Trust… Hard to Acquire, Easy to Lose
December 29, 2009 by Dr. Michael Cutler
We are living in challenging times, with change being the constant. Many of us are experiencing information overload with simply too much “stuff” to digest and act on. Many institutions, companies and individuals we thought were safe are in trouble. With our investments we have to be concerned not with return on investment but return of investment.
Yes, we live in interesting times. The 1990s was a time when greed ruled. But the last 10 years have been driven by fear and uncertainty. Today, safety is an investor’s primary concern. But there are no guarantees.
Who can you trust?
We used to be able to trust governments, our own and others. But today, the United States has gone from being the largest creditor country in the world to the largest debtor nation. Our leaders in the legislature view themselves as members of an exclusive club driven more by getting reelected than by doing the people’s business. Today, we have politicians, not statesman.
In most cases foreign governments are even worse. Corruption is widespread. We used to expect poor South American countries to renege on their debts. Today oil-rich countries like Dubai need trillion-dollar loans from their Arab neighbors to save them from default on their obligations.
Further, the United States Federal Reserve thinks it can manipulate the money supply, believing like gods they are more powerful than the market forces of supply and demand. And the media believes it. Time magazine named Fed chairman Ben Bernanke their 2009 Man of the Year. At the same time more than 130 commercial banks have failed this year and the FDIC has increased insurance on deposits from $100,000 to $250,000.
Furthermore, due to greed, mismanagement and incompetence, many respected American companies like General Motors, AIG and even pseudo-government agencies like Fannie Mae and Freddie Mac have failed and are being bailed out by the government. Government regulators providing oversight of our banks have failed in their responsibility to protect the American public.
The real answer to whom you can trust comes down to yourself. You have to take responsibility for your investment decisions. No longer can you depend on others to protect you… not governments, not companies, not advisers.
What can you trust?
The investment outlook for the next three to five years does not look very good in the U.S. or Western Europe. We are still in a deflationary environment and appear headed into a period of stagflation. In other words, a period of slow to no growth in the economy, combined with a period of rising inflation.
You need to take steps now to protect yourself during these dangerous times. Fear, not greed, will be the driving force into the New Year and for the next several years.
The one investment you can trust, that has reliably stood the test of time, is gold. For 5,000 years gold has protected the purchasing power of its possessor. Fiat currencies like the U.S. dollar have come and gone, but gold has endured. Its value and its purchasing power have been preserved.
You don’t have to be a millionaire to own gold. And, you don’t have to put all your money into it. Start smaller. Consider placing 5 percent of your assets into gold, to buy and hold as your “wealth insurance.” This gold will be there for you and your family to serve as protection during times of crisis. As for an investment, some financial advisors suggest having between 10 percent and 15 percent more of your assets in gold, silver and platinum.
Gold has appreciated during the past 10 years by about 400 percent, going from about $250 per ounce to reach an all-time high this month of $1,226.10 per ounce. After a recent $100 correction, gold is still up about 30 percent for the year.
Some have said that gold is in a bubble and will drop in value below $1,000 per ounce. I don’t believe this, because gold is the only “real money” there is. That means gold is not backed by debt, like the U.S. dollar and other fiat currencies. As we’ve seen, gold can increase in value during times of deflation. It will increase in value even more dramatically during times of inflation, which looks inevitable over the next five years.
What can you do to protect you and your family?
An investment advisor would suggest the first step is to list your assets and liabilities to determine your net worth. The next step is to determine how much you have in investable assets. Take 5 percent of that number and consider purchasing your “wealth insurance.” Afterwards, as an investment, consider putting another 10 percent to 15 percent into a mix of gold, silver and platinum.
Most Americans buy gold in the form of 1-ounce gold coins and take possession of them. The most popular gold coins are the 22-karat American Eagle and the 24-karat American Buffalo, both produced by the U.S. Mint. The Canadian Maple Leaf, Australian Kangaroo Nugget and the Austrian Philharmonic are also popular. The 24-karat coins are becoming more popular because of their availability and their international appeal.
The procedure for ordering coins is simple. There are many precious-metals dealers in the U.S. who have toll-free telephone lines so that you can order by telephone. Simply call a few dealers who’ve been around for years and who have a good reputation. You can place your order over the telephone. Typically, orders up to $10,000 can be paid for with a personal check. For larger orders, a wire from your bank to the dealer is in order.
Once you have accomplished these first steps of gold ownership you may wish to go to the next level. Namely, place some gold in you self-directed retirement account (IRA) and consider placing some of your gold outside the U.S. There is a history of gold confiscation here in the U.S., so some holdings outside the country is prudent. History has taught us not to keep all our assets in one country, one currency or one investment.
Trust is a very fragile thing. But who better can you trust than yourself to do what is best for you and your family? Take on this responsibility in the New Year for the well-being of yourself and your family.
Best wishes for a Happy, Healthy and Prosperous New Year.