I just got off of a call with one of my friends, and my mouth is literally wide open in shock. He just told me he’s completely unloaded of all his investments (stocks, mutual funds, etc) and is almost 75% in GOLD right now. Like, physical solid gold locked up in his house (The other 20-25% is in OIL).
But the craziest part here is that he’s the SMARTEST person I know when it comes to this investing stuff! He literally spends 12-14 hours a day looking at numbers and financials of large corporations for a living. And gets paid BANK to do it. So coming from him that the world could even *slightly* be coming towards a complete market meltdown, scares the bejesus out of me.
Some things to clear up real fast before you think he’s a wacko though (or is it too late? :)):
- My friend is well-respected and pretty prestigious in his field. (For obvious security/privacy reasons, though, I can’t tell you who he is.)
- In his words, he’s a ” hardcore conservative Republican” playing it SUPER safe. (I’d say!)
- He’s been slowly buying it up over the past 2-3 years – NOT ALL AT ONCE (which is good cuz that $hit is expensive right now – it’s like $1600 per ounce!! I remember when it was $900 a few years ago… around the time my friend started picking it up, that bastard :))
- He moves his money/investments fairly actively – all depending on the markets and his research.
- Did I mention he does this for a living, 60 hours a week?
I’m no conspiracy theoriest, but I can tell you that he’s definitely got me thinking. I’ve never really thought about it before, but if the economy DOES tumble and all paper money really isn’t worth much anymore (and all electronic money is gone too), how *would* we be able to survive? Would we go back to the barter system where all of our “stuff” is much more valuable again? The answer for my friend, of course, is having more of the new currency – gold. “It’s ALWAYS valuable.”
I’ve always been curious how people even get their hands on the stuff to be honest with you (“You can easily order it online through the government, or on eBay”), just never took the time to think about it. I always hear people investing in gold through funds and what not, but in this case it still wouldn’t matter if the world went to kaput ;) And I could tell you my friend would be completely fine if that ever happened too, haha… He’s got enough gold to last a lifetime over there!! Even without the “end of the world” premium.
I don’t have the balls to cash out and go straight to *anything* even if I knew it was the right move, but I am considering at least picking up a few coins when it’s time for us to invest again. I agree that it always IS worth money, even if it fluctuates like a mad man every week (but again, what isn’t these days?). Also, how cool would it be to actually have gold coins in your safe??!! Scrooge McDuck style!! haha… I love it.
Anyways, take from this what you will. I’m certainly not trying to sway you one way or the other, I just find this incredibly interesting/scary/crazy and thought I’d pass it along to ya. I think as long as you have a good mixture of investments and are prepared for whatever comes about down the road you’ll be fine. And if not, well, you can always borrow some of my new coins ;)
PS: My friend above just sent me this article for those interested: Art Cashin On The Most Important History Lesson Of The Last Century
(Photo by Brian Giesen – Design by J$)
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When it’s all Mad Max out there, who’s to say gold will be our currency?
What you left out in the story is the WHY is he doing this? What does he know that you aren’t sharing with us? Does he just think the world is going to fall apart? If we all took our money out of the stock market with the losses already incurred with this years drops, we would lose even more money, plus the effect to the markets would be total chaos!! And what if he is burguled? All gold is gone, then what?? Sound risky too!
Good day, J$ and hope you have been keeping well. Now this one is a very hard one but…I suppose your friend is right; gold is the safe option (and so may be land, possibly). However, I feel very, very uncertain about the wqhole thing. Gold is OK but gold is not exactly easy to transform into passive income? Or is it?
Logic says that now is the time to buy stock – all prices are very low. This is only true under two conditions though: 1) short term gambling approach (not a good one for me); 2) very long term perspective assuming that the way these financial instruments work will stay unchanged. I doubt the assumption undelying the second approach. My feeling is that the way finance is organised will change dramatically over the next couple of years or so.
If I were to state clearly the question that has been bothering me, it is the following: ‘What is the way currently to store safely for the future?’.
I watched this ca-razy documentary a few months ago called Collapse. It kind of freaked me out but the gist was that money as we know won’t be a currency when the world fails it will be things like seeds or rice that take it’s place. I can’t remember what they said about gold. I don’t think it would be a bad idea to have some investment in gold coins. My husband and I have been thinking about this a lot actually. But maybe we are watching too much of The Walking Dead.
I think your friend is playing it too too safe on one aspect of the financial metdown side of things, but he isnt actually considering if the gold bubble also goes pop with the markets. If the financial markets crashed how certain would he be that people who lost 70% or more of their paper/portfolio assets be willing to pay 1600 an ounce for his gold. I dont think that will fly in any meldown scenario. So in my opinon he needs to find a new profession because he shouldnt advise people on a system he doesn’t believe in.
If the system collapses, I hope your friend and his “gold” know how to:
1. Start a fire;
2. Provide their own food;
3. Build a shelter;
4. And find drinkable water.
I am with a man who knows how to do all of these and more. He is my golden investment and i’ll keep it that way :)
If the world really collapses to that extent, I doubt his gold will really be that important. I hope he has it divided into small enough denominations (like itsy bitsy teensy tiny nuggets) that when he stops by my house to buy some of the food we grow and hunt, he won’t have to give me a $1600 ounce just for some jerky and a glass of water ;)
Gold is a bubble. I’m surprised that someone who you’re describing as a prestigious investor is buying something so overpriced right now. Yes, we have a whole bunch of countries on the brink of collapse. But collapse does not likely mean an end to modern economics, rather it means that we will see a large economic bust and periods of no-growth for perhaps a decade or more. During that time, the stock markets will still exist and you still will not be able to walk to your corner store and pay for groceries with gold nuggets.
The fact is that the price of gold has skyrocketed for a few years now. Nine times out of ten, that means it’s time to *sell* your gold, not buy it. The best investors in the world understand that investment is all about making the best predictions possible and then buying low and selling high . Your friend is effectively buying high and hoping that it just gets higher. Right now, stocks are low. They still haven’t receovered from the 2006-2008 recession and a lot of very strong companies with great future prospects are sitting in the bargain bin. The only reason to buy gold is if you are very confident that the world will hit a complete financial collapse and stocks and bonds will tank or disappear. That’s a weak bet.
Also, J$, you tend to focus on retirement savings. Keep in mind that short term fluxuations (less than 10-20 years) in the marketplace should be irrelivant to you. We may very well see the markets nose dive, 10-50% should Europe begin defaulting, but in 30 years the impact will be gone completely. Just like the Great Depression, if you bought could have bought index stocks in 1928 and sold them in 1958, you still probably made a lot of money. In 1929 the Dow Jones was at 381.17 right before the crash, it was nearly at 600 thirty years later. So even if you bought at the worst time to buy stocks EVER, you still saw about 2% annual growth — not great returns, but still better than a savings account would’ve gotten you. In 1929, the price of gold was 20.63, in 1959 it was 35.1. So if you bought gold right before the crash you would’ve done better with stocks.
Obviously, a great depression example isn’t necessarily the most similar of circumstances to what some people think is going to happen — anarchy, etc — but it’s the closest historical event we really have.
When I read “Your Total Money Makeover” I had to laugh because even Ramsey understood that gold is worthless. Another great example of somebody understanding that gold really only has “value” because a bunch of people agree that it does: Thomas More’s Utopia. On the island of Utopia, toilet seats are made of gold because they have no better use for it.
I used to believe in gold until I realized that gold doesn’t have any intrinsic value, any more that fiat money. When you realize that the value of gold is determined by much the same forces that determine the value of a dollar, Ron Paul’s call to a return of the gold standard seems kind of silly.
I have a good amount of gold, but if the whole system collapsed my guns and bullets would be more valuable to me. So would potable water and something else to trade. If I produced corn, why would I want your shiny metal when I could get some chicken instead? I know that is an over simplification, but it’s partly how I view it. Also what is to stop me from shooting him and taking his gold when the whole system breaks down? I’m pretty sure the police wouldn’t do much since they wouldn’t be getting paid anymore.
That being said, having some gold is not necessarily a bad thing, but I’m more of a believer in silver myself (more industrial uses).
A lot of folks here have already expressed my sentiments on this issue. Gold doesn’t have any inherent value, it only has value because we say it does, just like paper money. What has real value are things like food, shelter, clothing (not necessarily luxury clothing of course, just enough clothing so you don’t have to walk around naked), etc. If the stock market really does collapse to the point that paper money is worthless, you’re better off learning to grow your own food, build shelter or make clothing in order to trade it for other necessities than you are having a big stockpile of gold.
That’s not to say that it’s a bad idea to invest in ANY gold at all. Diversification is good! But to have all or most of your investments in one thing is a terrible idea, no matter what it is! I’ve heard the theory Matt mentioned, that there’s a gold bubble. And the description he gives in his second paragraph about how people are buying high and hoping it goes even higher sounds awfully familiar… real estate, anyone???
I totally believe 2 things:
1) Gold is a bubble, and
2) Just because someone does XYZ for a living doesn’t mean they’re smarter/better at it than you. In fact, sometimes they’re TOO enmeshed in the details to be able to step back and look at the big picture.
Smart people do dumb things, too. Why in the world would anyone purposefully buy at the top of a market (which Gold is nearing)? It’s a bubble that was caused by fear initially, but now is being inflated by the same greed as caused the housing crash. It’s going to pop.
Gold has no intrinsic value besides being pretty, and marginal use in electronics. Gold has not been used as a medium of exchange in a failed economy since the fall of the Roman empire.
When Katrina hit, cigarettes, beer, fresh water and good shoes were the medium of exchange. If you really believe we’re headed for financial collapse, and I’m not, then you should stock up on those.
Note: I don’t have faith in the government to solve our economic problems, but I have faith in the good people of this nation and in the strength of American businesses. I don’t think Coke-a-Cola, Microsoft, Chick-Fil-a, Walgreens, Electronic Arts, General Electric, etc. are all going to fall tomorrow. Yes, the stock market lately has been a roller coaster of fear, hope and automatic investment algorithms, but that is all secondary markets. The stock price right now is a very poor indicator of the health of American companies. Remember that while news media was reporting a huge recession, and stocks fell to record lows, people were lining up around Apple Stores around the country for the latest iPhones and iPads. Contrast that with the great depression when the lines were at soup kitchens. Yes, the unemployment is up, and our GDP stumbled a little bit, but we’re not going down this easily and without a fight. If we fix, with education, the money problems of over spending, lack of saving and investing, then we’ll start to see the economy come back.
I find this interesting mostly because my boyfriend and I were discussing this exact concept over the weekend. The only difference is that we came out with a different conclusion (one that is echoed in some of your comments here). If the world was to return to a gold standard, which it very well may, we concluded that stocking up on dried goods and seeds while they were cheap(er), planting a garden/raising animals, and reducing liabilities were the way to go. For all I know your friend has no liabilities and already has a reliable source of food, so this may be an intelligent way for him to go. For the two of us however, the solution is to stay our present courses and pick up the occasional additional bag of staples when they go on sale.
Love hearing your thoughts, guys!! This is great!! And just to re-iterate again, my friend nor I are trying to convince any of you to follow suit here — I just wanted to share another (extreme) side of the way some people think and do things. Still continue on with what YOU think is important and good for your financial lives, this is just to get you to stop and think for a bit and see how you feel about it all. Don’t go out and do anything extreme :)
@Jen – My friend, I guess ;) haha… though I can’t remember a time (or have read about a time) where gold is worth nothing, but yeah you never know.
@Gina – All valid questions, my friend!! And all that I asked him about too, haha… For him it really comes down to “what happens if the market crashes 100%,” and I guess w/ everything he researches and follows over the past 3 years, he has it in his mind that the odds of that happening are higher than others think, so he’s being prepared just in case. And since he thinks gold will always be worth a lot (maybe not as much as it is now, but def. something) he could easily sell it and go right back in to. Or use any future money to invest as he makes a CRAP ton. As for burglery, he has everything locked up in safes – I bet outside of his house too, but I didn’t want to ask all the way for security measures too (and ofcourse why I’m not saying who it is, haha…)
@Maria Nedeva – Yup! I’m in the mindset too that everything is CHEAP CHEAP CHEAP now and a great time to scoop it all up. But you’re right — you have to believe in the long-term approach. Which I did, and do for the most part, except for this random talk w/ my friend :) I don’t know what the “safe way” to invest for the future is, but if you strip away all currency and money, etc — what would you be left with? Or better yet, what do you WANT to be left with? I think that’s where land and property and all physical stuff comes back into play. If you have shelter, and land to grow stuff (hah!) then you’d be pretty set even w/ no $ in a worst case scenario… but again, thats’ really the worst-worst, short of the world exploding.
@Niki – YUP! At the end of the day all money does is BUY US STUFF WE NEED – or might need in the future. But the core of us living somewhat healthy is having shelter & food, water/etc. If you focus on securing all that, then you’ll be much better off than a handful of worthless cash. In theory, at least ;)
@Uncle El – I can see your point for sure, but keep in mind he’s not advising anyone at all about what he’s doing — he was just telling me, as friends, because we talk about this sorta stuff. He doesn’t go around advising others to do the same :)
@Erin – Haha, I asked him about that!!! and he said he DOES have it in smaller pieces, but yeah – how the heck to you “make change?” Haha… he said that will be the least of his problems then ;) And I believe he’s working on paying off his property so he’ll have shelter and all that too. Until the crime sets in ;) (SCARY!!!)
@Matt – All valid points my man, def. not gonna argue with ya on that :) I will say though that my friend has been buying it up in phases over the years (well, last 3) than all at once here when it’s sky high. He’s still buying it, but in his eyes it’s super valuable so it makes sense for what he’s going for. If you think the world may come to an economic end, it’s not like you can wait for gold to go down and then scoop it up cuz you only have X amount of time unti it occurs. And by then gold will be worth TONS more if all parts of his theory come to light. Not backing him up, or saying it’s the smart way to go, just that in his theory gold will be worth tons more later so it’s a bargain no matter when you buy ;) More or less… I don’t think he’s totally gone off the deep end yet.
@Edward Antrobus – That’s a good way to look at it too. So the question becomes “what” would be the next currency if not cash and paper as we see it? He thinks it’ll go back to gold, and if he’s right then he’ll be one happy little guy. If he’s wrong, then it’ll suck just like for the rest of us who thought paper money wasn’t going anywhere ;) Guess the only thing we can know for sure is that we’ll always need shelther & food, etc.
@Brian – Haha, I like your simpler breakdown cuz that’s exactly what could happen later ;) Though if gold was the new currency, he could easily buy farms and corn, etc from people. And guns, for that matter, which he would most def. need when that police issue starts happening… all freaky stuff no matter what plays out.
@Stephanie – True dat! Always safer to diversify – just not as higher rewards if that’s what you’re going for. Though in my friends case he IS going for safety so really it’s just scary that he’s super convinced of these future problems. Which in turn make me nervous cuz I know how smart he is! haha…
@Paula @ AffordAnything.org – I can get down with that :) Though since I personally know him myself, I know how smart he is outside of what he does for a living too. Not that it matters to anyone else, though, as I’d probably be the most affected from this relationship than any others :)
@Jeremy Streich – Again, he’s not only buying at the peak here — he had large chunks back at $900 an ounce too – he invests over time just like many others do in the market. Though yes, it is super high right now. I totally agree that other “things” would be equally as important down the road like cigs, shoes, shelter, etc.
@Cassie – Hah! Good timing, eh? :) I think all of these answers and guesses/etc could prove to be true at some point IF anything like this ever did happen. Probably the best thing for anyone is to just THINK about cases like this, even if briefly, so if the tide ever turned and went down that route, they’d at least have ideas about it already and wouldn’t just follow the herd w/ no opinions. So I give you both love for talking it out!
“.. and all paper money really isn’t worth much anymore…” If this happens, there will be much to worry about than gold or investments. Also, while I think everyone should hold 5-10% in precious metals, it should not be the basis for one’s whole portfolio. Unless you are actively trading it like your friend. If paper money is worthless, then what will you trade your gold for? A ounce of gold for a gallon of milk…I think not.
As a side-note, does my wife’s gold jewelry count as an asset – even though she has said she will NEVER sell? :)
Your buddy must have an insanely high tolerance for risk.. I would probably vomit if all of my investments were dumped to make way for bricks of gold.
If the economy DOES tumble and all paper money becomes worthless, then I would rather invest in shotgun shells than gold. BOOM :D
If things go the way of The Road, we’ll trade in water, food, and weapons. Basic supplies. Scary stuff to think about either way.
Guns and bullets is the way to go if cash becomes worthless. Maybe weapons that don’t require ammunition after that. Then the essentials of food, shelter, and clothing. Then the utilities of gas and electricity. I love my utilities :) Gold is as worthless as a stock to me. I’m not falling for anymore Ponzi schemes.
Hey J$ – after reading the comments here, I’d love if you did a post on what we should all have if $$ is no longer valuable. I never even thought of stocking up on seeds like some people here said, but good call!
I’m 75% into oil and gas (my former industry) and 25% into utilities (also a former industry). I learned after the crash of 2000 and all my tech stocks were decimated to only invest in things that I knew something about. And companies that had hard assets (ie. not a lot of hedging).
@Jenna, Adaptu Community Manager – Nope, not yet – but will go and check out after leaving this comment :)
@Andy – Haha, that’s an excellent question my friend. I would say yes ;) Because she has the option to sell at any point, even if right now she doesn’t want to.
@Brian – Me too!! Haha… which is really funny if you think about it, because he’s choosing gold/oil TO BE SAFE! Haha… interesting how different that word means to us :)
@Money – Is there gold bullets in those shells? :)
@Kandace – For sure. VERY scary!
@StackingCash – Haha… you think solid gold is a scheme?
@Erin – If I were smart enough to *know* what all that stuff would be, I totally would ;) I’m learning from everyone here just the same! We’ve got some smarties!
@Jacq – That’s a great way to do things. I believe Warren Buffett does the same – only invests in things he can understand :)
Yep! :) Commodities are as bad as penny stocks. It’s all about pump and dump. It’s all hype.
I have about 25% of my portfolio in gold, and I rebalance constantly. That essentially has been an easy way for several years to make money to buy even more stocks than I alternatively would have been able to buy.
A good portfolio should have assets that do well in almost every environment — deflation, inflation, prosperity, etc. Having stocks, bonds, cash, and gold in the portfolio just seems like common sense to me.
It’s worked so far. :)
Good idea not to share your friend’s name. Someone will go all “Italian Job” on him!
It’s best to determine what gold is to you. Gold isn’t magic. It isn’t a panacea that will protect you if everything goes to hell in a hand basket. If the world goes all “Mad Max” on us you’ll need much more than gold to protect you (like machine guns & ammo, etc.). If you believe in the gospel according to Glen Beck, you better stock up on your freeze-dried food and camping gear.
But the comments I am reading indicate that most of us are using gold for a more reasonable purpose; I.E. a temporary store of value. The reality is that barring a truly cataclysmic event we aren’t going to be living in a “Mad Max” world no matter what happens to the value of the dollar.
That being true doesn’t mean governments can’t royally crap up their currency. Contrary to what Ramsey might say, gold and silver have intrinsic value. Their value isn’t based solely on the fact that people think that they are worth something. They are semi-permanent, scarce, and have many uses in jewelry and manufacturing. This lends some measure of stability to their value. Yes the prices can fluctuate (excessively at times), but they are always worth something. So it is impossible for a government screw-up to completely de-value them. Putting a portion of your net worth into gold and silver may prove to be a good idea.
But unless your crystal ball is right all the time, I think that it is inadvisable to put all your eggs into one basket. (since if the crystal ball is off, that basket might be the afore-mentioned hand basket headed south) A more reasonable position to take is to hedge your investments by putting a portion of them into gold and silver so that if the markets or currency crash you still have something of value. And if you think about it if everything else were to crash, that gold and silver will likely increase in value many times. No, an ounce of gold wouldn’t be used to buy a loaf of bread. It would probably be worth more on the order of a good used car.
Personally, my overall bet is that the market is a better place to put my retirement. My 401K, and IRA’s are all invested into mutual funds that own stocks. But about 11% of my net worth resides in my safe (a nice big heavy one bolted to the slab foundation of my house) in the form of about 32lbs of gold and silver.
And it wouldn’t take a complete financial meltdown to make hedging your portfolio with precious metals worth it. Consider the double-digit inflation of the 70’s. With the money the government is spending on the on-going wars (among other things) it seems likely to me that inflation will rise at least to some extent. Using gold and silver to store some of your net worth would benefit you in this situation.
As for the statement that “gold has not been used in a failed economy since the fall of the Roman Empire”: that confuses me. That pre-supposes that gold is only used as a medium of exchange after an economy has already collapsed. And that is not the case. The fact is that precious metals have been used as the basic medium of exchange in every major economy since the Greeks started minting coins around 600BC. Far from being a dusty relic, the gold standard was a core part of most economies as recently as 1971 when Nixon took the US off the gold standard.
Personally, I would welcome a return to the gold standard as it would limit the ability of central banks to screw with us.
I have 10% of my total assets in physical silver right now. It really is as simple as that. Gold is overpriced, stay far far away. All it’s going to take is a revolutionary President who will reign in our spending and the price of gold will tumble. To bet everything on a collapse of the economy is not wise! Spread out your risk and learn survivalist skills, THAT’S IT.
@StackingCash – Even if you physically have gold/silver/oil/whatever in your house? I would think stocks in general or more schemey if you’re going down that route. Electronic stuff can be wiped away much more than those items sitting in your house ;) Even if the value does fluctuate over time. Could always use as door stopper? haha…
@Shaun – Yeah, a good balance is def. smart for sure.
@Gene – WOW 32 pounds??? That is hotness yo. Haha… I love it! And I probably agree more with your stance here than the others. I, too, feel like gold/silver will *always* hold some sort of value, even if $hit hits the fan. Anything electronic these days can technically be wiped out at any point. If I ever cross paths with you in the “real world,” I’d like to schedule in a tour of that safe, please :) I promise I won’t tell anyone.
@Jon | Free Money Wisdom – I need to take some “survival” classes, I don’t think I’d do too well in the wild, haha… Though sometimes I can be street smart ;)
Well 32.1lbs if you want to get technical. :) Half of it I’m storing for my mom though. (we went halfsies on an initial purchase of $10k) Of course it is mostly silver (by weight). So the $$ value isn’t quite as high as you might think. But it is still significant to my net worth.
We got in with some $$ my sister left us in 2003. So we got in when gold was about $422/oz and silver was under $5/oz (before even Buffet got into silver – though that was just dumb luck). This has been by far my best investment. Needless to say my mom is quite happy she let me talk her into it. I think I’m in the will. :)
I used to keep it in in one of those crappy FireSentry safes in my closet for many years. That is until I realized that the value had gone up to over $50k and someone could just walk off with the entire safe. That thought made me nauseous!
So I got a quality Cannon safe and had it professionally installed. I sleep good now. And you’re welcome to come over to see it anytime. Drop me a line if you’re going to be in the Phoenix area and I’ll give you the fifty-cent tour. I’ll show you everything but the combination. ;)
It’s pretty sweet. It’s got power and eithernet connections so I can put a Network Atached Storage server in it to REALLY securely back up my computers (you know, behind an ACTUAL firewall).
Hahaha… a REAL firewall! I love it. I’d happily pay 50 cents for that tour. Maybe even $1.00 if you throw in some milk and cookies from mom :) Damn good jot socking away so much of it while it was that low! Man. Gonna feel like a chump when I buy my first coin or two here in the future… appreciate you sharing it all with us, I love this stuff!!
Your friend’s thinking may have merit, but it sounds a bit over the top at 75%. The problem is that this isn’t much of an investment strategy. To invest is to put money at risk in the means of production, in vehicles that will provide a cash flow. Gold doesn’t do that.
Nothing wrong with putting a percentage into metals, but to go in so heavily is really a play on the end of the world. If the world doesn’t end the strategy could result in large losses. Better to balance it out with prosperity assets, the ones that will perform in better times.
True that my friend. I REALLY hope the world doesn’t end too ;)