After six years of lackluster performance, gold took off in June. And the way things are going, it looks like it will continue climbing for the foreseeable future.
I got a call from a friend recently asking me to help him understand what this meant in general — and what it could mean for him.
“I’m not a super-wealthy person,” he said. “But I do have an investment portfolio and 401(k), almost all in stocks and bonds. Does someone like me really need gold or any precious metals in the mix? Or do I just do what Warren Buffett does and hold my stocks no matter what?”
This is a terrifically smart question. Today, I’m going to share with you what I told my friend, so you can benefit from the answer as well.
First of all, let me take a moment to encourage you to ask questions about financial matters. No one is born with all the answers.
I have had very wealthy people sidle up to me in the back of conference rooms on a regular basis and whisper, “Hey, Steffi, what does [fill in the blank] mean?” Most won’t put their hand up in public and ask for fear of looking foolish.
I understand — no one likes to look dumb, weak or vulnerable in front of their peers.
But putting your head in the sand and ignoring financial things you don’t understand can be very costly.
And missing the opportunity to invest in gold (and other precious metals) due to lack of knowledge could put your retirement at high risk.
The two main reasons for investing in gold are…
- As a hedge against a weak dollar and inflation.
- As a safe haven against economic downturn or financial collapse.
But what’s so special about gold?
You see, we can all bicker over what a dollar or pound or yen or other currency is worth, but the value of gold is easily agreed upon. In a worst-case scenario, you would be hard-pressed to find someone who won’t accept payment in gold.
So when things get tough economically — and confidence in the government and the financial systems is low — gold gets a whole lot more attractive and the price goes up.
If you look around, you can see that’s where we are. Signs of a recession abound. Trade war news hits us every day. Interest rates are low and the Fed doesn’t dare raise them. (In fact, they just cut them for the first time since 2008.) An extended period of quantitative easing — the fancy term for central banks printing money — isn’t working as expected.
In other words, the perfect storm is brewing and the flight to economic safety is on. That’s why gold prices are on the move.
And in answer to my friend’s question, you don’t need to be super-wealthy to capitalize on the protection gold can give. Anyone can benefit from adding a little gold to their portfolio.
If your portfolio is heavily weighted to stocks and bonds, consider moving some of your allocation into uncorrelated assets — assets that are known to go up when stocks and bonds go down — like gold. Doing so can protect you from high losses in case of a market crash a la 2008.
Experts say you should allocate anywhere from 5–30% of your portfolio to gold. Perhaps 30% is a bit high for you… but find some allocation you feel comfortable with.
Now, first things first: You will want to acquire the actual gold.
Buying into an ETF like GLD (the largest EFT for gold), futures or mining stocks won’t do the trick. You won’t own any actual gold. Lots of people make this mistake. Don’t be one of them.
Second, buying numismatic coins isn’t going to cut it either. And you can’t just go into a store, plunk down some money and walk away with a gold bullion brick — that’s not how it works.
And best practice dictates that you shouldn’t store your gold at home or in a safe deposit box at a bank — that’s too risky for a number of reasons.
So what do you do?
Well, the best place to keep your gold is in a special facility designed to hold it securely. That way, you can access it when you need to and protect it when you don’t.
It’s also easy to sell, because it’s been weighed and valued (assayed) by a neutral third party. (Note that if you take it out of the facility, you’ll have to pay to have it checked again.)
The other question I often get asked about gold is do whether you have to have a lot of money to get started.
The answer is no.
Right now gold is running around $1,400 per ounce. But you can get started investing for less than that — thanks to our partners at Hard Assets Alliance.
It’s straightforward and painless to open an account and easy to get all your questions answered. And what I like best about HAA is what you don’t get — a bunch of hype or a hard sales pitch.
Finally, I want to address the final part of my friend’s question: Should you just hold your stocks like Warren Buffett?
The short answer is no. Only billionaires and multimillionaires can bank on Buffett’s strategy of holding “forever.” We regular folks are different. At some point, you’re going to need your money — and you don’t want to be caught needing it in a down market.
Your time to get gold is now, before the price rises out of reach.
To your wealth,
Editor-at-large, Unconventional Wealth
P.S. With the Fed’s decision yesterday to lower interest rates, the ability of governments to mitigate the next major economic disaster — especially since we’re still sorting out the last — is tapped out. So get your gold ready. Because tomorrow is coming… and in this case, tomorrow will be too late.
Steffi Baker is the editor-at-large of Unconventional Wealth. For the past 10 years, she worked with a small strategy consulting firm that dealt exclusively with wealth-management companies, helping them market themselves to ultra-high-net-worth clients.
Through this line of work, Steffi attended events in London and New York and hobnobbed with household names and international...