Video: Jim Cramer Explains Why You Need Gold as Insurance
Best-selling author states the simple case for why every American needs some gold to protect their savings.
Does your portfolio have an insurance policy?
If you’ve never considered having an insurance policy for your stocks, Jim Cramer is encouraging you to think again. According to the best-selling author and host of the CNBC show, Mad Money, “everyone should have one.” After all, “you won’t own a home without home owner’s insurance; you won’t own a car without car insurance.” And that’s exactly why your portfolio also needs insurance – something to tide you over when things threaten to go bad.
According to Cramer, the ideal “insurance” for your savings is gold.
Why does Cramer argue that gold is so important? “Because gold has some special properties that makes it precious to any diversified portfolio.” Due to an extremely high demand for gold in the market and the difficulty in taking the metal out of the ground, it is and will continue to be scarce. So it will always be valuable.
In fact, “Gold tends to go up when everything else goes down,” so it can protect your savings against geopolitical events, uncertainty and inflation.
Market crashes, wars and recessions can wreck havoc on your stocks. But gold is often unaffected by such incidents, thus providing you with some stability. In fact, the more uncertain the times, the more the value of gold increases. “It is about minimizing your risk in the downside.”
Many people will point out that gold has not done “anything spectacular” in the last few years. This may be true, but look at it this way – your car and home insurance aren’t expected to increase in value over time, because they serve a different purpose. The real purpose of insurance is protection; not gains. As you think about your insurance, Cramer argues, so should you think about your gold and not speculate on the rise and fall of its value.
According to Cramer, “you need to diversify by strategy” and in the long term, gold is still a great investment. As he points out, in some markets, gold has been the “best performing asset in the last decade.”
Why invest in gold and not in gold mining stocks? Surely, people who take out the metal out of the ground should also be quite sought after. But every time he’s invested in gold stocks, Cramer claims to have been burned. Why? It’s because of “the same thing that makes gold valuable… its scarcity.” It is extremely difficult to find and mine it.
Gold miners also face a host of other challenges quite unrelated to the availability of gold. Political uncertainties, conflicts and even wars continue to plague some gold producing countries, making their task more difficult. “Plus gold miners can screw up things in countless different ways.” They have debts, they have management issues, and often the gold mining stocks usually go down even when the value of gold increases.
So what does Cramer advise? Instead of investing in a multitude of stocks, concentrate only on ten to fifteen high yielding stocks. And make sure that a significant amount of your investment is in gold.
The world has just come out of a recession. And no one can predict when the next one is due – in the next week or decade. In uncertain times like these, it is good to have a certain element in your portfolio that you can depend on to be rock steady no matter what. Gold therefore becomes the best option.
Watch all of what Cramer had to say in this video:
As Cramer says, “You not only want it, you need it. It is your portfolio insurance policy and everybody should have some.”
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Photo by Tulane Public Relations [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commonscnbc, jim cramer