By Tyler Gallagher, CEO and Founder of Regal Assets, an international alternative assets firm with offices in Beverly Hills, Toronto, London and Dubai.
If you run a small business, there are financial precautions you can take to safeguard your livelihood from an economic downturn. As we’ve seen over the past year, the market can turn on its head virtually overnight. The next time it happens, you’re going to want to be prepared.
Investing in stocks and bonds is an excellent way to build wealth and savings that can bail you out when the going gets tough. But there’s no investment professional in the world who would advise putting all your eggs in the same basket. If the stock market crashes, like it did in March 2020 when the Dow Jones tanked -26% in only four trading days, you can lose an enormous portion of your wealth when you need it the most.
Fortunately, there are alternative financial assets that aren’t correlated to the stock market. Dedicating some of your wealth to these asset classes can help your business stay afloat in the worst of times.
As an alternative investment professional, I’ve helped countless clients diversify their portfolios and protect their wealth during economic crises. In this article, I’ll shed light on what’s in store for the alternative asset market in 2021 in the U.S. so you can make better-informed investment decisions.
Disclosure: A portion of my personal holdings are invested in bitcoin and a handful of large-cap altcoins, such as Ether.
Gold: What’s in store in 2021?
Physical gold has been sought after by investors for millennia as a safe and secure store of wealth. Even today, it’s used widely as a hedge against volatility in the stock market by investors who want to minimize their exposure to risk.
On the year, gold has been relatively quiet. After a red hot 2020, the gold market is catching its breath. At the time of writing, COMEX gold futures have settled around the $1,690 per ounce mark (-1.7%). This might signal a buying opportunity for investors who want exposure to an asset that’s independent of price movement in the equities market.
A leading culprit behind the decline in gold prices is the fact that the U.S. dollar is, for the time being, performing well. The U.S. Dollar Index, which measures the value of the greenback against various world currencies, rose by about 3% to 93.2 in March. Backed by low interest rates and strong fiscal stimulus, the dollar is enjoying its day in the sun.
When the dollar’s value eventually recedes, there’s a strong chance we’ll see another bull run in the gold market. Historically, the value of the gold and the dollar are inversely correlated. If you add inflation or hyperinflation to the equation in the years ahead, we could see very significant upside potential for gold.
The silver market outlook: A breakout ahead?
There’s a strong case for silver right now. The Biden Administration announced its $2.25 trillion infrastructure plan on March 31, which extended the Investment Tax Credit (ITC) for another 10 years. The ITC has, to date, been a catalyst for growth in the silver market as it allows property owners to deduct 26% of the cost of installing a solar energy system in residential or commercial buildings.
Silver metals and alloys are used widely in the manufacturing of solar panels. In fact, 10% of global silver demand (98 million ounces) is driven by photovoltaic cell manufacturers within the solar industry. If we can expect to see a rise in solar installations under the new Biden infrastructure plan, this is a major bull signal for silver.
As of April 8, the value of silver is up +64.4% within the last 12-year period. Although I don’t think such a rapid growth trajectory can be sustained at this level, the future’s certainly bright for solar energy and the highly conductive silver metals utilized by solar instruments. This is reflected in the boom we’ve seen in solar stocks over the past 12 months, including:
• Enphase (+295%)
• SunRun (+372%)
• Sunpower (+661%)
• Plug Power (+736%)
Bitcoin and altcoins: The 2021 wild card.
It’s no secret that bitcoin has had a heck of a run over the past eight months after more than quintupling in value since September ($10,764 to $57,627 as of March 30). Whether the digital asset can keep up the momentum is a matter of debate. I’m personally bullish on the asset due to the rapid institutional adoption of bitcoin.
Within the last couple of months, major institutional players such as PayPal, Goldman Sachs and Morgan Stanley have all announced their intention to offer bitcoin payment or investment services to their customers in the near term. PayPal will soon be accepting bitcoin as a payment option for nearly 29 million vendors worldwide. Plus, on March 24, Fidelity Investments filed with the SEC to offer a bitcoin ETF that, if approved, would be a groundbreaking push forward for the nascent asset.
Recently, bitcoin has seen significant growth as a result of retail and institutional adoption. And, notably, this time around the asset’s price acceleration has appeared to be relatively stable in comparison to its last major bull runs in 2017 and 2013.
Generally, what’s good for bitcoin is good for the cryptocurrency market as a whole. As a result, I’m also bullish on altcoins such as Litecoin, Bitcoin Cash, and Ripple. However, the recent NFT craze has driven Ethereum’s ether token to new heights, which may not be sustainable depending on whether NFTs have lasting power in the collectibles market.
The Market-Wide Forecast For Alternatives
In the year ahead, we’re likely to see gold remain relatively stable until the Federal Reserve enacts changes to the interest rate environment. Likewise, silver metal may undergo a strong bull run as the Biden Administration’s green infrastructure spending will catalyze demand for silver-laden photovoltaics. Last, bitcoin and altcoins are poised for a bullish year as institutional adoption triggers more speculative buying on the retail side.
Taken together, the alternative investment market as a whole presents plenty of buying opportunities for entrepreneurs looking to manage financial risk in the year ahead.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes – Entrepreneurs