Comments on: Is It Worthwhile to Invest in Precious Metals?

By: AnnJo

AnnJo — Wed, 06 Jul 2011 18:44:00 +0000

Another consideration is taxes. Long term capital gain on sale of a stock is currently taxed at favorable rates of zero (10% next year) for lower income taxpayers and a maximum of 15% (20% next year), while gain on gold held for over a year is taxed at a flat 28%.

You can read any amount of prognosticating about gold going to $5,000 an ounce, but you could have read the same in the early 1980s; some people have been waiting 30 years for that to happen. What you wouldn’t have heard in the 1980s is that it could go as low as $250, but it did, and it may again.

I suspect it eventually will go to $5,000, but whether it will happen in my lifetime is a different matter. All I know for sure is that gold right now is about as high as it’s ever been in nominal price and much higher than average in real dollars. And the basic rule of good investing is to “buy low, sell high.”

By the way, if you bought gold at its early 1980s high of about $800 an ounce, you’d have to sell it today for about $2,600 an ounce to BREAK EVEN after taxes and dollar devaluation. The price now is about $1520 +/- $25. Those people who have been waiting 30 years have a while longer to go.

By: Jeff

Jeff — Tue, 05 Jul 2011 22:39:19 +0000

Two comments:
@ The comment made by Trent that stocks are pieces of paper that represent value in a company that is only a piece of paper: Companies have both tangible and intangible assets, so while much of your value may be based on pieces of paper, services, patents, etc. some of the value of a stock comes from owning a piece of the actual infrastructure: the buildings, equipment, cash, etc.

@Josiah: The phrasing of “losing 97% of its value” is deceiving, as it only applies to holding cash in a whole in the ground. It is important to clarify your meaning of the word “safe”. In my mind, an asset that pays no income, that has an estimated real return of 0, and that has extreme volatility is not very safe. But to me safety refers to principal protection over the course of short to medium time frames.

By: kristine

kristine — Mon, 04 Jul 2011 03:23:38 +0000

Question: If you have saved a bunch of solid silver coins from early 1900s (liberty half-dollars, mercury dimes, etc.), where do you sell them?

Is it time to sell? Anybody have an opinion?
Do you go to different places sell for smelt or as collectible coins, or are there places that handle both?

My elderly in-laws have asked me, but I have no clue.

By: slccom

slccom — Sun, 03 Jul 2011 23:38:06 +0000

Paranoia can be healthy. Just because you are paranoid doesn’t mean they aren’t out to get you. If you look at the overall national and international political and economic scene, paranoia seems like the only rational response.

Use that paranoia to prepare for the worst. If it doesn’t happen, no harm done. If the worst does happen, then you are covered as much as you can manage.

By: kristine

kristine — Sun, 03 Jul 2011 20:25:25 +0000

Julie- good point! But I’ll bet the amounts sold would be tightly controlled- as with diamonds. If it is known to be plentiful, then it is useless to the mining company also! Travel the the belt require a tremendous amount of fuel, so steps would be taken to make sure “scarcity” remained, or it would not be worth mining.

By: John Mark Ockerbloom

John Mark Ockerbloom — Sun, 03 Jul 2011 19:44:37 +0000

cc @ 17: You probably have more choices than “never let go of any of it” and “dump it all”.

In general, you should have a diversified set of investments, so if the precious metal funds now make up a large portion of your portfolio, it may well a good idea to sell off *part* of it and buy other kinds of investments (such as the S&P index funds you mention) with the proceeds. Basically, decide what mix you want, and buy and sell accordingly.

Don’t worry about selling at the absolute best day; better to sell an investment when it’s a little off peak than wait till the whole thing has slid into a deep valley. (I’m not saying that this is necessarily imminent for precious metal funds, but given the historic volatility of such investments I consider it not unlikely that you’ll see such a slide before long.)

If you’re worried about selling your stake on a “bad day”, you may be able to spread out the sale into multiple installments, using dollar-cost averaging.

By: cc

cc — Sun, 03 Jul 2011 17:40:08 +0000

ok, stupid investing question:
about 4-5 years ago i purchased a large amount of precious metal & mineral mutual funds that i couldn’t really afford (i didn’t know this at the time, but that’s why this question is stupid). i’ve held on to it and it’s appreciated nicely- currently it’s generated a 17.16% pre-taxes & fees return, but i’m worried that we’re at the top of the bubble.
it was an impulse investment and as i learn more about investing it might be foolish to hold on to it to the end of the bubble. it’s so volatile thought that its value changes drastically daily, so i’m afraid i’d sell it at a bad time.
should i kick it to the curb and buy all s&p index funds? or just keep sitting on it until i’m old and moldy?

By: jim

jim — Sun, 03 Jul 2011 16:46:07 +0000

Freedictionary cites a couple definitions that do include definitions that equate ‘healthy’ with ‘large’ though informally, example:
healthy [ˈhɛlθɪ]
adj healthier, healthiest
1. enjoying good health
2. functioning well or being sound the company’s finances are not very healthy
3. conducive to health; salutary
4. indicating soundness of body or mind a healthy appetite
5. Informal considerable in size or amount a healthy sum
healthily adv
healthiness n

Collins English Dictionary – Complete and Unabridged © HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

By: Erin

Erin — Sun, 03 Jul 2011 15:56:21 +0000

I’ve also heard that if you look at gold’s rate of return over long periods of time – say a decade or longer – then it barely outpaces the rate of inflation, if at all. I haven’t looked at the numbers to verify it myself, but if this is true then you can get a better return over the long run in many other types of investments.

By: MattJ

MattJ — Sun, 03 Jul 2011 15:19:46 +0000

Johanna,

It’s a pretty common colloquialism to use “healthy” to mean large in that way, whether or not a large amount would be healthy. Google’s autofill suggests for me the following top searches:

healthy dose of

biotin
sunshine
caffeine
niacin
insanity

By: Debbie M

Debbie M — Sun, 03 Jul 2011 15:15:21 +0000

I hope gold and silver are in a bubble. I have a friend who makes jewelry for presents, and he wants the prices to go back down.

By: Josiah Garber

Josiah Garber — Sun, 03 Jul 2011 12:29:04 +0000

@valleycat1

“What surprises me somewhat is that this is a popular question – I don’t know anyone who has expressed interest in buying gold or silver as an investment.”

This is precisely why it is unlikely that gold and silver are in a bubble.

By: deRuiter

deRuiter — Sun, 03 Jul 2011 10:50:33 +0000

“If you don’t already have a lot of investments, buying precious metals means that you’re making the sum total of your investments incredibly volatile. You might wake up in three months to find that your life’s savings has lost 50% of its value.” Not just gold. A lot of people have recently lost 50% of the value of their houses, think Arizona and Nevada, Florida, and stock holdings. Diversify. A few ounces of gold around the house isn’t a bad thing. Jews escaped Nazi Germany by bribery using their jewelry, gold, silver. Pretty good return on your investment, your life and freedom vs the death camp. The hint above to look through your house and find any bits of gold and silver while teh price is high is a good one. Even tiny items and broken gold or silver jewelry have a value and can be easily translated into cash.

By: Amy

Amy — Sun, 03 Jul 2011 06:16:09 +0000

@ Johanna – it may be a Midwest thing. I am origInally from downstate Illinois (meaning not Chicago) and have always heard “healthly” to mean “large”. Regional dialects are interesting – when we moved to NC sometimes I felt like everyone was speaking a foreign language.

By: Johanna

Johanna — Sun, 03 Jul 2011 02:41:15 +0000

@jim: I didn’t check all 7 million of them, but the first few dozen all seem to refer to a “healthy dose of” something healthy, positive, or at least neutral. Not something negative, like paranoia. Wouldn’t a “healthy dose of paranoia” actually be a very small dose (and the smaller, the healthier)? That is the point I was trying to make.

I noticed something similar, too, in the last book review, where Trent talked about John Robbins having lost a “healthy portion” of his net worth to Bernie Madoff.

By: jim

jim — Sun, 03 Jul 2011 02:27:39 +0000

Johanna, “healthy dose of …” is a pretty commonly used phrase. I found 7 million hits on Google across many media outlets : Boston Globe, WSJ, Huffington Post Etc.

By: moom

moom — Sun, 03 Jul 2011 01:21:07 +0000

To #1, Interest rates are very low now, but if you add in the interest you can earn on cash it hasn’t done so badly over time. The downside of gold is that it doesn’t usually earn interest but rather costs money to store.

By: Gretchen

Gretchen — Sun, 03 Jul 2011 01:06:33 +0000

Do any personal finance questions have a yes or no answer?

By: Johanna

Johanna — Sun, 03 Jul 2011 00:48:39 +0000

Also, is “Silver” this person’s real name? If so: Hilarious.

By: Johanna

Johanna — Sun, 03 Jul 2011 00:46:18 +0000

Trent, I don’t usually like to pick on your grammar, word choice, and writing style, but you have really got to get over your idea that “healthy” is an exact synonym for “large.” “Healthy dose of paranoia,” indeed. Is this a midwestern thing?