Investing For The Far Off Future

Except for the fact that over the past 30 years, gold has underperformed inflation. I know that perhaps this will even out if you can wait, say, 100 years, but that is a very negative approach to advise a 20 year old with perhaps 70 years of equity investing ahead. At 20, a person should be shooting for the stars, not huddling in the bunker trying to avoid going to zero or hoping to break even with inflation. So gold has a place in a portfolio, perhaps as a replacement for one stock, but it is probably not appropriate for the OP to spend a significant part of the portfolio on.

 

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And since the advent of Precious metal ETFs, and the leverage that comes with them on the actual commodity futures, and thus the commodities themselves, we have to think that the price of precious metals is driven by herd mentality strongly also. True , it use to be mostly supply and demand for industrial usage, but now external factors such as greed, world politics,apocalypse and conspiracies, and even bullion forums and TV, move the price of precious metals many time the effects of supply/demand. Since these "outlier events" are very unpredictable, so are movements of precious metal prices. Study the herd
Jim

 

Isn't it required that first you have a "herd" for such a thing? Very very few individuals buy Silver & Gold. IMO, herd mentality applies to stocks as this is what the system constantly drones on and on about, regardless of the results for the individual, but for silver and especially gold I would say the number of buyers is minuscule in comparison.

 

I certainly do not think that the increase in PM ( even over the past decade) has been due to supply/demand. The PM "herd" drones on and on also. 10 years ago, even 5 years ago, PM had few bullion dealers, few gold ETFs, few bullion forums, etc. Now you have 2 or 3 Section A pages of metro newspapers with gold buyers. Yes, I think that herd mentality is pushing the trend, even more than stocks. Of course no one wants to think they are part of a herd, but most who decides to "invest" in gold today is not doing it because of supply/demand , they are doing it because many others are doing it, and they think they will get rich(er). Gold/silver ratios, protecting wealth, End of the world as we know it, Chinese take over of financial systems, etc, all with little to no basis are the whips on the herd.

Don't get me wrong, money is made on volatility, but when we start thinking there are sound reasons for PM continuing in the far future, we make a bad assumption. IMO as I am sure many will not agree.

Jim

 

Hi brinksta,

Congratulations on thinking about your future. Also, that you realize the value of having some bullion. I think that everyone should have 5% of their wealth in bullion as a security blanket, if you will. If you want to have more, that's fine, but if you're not diversified, and much of your wealth is in gold and precious metals, you can get killed by the market in the short run. Gold and silver were down in the gutter for 20 years and folks that bought in the late '70s didn't get back to even until recently.

The reason we diversify our porfolios and wealth is to cushion us against the vagaries of the market. Whenever some sector, or asset class is up, others are down. There is a whole field of investing devoted to developing certain allocations designed to never lose money. There is a mutual fund called the Permanent Portfolio PRPFX. The fund is based upon the concept of Harry Browne that the right mix of asset classes would result in a fail safe investment strategy. He was for 25% each stocks, bonds, cash and gold.

http://en.wikipedia.org/wiki/Fail-Safe_Investing

I like better to recall a quote from the elder Baron Rothschild that to be safe, you should keep 1/3 of your wealth in securities, 1/3 in real estate and 1/3 in rare art. Define rare art as you will.

Lastly, I think everyone should start planning for retirement as young as possible - like you are doing. However, your youth gives you an enormous advantage over an older person because you have time to invest for a long enough period of time to recover from market reversals and to better advantage things like compound interest.

When thinking about your retirement, think of a foot stool. The more legs under the stool, the sturdier it is. You don't want to have just one leg in the form of bullion. Granted, it's a good leg, you just need more. Legs can be social security, pension, IRA, 401K, savings, home equity, bullion, second incomes, income property, etc. Well, county your legs and see if you can either add some more OR make some weaker ones stronger.

And good luck,

peace,

rono

 

I agree. My first post in this topic said that based on the last 30 years, there has not been a single investment strategy, i.e. demand accounts vs equities vs PM, that if held over this entire period would have resulted in good things. But each one of these did have it's day during these 3 decades. The point being that you have to forget past performance and look at the conditions of today and where they are likely to lead over the next few years.

(I'm thinking that when you see gold sold in Walmart, then the herds will have arrived.)

I am bullish on gold because I absolutely do believe the world finance system is running out of control as the math indicates. Since I'm an engineer by education, I decided to do my own research project on how the system works and what I've found is scary at best and makes me angry as well. It's taken a considerable amount of time just to get a handle on what they are doing (huge obfuscation), but now having done so, I don't see how any recovery is possible. What I don't know is how the eventual mitigation will manifest itself. No matter how it turns out, I do think gold's value will hold because in the end, this is all that will be left of the current finance system that is of worth. I won't include silver in this remark because I honestly don't know how it will fit in as the system doesn't care about it. Everything else will have to be reset.

The preview of these events is starting with Greece. Get the bowl of popcorn out.

 

I also am waiting to see what happens with Greece. The current news seems rather positive that the private bond holders will accept the 50-60 % cut and accept the "new bonds" in order to protect their bond interests in other Euro nations which could drop if greece doesn't get their E130 Billion bailout. If this happens, I expect the Euro will go up and the USD down, and Commodities will go up ,due to the USD but even then, I think it is a short term solution as I want to see what Greece does then. Austerity and prudence, or business as before. I doubt any major world country will escape.

 

Greece has technically defaulted and those bond holders won't be paid unless Germany & Northern Europe forks over the cash. In response, over the weekend, there has been some discussion of Greece losing some of its sovereign rights to Brussels. Greece is of course, against this. This is the unraveling that I was talking about as there isn't enough money in the world to pay the debts back. Austerity in Greece is meaningless at this point as there isn't anything left there to take.

What is most likely to happen is the US Federal Reserve will announce another round (or won't announce it) of QE, use the money to indirectly buy these Greek bonds so the banks holding them won't fail, and the problem, now larger, gets pushed into the future. There is some GOP resistance to this happening again. In the end, it becomes our problem if so.

 

I assumed it would have been inferred, but there is no safe AND liquid investment other than precious metals, based on the reasons why other investments fail the definition of money (housing = safe but illiquid, paper assets unsafe due to value dependent upon promises) and are thus less desirable for investment, because of those reasons, not because they fail the definition of money. Right now there is a wealth transfer going on from West to East, and from poor to rich in the West, and tangible assets are the only way to come out on top. I am not a silver bug because I love silver, rather because it makes the most sense to me as the best investment with the most bullish fundamentals which I went over.

 

Considering that 30 years ago interest rates were over 15%, unlike the current environment which has zero percent interest rates pledged through 2014, I can understand why your 30 year window yields such a result. I prefer to look at the reasons for why things happen and adjust accordingly based on cause and effect. Negative real interest rates means higher gold and weaker currency. Whether that is a negative or positive outlook isn't relevant to the fundamentals. I invested my Roth IRA and my equity into silver when I was a 20 something, and while you may not think it's what I should have done the price of silver speaks for itself. Nothing has changed since then fundamentally. The fundamentals have only grown stronger.

 

Certainly not into a basket of stocks!

 

The question was whether a 20 year old should own PMs to hold for retirement. Even though economic conditions now are favorable for PMs, I don't consider it an appropriate investment for a 20 year old. It's too early in life to give up like that.

 

Absolutely into a basket of stocks, particularly for a 20 year old person. The stock market is just about the greatest wealth builder available for a person looking for a passive investment vehicle.

 

Umm, I can show you plenty of examples where a person, (especially considering dealer cut), have lost money in a timeframe holding PM. "Safe" is very relative, especially talking about an asset that does not generate any current returns and physically can be taken from you. If someone wants safe, do short term investment bonds or open a savings account. Please do not classify something as volatile as silver, after a 10 year run up in prices, as "safe". Does it have a place in a portfolio, yes, but it is NOT classified as a "safe" investment.

 

I guess it depends what a person thinks will have value down the line, and that's entirely up to the individual. I don't consider it giving up though. To me it's just the practical choice, but whether or not that is correct is another topic that only time can decide.

By safe I do not mean it will guarantee ROI, or that it cannot be taken from you. In what regard I do mean that it's safe is as follows:
1. You cannot have it stolen by inflation (monetary debasement).
2. You cannot have it stolen by a fund manager (MF Global, futures market, uninsured).
3. You cannot have it go to zero value by a company going bankrupt and its stock falling as a result
4. You cannot have it stolen by a 'haircut' or a government default (government bonds)
5. Precious metals will retain some level of value indefinitely no matter what happens which cannot be said for these others. This is ultimately what makes PM's safe in my mind, the ability to ensure you can't lose everything. Silver is volatile, but it has tracked gold throughout this bull market, and gold is known as a safe haven. Just because silver has wild swings doesn't mean it's not behaving as a monetary metal in the big picture.

Safe can be interepreted differently, and yes precious metals do have the unique risk of personal theft that these others do not have. So I will agree with you that PM's could be considered less safe when looked at in a different light. What it boils down to is whether you want to own that risk or trust someone else to do so for you.

 

This is based on ".............." moving forward? If you are talking about a stock index, then these have been losing propositions for a long time. If you are talking about maintaining a set of stocks, I can almost accept this, except that you are no longer talking about a passive investment vehicle.

 

I don't like the S&P500 stock index as an investment, but over the relevant time period as defined by the OP, even a simple stock index fund should be preferred over gold for someone with a 50+ year investment horizon. Gold is deeply into a long term bull market. The stock market, as you have said, is about the same level as a dozen years ago except for the receipt of dividends which have approximated short term bond interest. Stocks have a built in growth mechanism based on the reinvestment of earnings by the companies. That answers the *.............*. Stocks also have an inflation tailwind. Gold has only inflation.

I consider all stocks to be passive investments compared to real estate and small business ownership. If by passive you mean something you can buy with no thinking and no attention over a lifetime, then I would say there are no good passive [or active] investments -- including gold. It's pretty foolish for someone [no, not you] to assume that significant gains can be made without bringing some skill and work to the investment scene regardless of your investment preference.

 

Just a quick word about indexed funds. While not as good as skilled selection, the heart of the matter is most people have no interest learning and picking their own stocks. Given that, I would prefer index funds for a few reasons:

1. Its returns are known. Pick up any newspaper and see daily what the performance is, (approximately).
2. Its after tax performance beats about 75% of actively managed funds.
3. It fee structure, if you choose properly, can be extremely low.

I am not disagreeing with you Cloud, just pointing out that for a whole big group of people I have no problem whatsoever recommending low cost index funds. I know you say if you will not educate yoruself you have no business investing, but that simply is saying that the majority of the US population should not invest then, since I have worked with these people and they simply WILL NOT put in the effort to learn. This is why, absent any desire to learn more, I advocate low cost index funds, some PM exposure, some land exposure, and dollar cost average into them all. Its not "optimal" by a long shot, but it simply gives a "decent" roadmap for those who otherwise would easily fall prey to the numerous sharks out there.

Chris

 

I was trying to understand your use of the word passive. I agree with you. There is no shoot and forget to investing.

My opinion of gold differs from yours as I'm convinced now that it has a bigger role to play in what is amounting to currency wars that isn't directly related to inflation. The western world, in fact the whole world that uses western style banking for the most part, is sitting on so much debt that it can't be paid back. The solution, whatever that might be, is going to cause a deflation not to be believed. Those holding title to real assets will at least have that left.

There is a news item out there today related to what I said about Greece being the preview. Apparently a local court in Greece has ruled that people don't have to pay their debts back to banks based on a 2010 law enacted to help people with troubled loans. The rationale is that since the entire country is in trouble it now applies to everyone. This means two lines will be forming. One at the court house for people to have their liens wiped, and the other at the banks for people to get their money out whatever Greek banks are left standing before they go down too.

 

Man, that is bad news for Greece. Good luck to them ever having access to loans from outside their own borders, and even internal banks will probably invest overseas rather than domestically. That is what is wrong with these "debt forgiveness" schemes. Yes, it makes life easier for those who are hosing the banks, but all generations following pay for it. Its just another way the current generation around the world is mortgaging the futures of their grandchildren.

Sad. I never said the people getting hosed by the government was any better, don't get me wrong, but two wrongs don't make a right. Your government hosing your currency by spending, and then others hosing the banks by debt forgiveness, if you are a responsible person paying his bills you are getting ripped off in every direction.

Fatima, I know we disagree, but please keep posting stories like this. I still cling to the belief that the US will do the right thing, work hard, and get ourselves out of this mess. If such rulings and laws like this ever became commonplace here I believe I would start adding to my stockpile of PM as a response, and put it out of reach of the authorities. Thankfully I know Greece has always been strongly socialist, which is a major reason for their problems currently.

Chris