Lots of gold chatter of late. I suspect I’m probably in the minority here, and trolls like Alphonse will tell me I’m no survivalist for expressing this view, but whatever. I’m not here to write only on the things you’ll all agree with me on, I’m here to voice my views, and to promote discussion and thought. I also stand to learn from reader input. This brings me to the subject of acquiring gold as a SHTF preparedness strategy. Don’t do it!
Let me preface my following statements with this: 1) gold is wicked cool, and if I could afford to have a small stack of 1 ounce coins sitting in a gun safe, I’d buy them; 2) these statements are NOT commentary on a fiat currency vs. a gold standard – that’s a different discussion; and 3) I love “junk silver” – not so much as a way to make a huge return, but because precious metals are just plain neat (plus silver is more affordable). Because some of my comments will be a response to “The Legend” that is Rawles, I should also state that I check his blog daily for good “how-to” technical chatter, but when he’s giving financial advice I shudder at the thought of people cashing out their retirement accounts in favor of gold-based “investment” accounts. Don’t do it.
First off, let me ask “Why?” Why would you want to stock up on gold for SHTF? To make a return off an economic collapse? For bartering purposes after TEOTWAWKI? To hedge against inflation? The only reasonable response to these questions is the latter – to hedge against inflation, but even then it should compromise only a small portion of your total investment portfolio. If your intent is to make money off an economic collapse you’re trying to time the market, which can rarely be done, even by the best. If you’re interested in bartering opportunites, skip gold altogether and buy REAL barter items – livestock, guns and ammunition, generators, canning supplies and such. Think in terms of what you’d rather have after TEOTWAWKI – gold or livestock? Gold or ammo? Gold or canning supplies? You can’t eat gold.
I’m sure the instant gold bumps up in value again I’ll be subject to a bunch of “ha! you’re WRONG!” comments, but I’m talking long-term investments here, not short-term, and gold has a lousy long-term investment return. Depending on when you buy, it could also have a horrific short-term return. My particular favorite is when gold goes down and people call it a “buying opportunity” but when stocks go down it’s an “I told you so.” I also enjoy it when they’re quoting sources and reports from “advisors” that are in the market of selling gold and gold stocks. Ya, they’re reliable sources *sarcasm*.
This being said, do I think we’re heading toward (or already in) a recession? Yes, I do. Do I think it’s possible we’ll see The Great Depression II at some point in the future? Yes, anything is possible – BUT, while you’re stocking up on gold waiting for it to happen, you’re missing out on serious returns on your money through other avenues. Further, if you think we’re heading toward economic collapse it’s a FAR smarter maneuver to instead pay down debt before buying gold. Have credit card debt? Paying that off is a GUARANTEED return of 12-15% (or more depending on your credit card) on your money. Have a mortgage? Paying that off should be the survivalist’s ultimate financial goal. Financial advisors often advise against paying your home off, because 1) it’s generally low interest debt, 2) it’s tax deductible interest, and 3) you’d get more return on your money by investing it in equities. My survivalist tendencies force me to disagree with financial advisors on this. Paying off your home means you have a GUARANTEED roof over your head regardless of what happens (except property taxes), and it provides a huge sense of security and peace-of-mind, the value of which is impossible to measure in dollars.
I could go into extensive investment analysis to prove my point, but who has the time for that? Particularly when this dude sums up my points for me:
The chart above shows the “real” return of gold over the past 200 years. (“Real return” simply means its return after taking inflation into account.) It’s a telling picture. Far from being one of the “most protective and profitable investments” available, adjusting for inflation reveals gold’s true virtue: as a store of value, rather than an investment. Adjusted for inflation, a dollar invested in gold at the beginning of the 19th century has been worth roughly a dollar ever since. There have been highs and lows ($4.26 in 1980, $0.58 in 1969, both reflecting government interference with the gold market as much as anything), but what’s rather remarkable is the consistency with which gold has stayed at roughly the same inflation-adjusted value. This has been true for centuries—it’s said that an ounce of gold has been able to purchase a man’s suit of clothing since Shakespeare’s time, and that’s still the case today.
As an investor though, you should have much higher aspirations than merely keeping up with inflation. After all, that’s just treading water—you haven’t gained any purchasing power. You can do better. Much, much better. According to Jeremy Siegel, a dollar investment in gold way back in January of 1802 would have grown to just $1.62 by the end of 2005.* Contrast that with the growth of other investment types: T-bills would have grown to be worth $293, bonds to $1,083, and a dollar investment in stocks would have grown to be worth a staggering $666,180. Not a thousand times better than gold. Not 10,000 times better than gold. But more than 400,000 times better than gold!
So, go ahead and convert your IRA into a “gold IRA” if you want, just know that as you’re putting money into gold’s already high prices, you’ll be missing out on buying stocks with falling prices. Plow all of your money into gold coins if you’d like, but they won’t serve you well when retirement comes. Go ahead and slap your cash into more conservative bonds if you prefer, but that should only be done if you’re near retirement age. Otherwise you’re missing out on the better long-term performance that equities enjoy. Don’t try timing the market, even the pro’s can’t do that.
In summary, skip gold, build a cash emergency fund, pay down debt, and buy SHTF supplies that have real life uses. If you’re debt free, stocked to the gills, own stocks for the long haul, and STILL have money – send some to me! 🙂
– Ranger Man
BTW: long-term joblessness is on the rise amongst middle-class workers (another reason to build an emergency fund) – see here.