Wealth preservation is based on the philosophy that it is more important not to lose money than it is to make money. If an investment falls in value by 50%, you need a 100% return just to break-even. This is especially the case in today’s uncertain financial and economic times.
In recent years there was a blind pursuit of capital appreciation, growth and indeed of “getting rich”. The old wisdom of wealth preservation and protecting one’s wealth was forgotten about as investors looked to make large capital gains from stocks and particularly property.
There was a belief that we are in a new paradigm where the business and economic cycle has been banished forever and a blind belief that stock and property markets were a one-way street to a nirvana of riches. But “this time it is different” are the five most expensive words in the English language and to their detriment many of these investors have learned the hard way that the old cliché of not having all your eggs in any one basket remains absolutely true.
There remain business and economic cycles and good economic times and bad economic times – there is a time to sow and a time to reap and there are seven good years, followed by seven barren ones. One must always be prepared for the rainy day and this is why investment portfolios and one’s wealth should always be truly diversified and have a healthy allocation to both cash and the finite currency of gold.
Other asset classes are more about capital appreciation and growth but gold is more about capital protection and wealth preservation.
The coming years are likely to be more about wealth preservation rather than wealth appreciation and gold’s role in preserving wealth will once again assume importance.