Investing in a Scary World

Let’s face it: The world in the 21st century is a scary place.

We face multiple threats at the same time. At home we have climate-driven natural disasters, inflation, collapsing banks, political polarization and a skyrocketing national debt that Congress is openly talking about defaulting upon in early summer. The global picture isn’t much better: The Ukraine war continues, Russian President Vladimir Putin is saber-rattling about the use of nuclear weapons, China is threatening to invade Taiwan, and inflation and supply chain issues continue to dog the world economy. What’s more, COVID, the virus that refuses to die, continues to pop up around the world like a medical game of whack-a-mole, disrupting everywhere it goes.

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Obviously, these events are affecting markets. What’s an investor to do when the going gets tough? Some are saying that what worked in the past may not work going forward. After all, traditional investing in stocks and bonds flopped simultaneously last year. Is it time for a change to something different? Let’s look at three of those different investments — gold, bitcoin and cold, hard cash in the safe.

Gold

Gold is sometimes referred to as a great diversifier. It’s regarded as a safe haven in times of geopolitical turmoil. With the U.S. government borrowing so much money, many think the value of gold will continue to increase relative to the dollar. While stocks hit an all-time high in the first few days of 2022 before plunging, the price of gold climbed 10.5 percent from the end of 2021 to April 14, 2023. In other words, it did better than just keep up with inflation.

But how has gold done in the long run? The good news is that some studies support the idea that gold has served as a long-term inflation hedge. The bad news is that the long run may be a lot longer than would be of any help, as gold probably won’t hedge against inflation even for periods of a couple of decades. I bought gold back in 1980, and after more than four decades it’s still lagging inflation. Even back then, it was a scary world, and the U.S. government was printing too much money, with some saying paper money would eventually be worthless due to hyperinflation. I fell prey to fear and greed.

Bitcoin

Yet another reason not to invest in gold is that some are now referring to bitcoin as the new digital gold. In fact, when I wrote about bitcoin in 2017, I bought just a little, mainly to fact-check what sources told me about buying the cryptocurrency. Despite the terrible year it had last year, I still have over a 600 percent gain.

Famed manager of the ARK Innovation ETF (ticker: ARKK) Cathie Wood notes cryptocurrencies have become a haven for investors when the financial system comes under stress. She says that since Silicon Valley Bank was seized by regulators March 10, the price of bitcoin has surged 38 percent. Wood predicts the price of bitcoin will rise to $1.5 million, from $30,357 as of April 14.