How High Would You Go?

At what point would you increase your investment fund to perhaps 30% in PM"S. Would you ever go higher?

 

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I cashed out my Roth IRA and jumped head first into 30% in 2008 just as QE was kicking off. I was scratching my head wondering what they would do when interest rates got to zero, so the timing made it an easy decision when the housing bubble burst. A much easier one than it is at today's prices. The only reason I didn't go higher is because I took what I considered to be the conservative road, but I knew the simple law of ratios would cause the dollar to fall in relation to everything else when the money printing ramped up, and as long as that continues to be the case I will keep buying.

 

I'm first considering the 30% option now. I have several CD's that are maturing in the remaining months this year. Since they are laddered, I'll will have reinvestment options in the future as well. I was considering bumping up my PM percentage or putting this money into existing bond funds. I have been retired for 6 years now and have limited my risk taking since then. I'm now thinking preservation with possible growth.

 

the only holdings in my portfokio is real estate and pm's. pm's make up about 25% of my protfolio and is growing because i convert all my monthly reserves to silver. i only keep 1 years worth of cash on hand, just sitting back and waiting for the dollar to crash.

 

One year's worth of cash? That seems a little excessive, especially if you think the dollar is crashing. PMs are convertable to $$$ in about half an hour if need be.

 

I'd have to see a reason for prices to keep going up before I'd even go over 2%. Right now the only thing I see that bullion has going for it's continued rise is fear. It's been proven inflation has nothing to do with it, so that theory is bunk. It's been proven supply can always meet demand, as we've seen that the past three years. So, why invest a lot in something who's future is questionable? Not to mention, it's daily performance, even gold on it's best day, would be considered a bottem-end mid level stock as far as returns go. I make more daily on some of my average performers.
Guy

 

im an excessive kind of person.

 

A year's worth of cash isn't a bad idea to have on hand. If you consider most Americans live on less than 40K per year, thats not very much money to keep around. I usually keep around enough to pay all my bills and have extra for a few years in case I get sick or something. I have health insurance and job insurance, but if I were out of work for an extended period they wouldn't cover living expenses alone. But, this country is so accustomed to living on credit and money they don't have, this practiced seems arcane to most.
Guy

 

I'd rather have $10K cash and 750oz of silver than $40k sitting in my bank losing purchasing power by the day.

 

You lose purchasing power with bullion too. If you cash them in youre cashing in at the current dollar value. If you buy with a strong dollar and cash out at a weak one, it's losing purchasing power. If you hang onto them until the dollar rises again, then whats the difference if you hang onto cash versus bullion?

 

I'm not sure I understand what you're talking about (I'm not convinced that you do either), but I think you're saying that you lose purchasing power if the dollar gets stronger while you hold metals.

I'm personally not anticipating any kind of strengthening of the dollar. Hooray for us all if it happens, though.

 

I would think 30% of a portfolio is high, especially if you are including real estate in that number. The bad part about holding any asset class is that you are taking disproportionate risks. PM is a good contra asset and I have always advocated having some PM exposure.

No sense going too far into it here since many here are very bearish on PM's. I will just say that even with 7 years of college education in finance, (bachelor and MBA), I do not trust my own opinion on markets and where they will go, let alone anyone else's. I thought silver would go up but was about 8 years early in that prediction. I think the dollar will recover but could be 2-4 years early on that one as well.

You ever wonder why the market changes EVERY DAY? Its because every single day there is new information coming to light. I know for a fact I am not smart enough to guess what that information may be, so I always insist in spreading around my exposure as broad as possible just on the chance that some day my guess is wrong. I would MUCH rather be wrong on 5% of my portfolio than 30% or more. This is diversification. I know a friend of a friend who worked at Enron and believed in the company. Unfortunately he lost most of his retirement.

I risked a pretty large part of my portfolio when I bought my silver in the early 90's, and luckily the rest of my assets have grown to offset this risk. In hindsight it was good to buy silver at $4, but I would never risk that much of my portfolio again. If someone wished to dedicate 30% of a portfolio to hard assets, I would at LEAST diversify the metals, buying gold, silver, platinum, etc. and/or mining stocks. I do not recommend this, but it would be safer than just buying a single PM.

 

I didn't think I could simplify it any more...but I'll try again. If you buy, lets say 10K in silver at today's dollar and a time comes maybe three years down the road where you need the money to say pay for your kid's college so you cash out and the dollar has decreased even more in value, you haven't gained, but lost the same amount of purchase power from your investment than say you'd just held that money in a savings. Even if you buy at $40 and it goes to $80 this time next year, thats not going to reflect a $40 gain because most likely the value of the dollar has dropped to offset any gains in purchasing power.

There are good reasons a lot of people are skeptical about investing in bullion. Do some research. It should take you five minutes to realize there are no fortune 500 companies or major investment firms who have bullion as part of their portfolios. The few that did were among the bailout bunch a few years back.
Guy

 

medoraman;
That's good reasoning about diversifying your metal purchases. I have both Gold and Silver but never thought about the others. Not knowing the future as you said, I thought Gold and Silver would be more universally accepted. They have been the base metal for many currencies. The rare metals would be harder to liquidate and trade in harsher times. I'm thinking my children here as well as myself.

 

Each are different, different rarities, different demands, etc. I was thinking platinum. Its much more rare than gold, but on the other hand not as desired by large population bases. Palladium similar. I would not advocate something like rhodium or rare earth metals, too small a market.

I guess the older I get the more unsure that I will be right. Better off to make a small profit on a good prediction than lose a large amount on a poor one.

 

Instead of guessing and "most likely"s...then telling others to do research, you can take a bit of your advice and look at some real world examples of steep inflation (Zimb, Turkey, Argentina and US early depression) Do a bit of research and you will see that what you guessed is incorrect. I lived in a few of these areas and found that a 1=1 in PM to $ was no where in sight.

Research starts at home.

 

What goes up...must come down. I would stick to the traditional 10% PM's. Perhaps now is the time to sell, to get your holdings back to the 10% level ?

 

I will relate a study that was done for 100 years of US investments I used to make my MBA students read and give a report on. Everyone always gushes about the advantages of portfolio rebalancing.

The study was of 1900-2000 equity and bond markets. There were four calculations done:

1. Start with equal amounts of debt and equity, and let them ride.
2. Same, but rebalance to 50-50 at the end of each year.
3. Same, but only sell stocks to get to 50-50, let bonds ride.
4. Same, but only sell bonds to get to 50-50, let stocks ride.

So which method do you think earned the greatest return?

Number 4, selling bonds when they were greater than 50% of your portfolio, but not selling stocks. Fixed assets have a static return, therefor they are defensive plays and help buffer your total portfolio versus lows. However, your growth assets, stocks, you are penalized by selling when they take off, not letting them compound like they will do.

Why do I relate this? Because to me PM's are much more like bonds than stocks, and Ripley's idea is really a great one. If someone is disproportionately in "safe" static investments, they are minimizing future returns. To me the REASON to own bonds and PM's is the protection, not the growth. I know they have gone up quite a bit recently, but that is not a reason to assume they will continue this trajectory.

None of this is taking people's individual situations into account, and if you are near retirement and need to make sure of the cash, you answer can vary. This is a purely theoretical exercise.

Just my thoughts.

 

What goes up must come down? Why buy anything then.

It's the US Dollar that's coming down. Get out of it while it still has purchasing power. Now is NOT the time to sell your physical metal. PMs will go into a bubble, but we're in the 3rd inning of that game and things don't get really interesting until the 8th inning. Measure the price of PMs against oil, corn, and real estate to determine if it's over priced. Not against $$$.

 

Buster, just a question. I am not trying to put you on the spot, but you seem to be representative of some views here. I will grant your belief that the US dollar is going down for sake of argument. Now, do you believe that owning physical PM is the only way to protect yourself from a dollar decline? What are your views of international stocks and bonds? How about cropland? I just ask this since it seems that people who "know" the dollar is going down seem to only advocate buying PM's.

Chris