Stocks have been climbing for a solid decade now, and more and more investors appear ready to jump on the bandwagon for fear of missing additional gains. As has been discussed at length in previous posts, however, the market has the potential to take a swift and severe turn lower, catching many investors off-guard in the process.
In fact, the next major stock market crash could potentially be greater than what was seen in 1987, when the Dow lost almost a full quarter of its value in a single day. Here is a brief explanation why:
Markets are larger and more fragmented: Back in the late 80s, the only two major exchanges were the New York Stock Exchange and the CME. Today, there is about a dozen regulated exchanges with numerous alternative trading systems, as well as dark pools. Any coordination efforts among the many different trading venues seems unlikely, if even possible.
Electronic and algo trading is a huge piece of the puzzle: Electronic and program trading accounts for a significant portion of overall stock trading activity. Remember the infamous “flash crash” back in 2010? That was a prime example of what can potentially take place when an electronic trading system goes bonkers. Not only do trading programs and algos have the potential to drive a massive move lower in stocks, but other forms of electronics can also play a role.
Social media is obviously much more prevalent today than it was in 1987. Facebook wasn’t even founded until 2004. Platforms like Facebook, Twitter and even Instagram could all potentially exacerbate a major flight from equities due to their power and the herd mentality. Investor panic could spread quickly over these mediums, and with no one willing to buy stocks the market could head sharply lower in a very short period of time.
Market regulation may not be enough: Although markets may have more so-called “safeguards” in place today, such as circuit breakers, current steps taken to insulate markets from a sharp and significant drop may still not be enough. At the end of the day, the powers of fear and greed fuel market behavior, and with significant levels of fear and the absence of greed, there really is no telling just how far markets could fall.
These are just some of the possible issues that could be major factors in the next major stock market crash. The next collapse could wipe out billions in shareholder in a matter of days, and many of the gains investors have enjoyed over the last decade could evaporate quickly.
Now, more than ever before, is the time to be adding further diversity to your portfolio that may help insulate your portfolio from the next major crash. Hard assets like physical gold or other metals may be the ideal instruments to add much-needed diversification while also providing a meaningful hedge against other economic issues such as deflation or declining currency values. Not only that, but gold could potentially see a sharp rise in value during a market crash, bear market or recession.
Buying and holding physical gold has never been easier than it is today. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our account associates are here to answer any questions you may have, and can even show you how to buy and hold gold using your IRA account.
Don’t wait for the next major stock crash before taking action. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: advantage gold, algorithm trading, electronic trading, gold, herd mentality, stock crash, stock exchanges