Month: October 2024

Warren Buffet’s assertion that Gold has no real value due to its lack of productive capacity is an offense to his high intelligence. Assets are valued primarily by the price investors will pay for them, which Mr. Buffet acknowledges each time he sells shares of a company he knows carry an intrinsic value below the price another investor will pay him for them. The facts are that gold has been perceived to be a valuable commodity throughout all of human history, possesses the essential characteristics of money and has frequently been used as money, and has retained purchasing power during periods of fiat currency debasement. That said, gold is greatly misunderstood by both investors with an affinity, and those with an aversion to it. This is evident in the fact most investors own no gold today, even as a new round of Federal Reserve easing gets underway, even in a year in which gold has outperformed the S&P500 by over 50% in a raging stock bull market.1 Consider a few relevant facts as you gain a better understanding of this unique asset class.

• Gold’s value is remarkably steady over time. One hundred years ago a man could buy a very nice suit for one ounce of gold, still true today. Gold’s price fluctuations reflect a change in the value of the currency in which it is priced, not a change in the value of gold. Prudent investors don’t buy because they think gold will appreciate, but because they know the currency will depreciate.     

• Gold is perceived by many as a chaos hedge, but the type of chaos matters. During the financial chaos of the Covid19 lockdown, gold appreciated 26% as the value of most assets plummeted,2 but as the Fed raised rates to fight the chaotic surge in inflation in 1979, the gold price declined 50% and stayed down for twenty years.3

• While perceived to be a hedge against inflation, the price of gold lost nearly 20% of its value in mid-2022 as inflation spiked to 9%,4 also the result of aggressive Fed rate hikes aimed at fighting inflation. Gold is not a reliable hedge against price inflation.

• Gold reveals the misdeeds of monetarists globally and is despised by them. Lawmakers permit grievous trading violations aimed at gold price suppression, especially when it’s in a bear market. Dollar-cost-averaging purchases is advisable when accumulating a manipulated asset. 

• Gold can be owned in its natural form or as a security, and stored safely domestically or abroad. The primary issue is not form, but safety of storage and protection from compromise. If securitized, choose a company which guarantees the gold is never leased for interest, submits to random third-party vault audits, and guarantees against compromise of ownership. It’s advisable to diversify both form of gold ownership and storage strategies.  

• Differentiate between gold owned as part of an investment account and gold owned to bequest to heirs as a multi-generational asset. Understand it is likely gold will endure a painful bear market before the Federal Reserve Note gets flushed down the toilet of time and maintain an exit plan (STOP-LOSS) for gold held as part of an investment account.

Producing zero income, lacking reliable hedging against chaos and inflation, being hated and manipulated by the monetarists, at risk of compromise and theft, inconvenient storage requirements, why should investors bother with gold? Gold provides a reliable store of value over time, that’s why. The most reliable predictor of the gold price is the U.S. dollar; gold is in fact the anti-dollar, and wealth producers who are bearish long-term on the U.S. dollar tend to own some.

Think about it, Shaun.

“He (Jesus) again drove the money-changers out, saying, “It is written, ‘My house will be called a house of prayer, but you are making it a den of robbers’”” ~Matthew 21:13

1 Yahoo Finance, YTD Price Chart: PHYS vs. SPY, October 29, 2024 2 Yahoo Finance, 1/2020-7/2020 Price Chart: PHYS 3 GOLDPRICE, All Data, October 31, 2024 https://goldprice.org/spot-gold.html 4 Yahoo Finance, 4/2022-10/2022 Price Chart: PHYS

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Young mountaineers quickly learn to count ounces instead of pounds, and that few luxuries belong on a multi-day trek because it is dangerous to carry unproductive weight on foot in a hostile winter environment. Similarly, excesses should be largely excluded when managing one’s financial life amidst persistent high inflation. The minimization of wasteful spending can effectively reduce debt and/or increase the productive income-producing capital investments made to offset inflation, and insurance is a budget component ripe for savings. Consider the following smart insurance concepts as you fight inflation with budget thrift:

• A common philosophy among savvy insurance consumers is the idea that only catastrophic risks should be insured, underneath which stands the deduction that since an insurance policy cannot be to the ultimate financial benefit of both the issuing company and the policyholder, and since insurance companies are generally profitable businesses that investors love to own, most insurance policies are unprofitable agreements used to cover non-catastrophic risks that should be self-insured. Bear to mind self-insurance requires increased liquidity. Typical catastrophic risks include one’s health, large debts, a home, one’s life, liability while driving, and expensive late-life care.  

• Using an independent fiduciary agent gives policyholders access to many companies and products, forces providers to compete for the business, and provides due representation in a complex marketplace.   

• Never think of life insurance as a retirement funding investment, even when the cash value is invested in equity-based accounts which drive insurance benefits. Insurance policies are too expensive to be an investment, but they aren’t too expensive to be an insurance policy.

• Understand the financial condition and the ‘claims reputation’ of the insurance company backing held policies, and don’t risk insolvency for premium savings. Watch annual premiums/benefits closely and be ready to replace policies with unwarranted premium increases. Pay premiums annually when charged for more frequent payments.

• Always match the type of insurance policy best suited to the risk. Temporary need for life insurance should be supplied by term, not permanent life insurance; exposure to the high cost of care late in life should be met with traditional or hybrid LTC insurance best matched to family dynamics, etc.

• If healthy, own a high deductible health insurance policy and maximize contributions to a Health Savings Account (HSA). Invest HSA funds productively to fund mid-late retirement, qualified health care costs.

• Understand that industry-dominating, capital efficient, dividend-paying insurance company stocks are some of the most profitable businesses to own long-term, and incorporate them into your investment portfolio when they can be purchased at a reasonable price.

I never venture into the mountains without my survival blanket because I have seen it save a man’s life. While you think about these insurance strategies, don’t overlook the importance of transferring exposure to genuinely catastrophic risks to well-vetted insurers.

Think about it, Shaun.

“Be wise as serpents and innocent as doves” ~Matthew 10:16

“A shrewd person sees danger and hides himself, but the simple go on and suffer for it.” ~Proverbs 22:3

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.