CHISWICK, WEST LONDON – Greetings from my mother’s home in London. It’s time for our weekly mailbag edition, where we go over the latest questions you’ve sent in.
This week, I answer an important question. How do I remain confident in my “all in” gold position… even through dips in the gold price, like we’re seeing today?
We also discuss the best ways to buy physical gold… And why I don’t “love” gold, even though I have nearly all my family’s wealth tied up in it.
Finally, I explain in more detail why I hope my kids never set foot in an academic institution… And a reader challenges my claim from last Friday’s mailbag that “antique furniture is completely out of fashion at the moment and is almost worthless.”
All this and more below, so let’s dive right in…
Reader question: I absolutely get what you are saying about gold but my shares and property are rising whilst the gold portion has lost 10%. I can’t quite pull the trigger to go “all-in” on gold, although I’m tempted. How do you remain confident in your position and deal with any nagging doubts that may raise their head?
Our capital is irreplaceable, so we need to be very sure of our investment strategy. We cannot lose our money.
Gold is the safest asset in the financial universe. It’s the equivalent of putting money under the mattress or burying it in a coffee can… Except, unlike the dollars under your mattress, gold retains its buying power over time.
One problem with gold is it doesn’t have cash flow, so there’s no power of compounding for us to benefit from.
But that’s okay, because we’re in an “everything bubble.” Streams of cash flow are so expensive right now, that compounding isn’t a safe strategy anyway.
One thing I love about gold is, even though it’s the safest of all places to store wealth, I also think there’s a good chance we make 5x or 10x our investment over the next decade or so.
So with gold, we have the best of both worlds… utmost safety and a big swing at the fence both in the same investment.
That’s what gives me the confidence.
Reader question: Will your additional purchases all be physical gold? And if so, at this stage, what is your criteria? Small denominations of coins and bullion for easier exchange? Larger denominations of bullion for lowest mark-up?
I have yet to take the plunge into physical purchases, per your detailed advice. But since you’ll be buying again, I’d like to hear a quick take from you as things stand now.
I prefer 1-ounce gold coins, but they’re getting more and more expensive with every passing week. I’d also consider buying 1-ounce gold bars if coins were too expensive.
But for anyone buying gold, I always ask: Do you already have enough physical gold in your possession? If not, that’s where I’d start. Here’s what I mean…
There are several ways to own physical gold.
You can do it the old-fashioned way… by buying coins or bars that you store at home (or somewhere else that only you have access to). This is gold you can hold in your hand.
You can also own physical gold through the stock market… by buying gold exchange-traded funds (ETFs) with shares you can redeem for physical gold.
Or you can buy physical gold online or over the phone through a company that stores it for you. This is different from the first option because, unless you choose to withdraw your bullion at some point, you’ll never see this gold in person.
Kate and I already have a big position in the kind of physical gold we can hold in our hands. I “buried” it in the USA.
Any additional gold we purchase now will probably be in a vault through a company like BullionVault or Sprott.
Reader question: Given your trip to London and possible continued travel, where do you store your gold? I think you’ve answered this (hold a small amount and store far away the rest).
But in a world crisis scenario where you’d benefit by having your physical gold to trade for necessities, and you’re too far from your stored location, and should supply chains break down for long periods, what then?
A true prepper would barter as needed from his property that provides food, water, and shelter. I’d want my gold secured near my bolthole to facilitate trade when needed.
I do not think there’s going to be a breakdown of law and order in the USA.
I expect the dollar will continue to function as the prominent medium of exchange in the USA for the rest of my lifetime. So I do not imagine ever having to trade gold for necessities.
For us, gold is just a safe place to pass the time and preserve purchasing power until we can buy world-class, income-producing assets again.
I do not love gold. I just see it as “sitting on the sidelines.”
My true investment passion is world class, cash-flow-producing assets that you can hold for decades and harness the power of compounding with.
Reader question: In your last postcard, you said you “think gold stocks are vulnerable to stock market crashes (a general decline in the value of publicly traded equity). Gold stocks are speculative vehicles by nature, and when the liquidity evaporates, they can fall quickly, even as gold rises.”
Are you including gold ETFs as gold stocks? For those of us with investments in 401(k)s/IRAs, would you recommend getting out of ETFs, too, and trying to have the custodian hold physical gold instead? I think that’s an option for my Fidelity IRA, but I worry about devaluation and liquidity.
No, I am not including gold ETFs as gold stocks. Forgive me for not being more precise.
When I made that comment, I was referring to gold mining equities. A good gold ETF is the safest place you can possibly put your money. (I like gold ETFs whose shares can be redeemed for physical gold.)
As for getting out of ETFs and turning your IRA into physical gold (using gold coins held by a custodian, perhaps), I wouldn’t do that.
I’m afraid of fees and transaction expenses. And it’s not necessary. There are good gold ETFs that do the same job for less than 0.5% in annual fees.
I gave the name of my No. 1 gold ETF choice to my Tom’s Portfolio subscribers. If you’re paid-up, read on here to catch up on the details on my favorite gold ETF to own today.
If you’re not paid-up yet, but you’re interested in getting all my in-depth research on how to buy physical gold and gold stocks… watch this to learn more.
Reader question: When you wrote that you hoped that your sons never set foot in an academic institution or that they would have to pay for it themselves, I became curious. Please elaborate further!!
It would be advantageous if you could also address the fact that your kids are in a unique situation in that they have at least one parent who is highly financially literate and is making sure that they understand economics.
How do you think your outlook on education would be different, if at all, if you were not financially educated and/or did not have an international perspective? And how do you view the need for college for kids who do not come from financially literate households?
This is such a deep and nuanced question. Forgive me if I don’t do it justice here… Or if I sound like I know what I am talking about, because I don’t. (We’re making it up as we go along.)
But here goes at answering your question…
As we see it, our job as parents is to prepare the children for independence. And there’s so much more to this preparation than just financial literacy or a college degree.
For example, Kate and I have always said that the only quality we care about is that our children are kind. I’m not even sure we can control this, but that’s the big goal.
Also, we hope our children are humans that other humans like being around, which requires a whole host of “soft” interpersonal skills.
Our relationships with others are the most important “assets” we have in life, and we hope that if our kids are charismatic people, many doors will open for them.
Also, we’d like our children to respect their bodies and minds… to eat properly… to exercise… to meditate… to manage their feelings and emotions. Good health is so important.
So these are some of the ideas we set the dials by…
Now back to your question: How would I feel about homeschooling if I were not financially educated or I didn’t have an international perspective?
It’s impossible to say, but I’d like to think none of what I’ve said above would change.
Reader question: Please explain why you so strongly oppose your children attending a university. I am so curious.
Because I don’t think it offers good value for their money or time anymore.
The value of a university degree is falling every year. And I think, with the right mentorship, they can prepare themselves for the workforce much more effectively without going to university.
Reader question: Just wondering how your children might get jobs without a formal education. A GED is necessary for most things in the U.S., but not admired. A family business might be the only promise for a job beyond. Will that be locking in their dreams?
My son went to high school with many homeschooled kids. They had no idea how structure and protocol worked. And were definitely loners. He felt ok with them as an only child, but most others felt they were just weird.
We wonder if our kids would get bullied at a school. They’re not loners, though. They’re actually very comfortable socializing with people of all ages.
We’d love to find a family-based business we could all work on together.
Also, we’re thinking about finding them apprenticeships in the trades… say plumbing, electrics, woodworking, or general construction.
Reader question: For the Dow-to-Gold ratio to drop to 5, we need gold to be at $6,000 and the Dow to be at 30,000. Or we need the Dow to drop to 10,000 and gold to be $2,000. And many variations between these two extremes. Which one do you think would be most likely? Does it make a difference which extreme drives the Dow-to-Gold ratio of 5?
Good question. This is something I’ve spent a lot of time thinking about.
If the Dow-to-Gold ratio hits 5, I think it’s most likely to occur with both the Dow Jones and gold at higher levels than where they are today.
That’s because I think the Federal Reserve and the government will do whatever it takes to keep asset prices inflated.
Does it matter? Not really. Because, as regular readers know, I’m committed to trading our gold for equity once the Dow-to-Gold ratio falls below 5… almost like a barter transaction.
The nominal prices of the Dow and gold in terms of dollars are irrelevant.
Reader question: My savings are mostly in the U.S. but I’m back in the U.K. now, and returning after being an expat for 20 years has its nuances – not least contrasting tax regimes. Any thoughts on how you would hedge for such a situation: retiring back to the U.K. after two decades in the U.S.?
A very interesting question. I probably wouldn’t hedge anything.
I think dollar and sterling are two peas in the same pod… And I don’t have a strong view that one will perform better than the other.
I’m far more concerned with hedging the purchasing power of my savings against a decline in the value of paper currency in general.
This is why we’re buying gold. Gold doesn’t care whether it’s traded locally in sterling or dollars.
By the way, I don’t know your situation, and I can’t give personalized advice. But I’ve had good experiences moving money between the USA and the U.K. with a company called HiFX.
It’s a UK-based foreign exchange broker and payments provider. It provides foreign exchange and international money transfer services. And it charges much less than regular banks.
Reader comment: In your latest mailbag, you comment that your mom’s antique furniture is almost worthless. Depending on its condition, there is a niche market for the old stuff. I subscribe to Architectural Digest. Some of the richest and fanciest homeowners featured there often point to their antique furniture.
Just suggesting you check out that market… Don’t let what you think you know get in the way of discovering what you don’t know.
Hahaha… I totally agree with you. I’m excited to learn about antique furniture and how we can realize its full value.
And that’s all we have time for today… As always, please keep writing us at [email protected].
I can’t give personalized investment advice, but I’ll answer as many of your questions as possible in future Friday mailbag editions.
– Tom Dyson