worthless. He added that even real estate will likely suffer dramatic declines as both commercial and residential tenants default on rent payments. Properties will likely be sold at fire sale prices.
He said: “Stock markets around the world have suffered the worst first quarter in history. Every sector, other than gold, has suffered losses from 12% to 50%.
“These declines will be particularly hard on individual retirement portfolios, as well as pension funds. The baby boomers' dreams of retirement are quickly evaporating. Even the largest pension funds, which have more diversified portfolios due to their real estate holdings as well as stocks and bonds, will experience dramatic increases in unfunded liabilities. Most smaller pension funds that only hold stocks and bonds will be devastated.”
Read more: Canada's largest pension funds face largest decline of assets in 20 years
For current retirees, declining pension assets combined with an inability to contribute to their fund will be particularly tough to take. Barisheff warned that a reduction in monthly payments is inevitable, as are the lawsuits that will follow.
For the industry veteran, who manages almost $275 million in BMG funds and BMG bullion bars, this only strengthens the case for gold. He pointed out that while there have been losses, particularly in 2013, gold has risen in all currencies since 2000.
He explained: “If you’d purchased gold in 2000 at $350, it’s now worth around $1,700, which gives you an average compounded return of about 9%. Most pension funds have target performance requirements of 6% yet have totally ignored gold in their portfolios. From its low in 2018 gold’s performance has dramatically improved. In 2019, the average increase was 17.8%. The YTD average for 2020 is 15.8% in the first quarter alone. This should annualize at about 63% per annum. Since the US dollar is often used as a safe haven by citizens all over the world, the gold performance in US dollars has been the lowest at 5.6% in Q1 2020. In Canadian dollars, gold is up 15.9% YTD.”
Barisheff essentially posed a key question: why stay invested in equities and bonds when the market is poised to fall much farther?
He said: “Over the past few years, many retail investors were forced into selling their bullion holdings by their advisor’s compliance department because their stated risk tolerance in their KYCs didn’t match the mandatory risk rating of their portfolio investments based on standard deviation. Many were persuaded by their advisors to sell their bullion holdings and purchase equities—particularly Balanced Funds.”
This advice has been costly for investors, he added: “The only way investors could avoid these forced losses would be to open a discount brokerage account and make their own investing decisions by purchasing Class D units in a BMG Fund. Not only would this reduce fees, but investors could allocate their portfolio as they saw fit and not be impeded by the rules imposed by the advisor’s compliance department.”
