Investment Risk in Perspective

The stock market plunge of 2022 is a harsh reminder to always consider risk when investing your hard-earned money. From their 52-week intra-day highs, the major stock market indices suffered stunning losses during the first half of 2022.  The Nasdaq Composite was down as much as 35 percent at its intra-day low of the year, the Dow Jones Industrial Average was off 28 percent, and Standard and Poor’s 500 Index was down 25 percent. Stocks bounced off their lows in July and mid-August, but resumed their swoon in late summer as Wall Street’s primary fear—rising interest rates that will squeeze the economy and corporate profits—remained a cloud over the markets.

“All investments carry some degree of risk. Stocks, bonds, mutual funds and exchange-traded funds can lose value, even all their value, if market conditions sour,” warns Wall Street’s self-regulatory body, the Financial Industry Regulatory Authority. 

The risks are numerous. Market risk—market conditions changing, often quickly—can cause stocks or bonds to fall. Business risk is a function of corporate managers making decisions that can help or hurt a company’s profitability. Political risk depends upon government stability, the competency of leaders, and the hostility of neighboring states. Currency risk can impact profits, particularly when overseas revenues are repatriated. Liquidity risk is measured by the difficulty or ease of selling an investment. 

On all these measurements, gold stands out as a relatively low-risk investment. Companies rise and fall; some go bust. Governments collapse. Countries wage war against one another. Some markets dry up to the point that buyers cannot be found. Gold, though, stands apart. For millennia, it has been universally respected and valued. Through the ups and downs of markets, companies, and even governments, its value has stood the tests of time and turmoil. This is why gold remains the ultimate safe haven for investors seeking to reduce risk and diversify their holdings.