Last week I wrote about my gold and silver investments in my 401K. After I posted a link on Facebook a friend from high school wrote: “At the risk of sounding alarmist… Your entire retirement is invested in precious metals?”
Other people may be wondering the same thing. Here’s my response.
Yes. No doubt there’s some risk there, but there’s also the potential for huge rewards. If I’m wrong I’ve got a couple of decades until retirement to make a correction. If I’m right I’m going to win big. Two years ago I made my first investments in gold at $750 an ounce. It’s almost doubled since.
I didn’t get to 100% precious metals overnight. It’s been a gradual change.
I used to own stocks in my 401K. I also had stock in my private portfolio from an Internet company I worked for that IPOed in 1999. I no longer buy stocks. I’ve you’ve had money in the market the past 10 years you’ve seen some big corrections, from the dot-com bust to the 2008 crash. Stocks are hardly safe.
I also believe the market is heavily manipulated, so that the little guy is not getting a fair deal. Currently the stock market is also wildly overvalued in terms of P/E. Stocks are way up this year, but are actually down relative to gold.
I wouldn’t mind diversifying, but nothing else promises anywhere near the return or the inflation protection. Oil has some promise and looks to be on the upswing. I bought some a few years ago, but I was too early. Now’s probably a good time to buy.
FWIW, my company had a contest last year to encourage people to invest in their 401K accounts. There were prizes for the person who had the best return for the the current year, the previous year, and some longer time period like three or five years. I won two of the three categories, including the longest time period. The person who won the other was up only because he had been down so much the previous year due to the stock market crash. My winning secret? I had almost no stocks during that time. I don’t believe in ‘em anymore.
The one addendum to this is that my entire retirement is invested in precious metals right now. There’ll be a time for selling and reinvestment long before I retire. More generally, no matter you’re invested in the days of buy and hold seem to be over, even on retirement-planning timescales.
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…. owning gold and silver is a VERY good thing…..
After a decade or two of investing in mutual funds while studying economics, I completely lost faith in the stock market when I realized that it is impossible for *everyone* to realize 11% return on investment and get rich for retirement without the Fed creating massive inflation to spur the growth… which inflation would also dwarf the 11% return on investment.
Since then, I switch to durable goods and gold, silver, and land. I’d really like to find a place without property taxes, so that I actually own my land, rather than leasing it in perpetuity from the public schools.
Yep, the 11% thing is way out the window. From everything I’m reading 8% is out the window and 5 is looking optimistic.
And whatever the return of the stock market is, if you’re like me and investing in a 401K you’re not getting anywhere near that because of fees.
The individual funds you pick charge 0.5-2% in managements fees. On top of that the 401K provider charges another 0.5-1.5% in management fees, and those aren’t always clearly advertised. So you’re taking a haircut of anywhere from 1-3.5%. You have to do pretty well to get enough return after fees just to beat inflation, much less get any real return.
The simplistic way most financial advisers calculate returns for retirement planning purposes is criminal. Most people will never see returns anywhere near those rosy figures.
Indeed. Even at its best, my funds minus management didn’t match this:
http://www.shadowstats.com/alternate_data/inflation-charts
For more laughs on mutual fund performance, fees, and ratings, there’s this (not sure if I can use blockquote code in comments, but all that follows the URL is a quote):
http://www.getrichslowly.org/blog/2010/10/20/morningstar-ratings-useful-or-useless/
“The expense ratio is the annual fee for investing in a fund. This fee is charged by the mutual fund manager, and it’s one of my favorite metrics. If you assume that mutual fund managers have no value — which I find to be a very good approximation — you would expect lower costs to predict better performance. And the report found just that:
Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.
What about Morningstar ratings? Five-star ratings predicted better performance than one-star ratings in 13 of 20 observations — a success rate of just 65%. That sounds pretty good on its own, but it’s still worse than a metric that anyone can look up in seconds.
Since Morningstar uses prior performance (after fees) to calculate its ratings, the ratings already include information about expense ratios indirectly. So what is Morningstar adding with its fancy algorithm? Let’s use a little high-school algebra to find out. (Geek Alert!)
Morningstar Rating = Expense Ratio + Morningstar’s Additional Analytics
And we just found out that:
Expense Ratio > Morningstar Rating
Finally, using my graduate degree in math, I get this:
Morningstar’s Additional Analytics < 0″
So what is the easiest way to move you 401K to metals?
I don’t see that as an option in my plan.
What’s your opinion on trading on ratio?
Platinum, gold, palladium, and silver
Seems now would be a good time to shuffle the ratio to platinum. Much like mid May was a good time to move some gold into palladium. Or platinum into gold at the beginning of 2008.
Bill: your 401K plan has to offer either a metals fund or a self-directed investment option where you can invest in pretty much anything. Talk to the plan administrator in your HR department.
Dave: there’s probably something to it, but a), I don’t know anything about other metals and b) there aren’t normal times where gold and silver are simply industrial commodities, so I suspect the ratios are going to go nuts.