Firstly - I’m really sorry if I sound confusing at all, but I need some help on investments and risk factors.
Basically I have around £50,00 ($72,500) to invest around at the moment. Went to see some professional investment advisers today, who believed that the best way forward was to put £30,000 into the stock market (which as far as I was aware is spread into the risks of high, medium, and low etc.), and £10,500 into ISA (tax-free account.)
I asked about investment into Gold, as it’s something that I’ve read a lot about recently, and she said she ‘doesn’t feel gold is the right step forward for investments.’ (She also stated that BP might be a good investment for long-term investment as well.)
My main problem is - if I put this money into the stock market now and everything crashes within a few years time, I’ve lost all of my investment. Whereas turning my savings into Gold seems to be a much more protective investment?
I don’t really have a great understanding of Economics - I just have knowledge of the bits I read from various people.
Would really appreciate it if anyone could offer any kind of help.
Your advisor did not mention one little tidbit of information that I always point out. There is no point in the past 5,000 years of human history where there has been a price list with an amount of gold around 1 ounce and a price of zero after it. All paper assets eventually have zero value. And in the economy today all paper assets are leveraged to some degree. So your asset is the liability of someone else. This is true for all things except precious metals. Even if you pay off your home mortgage, in the USA you still owe future taxes on it.
Random thoughts, that might contradict each other:
Firstly, do you really expect total strangers off the internet to be the place to look for advice?
I think the quoted lines hit the nail on the head.
I think she’s right about BP. Has the price of it gone down? Why, because they lost some money? So what? They still will be able to make money hand over fist in the future.
Ask her why she “feels” gold is not the right step forward. Ask her what the advantages and disadvantages are, in detail. The guys I trust say gold [and better yet, silver] is gonna go sky high in the next couple of years, probably sooner.
The people I listen to say the dollar is a sinking ship, as is the euro. So stocks that are priced and that pay dividends in dollars or euros are very risky. I don’t know about pounds. That new PM seems to be talking about spending less money, which is very good.
You might also ask her what she knows about Austrian economics. Can’t hurt.
You might try going to lewrockwell.com and reading the articles there that forecast the future and give advice. See which ones make a lot of sense to you.
Get GOOD advice, there are a lot of famous austrian investment sites.
Regarding gold, if you don´t have much, BUY.
Only when you have a moderate amount should you care about the price.
But what are your goals? With that amount I would put half of it into sound saving, gold and silver, and the other on basics stocks, food, metals, energy but I´m not sure about that, but I wouldn´t buy stocks in general, I don´t support the diversification theory, what if the stocks is just bubble, all of them? or the country/continent goes down? You could regreet it and loose a lot very fast.
So, why not moving most of it into gold, some phisical and some electronic/phisicial like goldmoney and then with that wealth secure, decide the best course of action?
I think I would better look for a cheap house at the caribbean and get out of the decadent West and retire to read while you manage the rest of your investments.
I’ll give you my opinion but don’t listen to me… go read people who know what they’re talking about… I read/listen to (in order):
Marc Faber
Jim Rogers
Peter Schiff
You should consider holding some monetary commodity (silver, gold). The trouble is that you are late into the game, there has already been a great deal of flight into monetary commodities. That means that you will be paying a hefty premium to get in.
As for BP, I’d stay away. In my opinion, there is more going on than meets the eye in this situation… I smell powerful people playing games. Recall that Obama announced expansion of offshore drilling just 19 days prior to the explosion. No one has given any really plausible explanation of the cause of the explosion (“they bought the cheap lining”, I mean, come on) and the government has said it will take over the investigation (red flag that there is funny business going on). Political stocks are inherently dangerous since the insiders are the ones who control the movement of the stock. Maybe BP will shoot the moon. Maybe they’ll go bankrupt. You and I won’t know until we hit the jackpot or lose our shirts while the bigshots buy up the stock or short it armed with advance notice of what’s about to happen. If you’re looking to avoid risk and you’re not into gambling, definitely stay away from BP.
The trouble with the stock market is that its nominal value can increase while its real value (exchange against other goods) goes down during periods of rapid inflation. This means that it’s dangerous to short the market. No one in their right mind can be long in the market. If you can’t be either long or short, you have no choice but to get out. We haven’t hit a rapid inflation point yet but we will… as Marc Faber points out in many of his online articles, interviews and lectures, governments are left with no choice, even if they want to avoid inflation, they cannot.
Buy things that are going to become precious during economic trouble because the one thing you can be sure of is that we’re in for one hell of a ride over the next few (5, 10, ?) years. Energy will become precious, so buy energy (oil (kinda spendy, unless you believe inflation has already hit oil), natural gas, energy stocks (be careful… and don’t buy BP), etc.) Jim Rogers is a big champion of ag stocks, I believe he knows what he’s talking about in this area (I don’t know what I’m talking about but I recommend you look into it). Also, Schiff, Faber and Rogers all agree that the future of economic growth is outside the US/Euro and in “foreign” stocks, i.e. the BRIC countries and other growing economies. Be careful, know the turf (Chinese stocks, for example, show significant evidence of heavy manipulation from insiders), and don’t assume that lots of news-headlines-visible growth is the result of genuine liberalization… most governments heavily control the press and trumpet their pet projects as genuine growth. Look at the attitudes of the masses to gauge whether a country’s apparent liberalization will last or is just a PR-stunt by its government.
The one thing I learned in the school of hard knocks (lost my shirt in the dot-com bubble burst) is, before you invest, know why you’re going to earn a profit… just looking at a chart and saying, “Oh, wow, it went up and up” is a horrible reason to buy. If anything, it can be a good reason to sell but never a good reason to buy. But then, don’t fall into the trap of saying, “Oh, wow, this stock has gone way down, I can’t imagine this company going bankrupt, I’m going to buy it”… just witness GM. How many investors bet that GM would “never go bankrupt”?? Lots of people are saying “buy gold! buy gold!” - whenever lots of people say something, that’s a good reason to be leery. I’m not saying you shouldn’t have some gold, but then, the price has gone up 300+% in just the last couple years. 300% is a long ways up, leaving lots of room for dips (buying opportunities). Plus, you need to think of gold in terms of its value against other real goods, not just its nominal value … do you expect people to be shedding their cash holdings in the near future in favor of consumer goods? If so, we could have a situation where both gold and paper money simultaneously devalue as people shed everything to get into real consumer goods. I’m talking about garages stocked with bottled water and bags of rice.
Congratulations on the nest-egg, take good care of it and good luck.
Clayton sorry but youre totallywrong on this. Gold has a ton of growth to go, silver too with its low ratio. I bet its gonna hit 10k$ per oz in next few years.
Good points. We are entering a very scary epoch where nothing is secure. Anything on paper is at risk of tax-seizure or inflation-devaluation almost anywhere at anytime. The US and other countries are putting up the financial barbed-wire around their borders - witness the spanking-new US 30% exit tax. Maintaining physical control of your assets is absolutely crucial. Schiff et. al. recommend buying foreign land since there’s no incentive to seize something that can’t be moved… the US gov’t doesn’t care about owning property overseas but they wouldn’t mind putting a freeze on your foreign bank accounts under whatever pretext they cook up. And don’t think that the US is the only country you have to worry about, the UK and Eurozone are every bit as avaricious as the US government.
So, make sure you have control of your assets. Don’t put them in your broker’s hands. Don’t put them in your banker’s hands. Maintain control of your assets either through direct physical possession (my #1 recommendation to the OP would be buy a safe!) or through direct management of your assets. Make sure you know when/how/where you can get your money and be ready to do so at a moment’s notice should things start to get really scary (imminent major war, etc.) Don’t put your money into anything that will take more than a few business days to liquidate to cash-in-hand (other than foreign land).
Gold has had nothing but tons of potential growth since 1914. But the Western central banks have been fiendishly successful at keeping the gold price well below what it ought to be. Do not underestimate the ability of the players-of-games to game the system and depress the price. Nobody really knows what the price of gold should be since the market is certainly flooded with paper gold. Yes, that makes the case that the gold price will eventually go much, much higher but eventually can be a long time… if we were debating this in 1980, you’d be right that gold would go higher than even $850/oz… you’d just have to wait three decades to be proven right. The only event that will once and for all expose the true gold price is a collapse of all paper gold claims and reduction of the gold market to physical gold. It will eventually happen and, when it does, you will be proven right many times over. “Time horizon” matters… since the OP may need his money before the gold price has skyrocketed, he needs to be prudent and one prudent thing to do regarding gold investment is actually read about the lengths that central banks have gone to, in the past, to control the price of gold. I recommend Ferdinand Lips’ book, Gold Wars, it’s a fascinating read. It’s remarkable the extent to which the insiders who understand the truth of gold will go in order to control gold. Do not underestimate them, that’s all I’m trying to say.
Hope you don’t mind if I just pickup on a few peoples’ answers that I’d like to know more of.
@Smiling Dave:
It wasn’t that I was looking for completely sound advice, but I figured that the mises forums would be one place to seek for advice on something I know little about.
The new PM (David Cameron) does like to talk about spending cuts indeed, but nothing of real substance – and I hear nothing compared to the extent to which Margaret Thatcher did. The new Government like to sound ‘radical’, but don’t think they are too much.
Could you possibly recommend any good Austrian investment sites? I’m not too sure of any British companies or sites that are associated too Austrian Economics (or even if there are any?)
I also checked out Peter Schiffs europac site a few days ago, as I believe he said he was opening up a store to sell gold – but I expect that will be to the US folks only.
My main goals with the money I have is firstly protect its’ value in the long-term (until I am willing to buy a house etc.), and secondly look for the value to increase. So really I wanted to look for my options on where I could invest it.
Thanks for the long reply! (I’m going to respond in bullet points if you don’t mind, as it makes it easier for me to break it down!)
Firstly, will definitely go and check out the list that you mentioned out. I’ve heard of Peter Schiff, but was not familiar with Marc Faber or Jim Rogers.
I also did realise with the gold/silver investments that I am very late into the game, as you said, but do you think is it the wrong time for me to make any decent investment in gold/silver? Or maybe even at worse case scenario, is it still good for the protection of the value?
Thirdly, I am generally not a big risk taker - which is why I was concerned about putting such a large chunk of money into the various risks of the stock market. This is also the only money that I have to put into investments, and is there to secure a house for me in the future.
Never actually considered any kind of investments in things such as energy stocks etc, but I will definitely have to bring it up in my meetings later on! Just to reiterate my 2nd point – from your understanding, are metals not the best investment to look to make at this time?
Thanks so much for all your responses so far, they have been tremendously helpful!
Edit: did not notice the last few replies, will have to respond to them later.
Do not invest until you are safe. Have a modest amount of gold/silver and cash to leave the country anytime. Then get a box outside.
When you have that and can rest relatively calm and assured, invest if that´s what you want.
Still, a safe box with gold on it would have been the best investment the last decade, and will continue to be so.
It´s the current artificial situation with inflation that forces us to invest, invest, fast, anywhere, to overcome the losses of inflation.
If you want to go stocks, take a look at Casey Research.
Do not trust anything electronic, don´t count on it, Use them accepting that they can fail anytime, electronic cash could disappear any second, they will gladly take any seizure or overall blocking order from politicians, it happened before, last century, it will happen again more frequently. And the next war, if it comes, will have a first step of electronic warfare, that is, all electronic systems will be either down or targeted (backdoors, hacked, ddosed and of course emp). But that won´t happen, the enemy is us, our government, their power of confiscation and control of the banking sector should be the main worry with the civil unrest of warfare-drug-addicts demanding things from others and the martial-law/police state that will follow.
So, I would try to invest into moving to a safer and sounder country, be safe first and then learn a lot and follow some good advices (Casey for example) to invest from the distance, and the sooner the better, before leaving the country becomes a civil offense, unpatriotic or an economic crime against the nation…whatever they come up with.
If you take such trends seriously, that is, if you care about fundamentals, then silver seems to be a great investment (great is an understatement). The DOW is overvalued, gold is undervalued, and silver is undervalued even when compared to gold (68 ounces of silver buys one ounce of gold). There have been reports that certain investment banks have been purposely devaluing silver for quite some time.
Again, this doesn’t mean that one should expect the DOW to fall; it may rise at continuous rates for quite some time, but gold, and especially silver, should outperform equities (especially bonds).
He makes the case that we’re headed into a time where hard assets (commodities, property) will definitely be favoured. But don’t write off stocks completely, there is long-term profit to be made.
Marc Faber has a lecture at the Austrian Scholars Conference 2010 available on YouTube… it is awesome.
I’m not saying don’t buy metals… just do your homework. If you think the price (in real terms, not just nominal terms) will go up, have a reason why, don’t just buy because Austrians say “buy, buy, buy”. There is something to be said for the idea that a certain portion of your wealth should be “safe” in gold/silver, I’m just noting that you should be aware of the fact that gold and silver - especially gold - are “political” metals and subject to massive manipulation by governments and central banks. Silver has some things going for it, its ratio to gold is currently way out of whack to its historical ratio (roughly 15:1) which may signal that it is a better buy than gold. Silver is a monetary commodity and will remain so no matter how “de-monetized” people say it is. In fact, silver is in many ways more monetary than gold since its discontinued use was much more recent than gold (US quarters were made from silver clear up until 1964) and if there really were a monetary collapse, a silver ounce (roughly $20) is a much more usable unit of value than a gold ounce (roughly $1000). But then, if there were a monetary collapse, there might be even better things to have, such as physical (paper) dollars (or pounds, sounds like you’re in the UK), cigarettes, hard liquor, etc.
Why is owning a house your investment goal? I’m not dissing it, but if you believe “land value always goes up” I would suggest you re-investigate your investment goals … the housing collapse was fueled by the superstition on the part of most people that real estate always becomes more valuable over time.
Please do not misunderstand me to be saying don’t invest in metals… I’m just saying “do your homework”. And, along those lines, I would recommend you fire your financial advisor. Recommending that you buy and hold BP given that this is your “nest-egg” is irresponsible in the extreme. In general, financial advisors are just charlatans… they masquerade as if they have some kind of inside info that you don’t have when they are just empty suits. I’ve wasted all the money I will ever waste on financial advisors. There are legitimate value that financial advisors can provide - specifically, understanding tax implications of investment decisions and understanding the complexities of the financial system - but in terms of deciding how/where/in what to invest, I recommend stay away. Milton Friedman said, “Nobody cares for the property of others as well as he cares for his own property” and, when applied to investing, this means that you should never hand your money to somebody else and say, “manage it for me”… they have nothing like the incentive to care for your money that you do. That means they will likely either take too much risk with your money or fail to take advantage of good opportunities. This is one reason why the hedge funds have been successful… hedge fund managers generally have a massive personal stake (25%-50%) in the fund, so if they lose money for their investors, they lose even more money themselves. That large personal stake is a signal to the investors in the fund that the fund manager is truly acting in their interests. What stake does your financial advisor have in the recommendations he/she makes to you? If she says, “I bought this stock, you should too” how do you know she’s telling the truth and, even if she is, how do you know your portfolio is distributed like hers? Many people in the financial world try to play the pump&dump game to whatever extent they can legally get away with it.
Just be careful, think for yourself, evaluate the motives of others by trying to find their self-interest (cui bono … who benefits?). Naturally, everybody is out for #1, so just be aware of that and try to understand how your business benefits them. If it also benefits you, then go for it. But if you can only think of how it benefits them (management/broker fees) but not how it benefits you, I’d say move on. Don’t waste your money on those damn management fees, especially in this artificially low-interest rate environment. You can’t afford even 1% management fees when Bernanke has pegged interest rates to 0%.
Actually, this is one of the things that makes me a little antsy about Peter Schiff… he has predicted the Dow going to 1 ounce of gold but I really don’t the causal connection. Just noting that it has hovered around 1 ounce of gold at times in the past is unconvincing. I see no reason why the Dow should be 1 ounce of gold. In fact, the Dow is an index of companies chosen by a board (Dow Jones) and its makeup changes from time to time. I see no reason why this effectively arbitrary pick of “index” companies should have any correlation with gold whatever.
Even if the Dow does go to one ounce of gold, I can see no reason why we should believe this was a fulfillment of Shiff’s prediction… it just strikes me as superstition.
Jim Rogers: 2010 is almost over. I am not really thinking too much about 2010. It is 2011 that one has to worry about. I expect more currency turmoil in the future. I am shorting stocks, I have been shorting emerging markets, I have been short technology, the NASDAQ in the US because that was very very strong in the last 18 months or so, stronger than the world economies going to be. I am sure a major international financial institution that people think is very sound, I happen not to think so and I own commodities.
I hope that if the world collapses, shorts protect me on the long side and then short side and if the world starts going into even more money printing, then commodities will save me on the long side. This weekend, the G-20 finance ministers met and they said that they are going to withdraw fiscal stimulus.
The Americans did not say it but the others did. If that starts happening, you are going to see more and more economic slowdown around the world and that is why I am not optimistic about stocks but if that happens, if we do have more slowdown because the G-20 starts withdrawing stimulus, I suspect the central banks will print money because that is all they do. So I would rather be long commodities and short stocks which is what I am doing."
Sounds like he’s softening his stance on shorting the market. He is right, if they turn off the money spigot, there will be another stock collapse, so since we can’t know whether they’re going to open the money spigot further or shut it off, it’s best to hedge your bets either way. Own commodities (gold/silver/energy/ag/etc.) and short the market. My rule of thumb is to hedge according to my own subjective certainty… a couple months before the crisis began back in 2008, I withdrew all my money from the banks and split it 50/50 between cash and gold because it was impossible for me to know how big the bailouts would be or if the US government would wise up and refrain from bailing out the banks (causing deflation). Since it seemed to me (at that time) to be about 50% probability either way, I split my money 50/50. Later, I reallocated more heavily to gold as it became clear that the bailouts would go on “as far as the eye can see” to borrow a phrase from Faber. I have been following this kind of “asset allocation” strategy since 2008.