No, not really, but we do live in an exaggerated and over-hyped world, don’t we?! The financial industry is no different. A marketing strategy, deployed by some unscrupulous salespeople, goes something like this, “everything will be destroyed tomorrow, so buy this product, today!” Newsflash: Good products don’t need to be marketed with lots of hype or scare tactics. Yes, I’m back on my “soapbox,” because I just met with a gentleman (we’ll call him “Sam”) whose adviser loaded him up on gold, silver and other precious metals. “A market crash is just around the corner,” is what Sam was told. While the broad stock market has rallied strongly since 2009, Sam’s portfolio has languished and posted losses from its “heavy metal” exposure (pun intended).

 

Harnessing Fear and Greed: It is well-known within financial circles that many (but not all) individual investors are motivated by “fear” and “greed.” You can be sure that some overly aggressive salespeople will take advantage of this fact. The TV gold-pitchmen seem to have their “fear strategy” down to a science, as is evidenced by the impression they’ve made on the investing public. When I present a seminar, I am often asked about the wisdom of buying gold. My answer is that there’s absolutely nothing wrong with buying gold, but it is essential to know why you are buying it. Aside from coin collecting, there are two primary reasons to purchase gold:

 

Reason #1: You want to add it to your portfolio to improve diversification and/or because you believe it could gain in value. Consider adding gold to your portfolio through an exchange-traded fund (ETF) such as SPDR Gold Shares (ticker “GLD”). With an average of over 8 million shares changing hands each day, this ETF also offers superior liquidity (and probably lower acquisition and disposal costs) than gold coins and bars. If you do add GLD or another similar ETF to your holdings, you should NOT “go all in” if you want to maintain adequate diversification.

 

Reason #2: You want a hedge against an economic downturn, high inflation, a sharp decline in the dollar’s value, or even a complete collapse of our financial system. Gold isn’t the only way to address economic concerns. A diversified portfolio of stocks, bonds, mutual funds, fixed annuities, bank savings, and real estate, could all help hedge against an economic downturn. In the past, the stock market has outpaced inflation (and gold) over long periods. And, if your true concern is a complete collapse (be honest), then why not stock up on survivalist supplies: freeze dried food, weapons and medicines – in a doomsday scenario, they would be more useful, and probably far more precious, than gold!

 

 

 

 

 

 

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David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show at 9AM on AM1380 Ormond Beach, AM1230 New Smyrna Beach and AM1490 Deland. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.