Author Topic: My First Post! Gold vs. anything else  (Read 5983 times)

sublime9528

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My First Post! Gold vs. anything else
« on: July 10, 2014, 08:35:28 PM »
Hi everyone!

I just joined the forum after reading through a bunch of MMM's blog entries, and I'm getting myself in gear to give this whole frugality project a try. My first question concerns my initial foray into investing: a few years ago I inherited a collection of gold and silver coins from my grandfather, recently worth anywhere between $10K-$15K depending on the current price of gold/silver and the value of the coins.  Until now they've been sitting in my attic, but now I'm wondering whether I should invest some of this money into mutual funds, index funds, or some other investment, or to just leave them be. 

Some background:
I'm 26 and going to graduate medical school in 2 years.  I'm very fortunate that I wont be leaving school with any debt, and although I'm not making an income yet, I do have my basic living expenses covered until I graduate.  During my residency (lasting anywhere between 3-5 years post graduation) I'll be making approx. $50K per year, plus any additional earnings from moonlighting.  After that, I'll be up to a real doctors salary.  So until then, these coins are basically what I've got to work with investment-wise.

So... on the one hand, unlike other investments, theres no risk of gold completely losing its value, and are a sure safety net.  On the other hand, something like an index or mutual fund may get me more returns, and it may be good to get my feet wet in the investing world now, while I'm still dealing with relatively smaller amounts of money.  But these funds have more risk (even the conservative ones).  Given the recent highs of the stock markets, I'm also worried about another downturn in the near future. 

So that's my dilemma - let the coins sit and serve as a safety net for the next few years, and see where gold/silver prices go, or invest some portion in another way, and take a risk.  I'd like to hear any thoughts and advice you all have!  Thanks in advance - I'm excited to join this community.

- MLG

dragoncar

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Re: My First Post! Gold vs. anything else
« Reply #1 on: July 10, 2014, 08:55:13 PM »
What's your net worth now? Are you 100% invested in gold?  I'd probably keep it but more details required

sublime9528

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Re: My First Post! Gold vs. anything else
« Reply #2 on: July 10, 2014, 09:02:42 PM »
Right now I have no savings.  I have a small stipend which covers living expenses, so these coins are all I've got in terms of savings.  So I suppose my net worth is whatever the current value of the coins is?

milesdividendmd

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Re: My First Post! Gold vs. anything else
« Reply #3 on: July 10, 2014, 10:43:22 PM »
It is safe to say that a 100% gold portfolio is not the best use of your money.

Having been in your shoes (minus the no debt from medical school part) I can tell you you're in for a wild ride. You get to experience being low income, lower middle-class income, and rich, over the course of 5 to 10 short years!

now would be a great time for you to dip your toes into the stock market, as the majority of your earnings will be in your out years after residency.

If you make mistakes now the stakes are low.

The only reason to keep the gold is for sentimental value. Short of this the smartest use would be to invest it in the market, preferably in a tax preferred account like a Roth IRA.

If you fully embrace Mustachianism now, you should be able to retire within seven or eight years of entering practice (though you may not want to.)

Blogs that you may enjoy that are pertinent to your current situation are:

whitecoatinvestor.com
Bogleheads.org

And maybe even mine!

Good luck. And when you are beeped out of bed at 3:00 in the morning, try to remember the patient you are being called about. I find that trick makes me much less bitter.



fixer-upper

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Re: My First Post! Gold vs. anything else
« Reply #4 on: July 10, 2014, 10:43:40 PM »
Id hold for a stock pullback in relation to metals, but thats just my opinion.

If you plan to liquidate, you should study the market as much as much as you would a stock before buying into it.  Where do you stand in relation to the typical Dow/gold ratio, are there seasonal advantages, are they collectible, or just worth bullion value, etc. Where you sell can also make as much of a difference to your bottom line as when. 

If you message me with some specifics, I can help to point you in the right direction.

TomTX

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Re: My First Post! Gold vs. anything else
« Reply #5 on: July 11, 2014, 05:44:03 AM »
I would liquidate at least enough gold to set up a full annual contribution to a Roth IRA at Vanguard, putting it all in the Total Stock Market fund.

If you can't find a dealer who will pay you spot, I had good luck at a gun show selling off some junk silver. Found a guy who was paying 1% ABOVE spot.

RyanHesson

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Re: My First Post! Gold vs. anything else
« Reply #6 on: July 11, 2014, 08:59:18 AM »
During the next market crash there's a reasonable chance gold will surge in response. I'd hold onto them until then. Now isn't a good time to sell gold and silver.

GreenPen

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Re: My First Post! Gold vs. anything else
« Reply #7 on: July 11, 2014, 09:15:09 AM »
... a few years ago I inherited a collection of gold and silver coins from my grandfather, recently worth anywhere between $10K-$15K depending on the current price of gold/silver and the value of the coins.

The price of gold and silver is more volatile than many people think. I don't know much about coin collection, but this sounds like an incredibly volatile investment. Ranging between $10-15k in the last few years?

So... on the one hand, unlike other investments, theres no risk of gold completely losing its value, and are a sure safety net.  On the other hand, something like an index or mutual fund may get me more returns, and it may be good to get my feet wet in the investing world now, while I'm still dealing with relatively smaller amounts of money.  But these funds have more risk (even the conservative ones).

If the price of these coins is so volatile, I am not convinced that they are a "sure safety net". If you are looking for safety, you might want to consider government bonds.

It is probably true that gold will never completely lose its value, as you point out. But couldn't we say the same thing about a broad index fund? The S&P--just like gold--loses some of its value all the time. But also like gold, there is about a zero probability that the value of an index fund will be "completely" lost.

KBecks2

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Re: My First Post! Gold vs. anything else
« Reply #8 on: July 11, 2014, 09:21:36 AM »
Here is my suggestion:

-- Figure out your budget with your new salary
-- Save a $1,000 emergency fund from your new salary
-- Save your $5,500 ROTH from your new salary
-- Keep the coins.  (If you want, have them appraised.)

But mainly, try to save up out of your new income and don't rush to "spend" your inheritance.  Those coins will be a nice part of your portfolio as you grow.  Or, if you must sell -- sell only a portion and keep some around.   But try to hang onto them.  That's the great part of savings, you save it.  Try to keep them to pass on to your own children and grandchildren. 

KBecks2

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Re: My First Post! Gold vs. anything else
« Reply #9 on: July 11, 2014, 09:22:24 AM »
I would also suggest inventorying your coins and looking up their value.  Keep them safe.  Figure safe storage for them.  Have fun!

fixer-upper

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Re: My First Post! Gold vs. anything else
« Reply #10 on: July 11, 2014, 09:37:08 AM »
Here's what you need to know about metals versus stocks.  Right now, a DOW share will buy 13 oz of gold, while the long term trend shows it should be around twice that many ounces. 

http://sharelynx.com/chartstemp/DowGoldRatio.php

« Last Edit: July 11, 2014, 09:55:05 AM by fixer-upper »

beltim

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Re: My First Post! Gold vs. anything else
« Reply #11 on: July 11, 2014, 09:47:10 AM »
Here's what you need to know about metals versus stocks.  Right now, an ounce of gold will buy 13 DOW shares, while the trend line suggests it should buy around twice that much.

http://sharelynx.com/chartstemp/DowGoldRatio.php

This seems like a stupid time to make the trade.

You've got the numerator and denominator reversed.  It takes 13 ounces of gold to buy one unit of the Dow index. 

My philosophy has always been that gold doesn't produce anything, and so over very long periods of time, should stay the same value.  Unless I need something small and valuable to carry as much of my wealth with me as possible while I flee a country, I'd much rather buy an asset that actually does something instead of just looking pretty.  My favorite comment on gold comes from Warren Buffett:

Quote
I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today's market prices about $7 trillion – that's probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I'll take the farmland and the Exxon Mobils.

milesdividendmd

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Re: My First Post! Gold vs. anything else
« Reply #12 on: July 11, 2014, 12:11:07 PM »
Great quote.

I do not own any gold or commodities in my portfolio for similar reasons to yours. But you can make a very good argument for owning 5-10% gold in your portfolio as a diversifier, (historically such an allocation has increased portfolio  returns relative to risk. )



fixer-upper

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Re: My First Post! Gold vs. anything else
« Reply #13 on: July 11, 2014, 12:57:10 PM »
Great quote.

I do not own any gold or commodities in my portfolio for similar reasons to yours. But you can make a very good argument for owning 5-10% gold in your portfolio as a diversifier, (historically such an allocation has increased portfolio  returns relative to risk.)

Gold can work for you as part of a trading pairs strategy.  It tends to work in the opposite direction as home builders, helping to build wealth whenever there is a swing in the respective values.  If you had equal allocations of each, the only thing necessary is to rebalance the pair whenever the differential values surpass X%.  In that respect, the volatility which scares people off is an advantage rather than a liability.


Honest Abe

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Re: My First Post! Gold vs. anything else
« Reply #14 on: July 11, 2014, 06:03:47 PM »
It should be noted that gold has zero counter-party risk. Once it's in your hands, you own it. Period.

Having said that I believe it should be a part of a well-diversified portfolio that includes equities, fixed income and real estate. As far as asset allocation, that's up to you. 

Good luck!

waltworks

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Re: My First Post! Gold vs. anything else
« Reply #15 on: July 11, 2014, 07:17:14 PM »
Sell the gold, buy a bunch of (tax advantaged if possible) index funds. Then forget all about it for the next decade or so while you finish your residency and start making money.

-W

TomTX

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Re: My First Post! Gold vs. anything else
« Reply #16 on: July 11, 2014, 08:00:26 PM »
It should be noted that gold has zero counter-party risk. Once it's in your hands, you own it. Period.


Physical, in-hand gold, yes. However, the vast majority of personal gold investments are not physical, in-hand gold. You have a piece of paper (or today, an electronic file) that says you own some gold which is stored in someone else's vault.

franklin w. dixon

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Re: My First Post! Gold vs. anything else
« Reply #17 on: July 11, 2014, 08:14:19 PM »
It should be noted that gold has zero counter-party risk. Once it's in your hands, you own it. Period.


Physical, in-hand gold, yes. However, the vast majority of personal gold investments are not physical, in-hand gold. You have a piece of paper (or today, an electronic file) that says you own some gold which is stored in someone else's vault.
And physical, in-hand gold has the noted risk of: somebody gives your doubloons the yoinkeroo while you aren't lookin.

BFGirl

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Re: My First Post! Gold vs. anything else
« Reply #18 on: July 11, 2014, 09:34:15 PM »
I would probably hold onto them.  If you will be earning 50K as a resident and are living a Mustachian lifestyle (and have little debt) you should be able to save enough out of your salary to invest in the next couple of years.

sublime9528

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Re: My First Post! Gold vs. anything else
« Reply #19 on: July 12, 2014, 04:30:17 AM »
Wow thanks for all the responses - this info is all very helpful.  It sounds like there's differing opinions about all of this, which is what I expected.  After thinking about it some more, I may take these coins to a professional to have them appraised and do some research on the value of the coins re: their collectible status, as opposed to the price of the gold or silver itself.  Then I can make a more informed decision about whether to keep all of them or sell some off. 

I think the real challenge for the next few years is going to be to take the set stipend I have and cut down enough spending so that I can start saving that money right now....

Tyler

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Re: My First Post! Gold vs. anything else
« Reply #20 on: July 12, 2014, 09:55:04 PM »
After thinking about it some more, I may take these coins to a professional to have them appraised and do some research on the value of the coins re: their collectible status, as opposed to the price of the gold or silver itself.  Then I can make a more informed decision about whether to keep all of them or sell some off. 

Wise choice.  Since this is from your grandfather's collection, it's possible there may be numismatic coins among the lot (worth more than the weight in gold based on collectability).  I'd recommend getting them appraised by more than one professional before doing anything.  And if you do sell a few, stick to well-known, reputable dealers. 

IMHO, keeping some physical gold as part of your portfolio is a fine idea.  So there's no need to liquidate the entire lot.

Willbrewer

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Re: My First Post! Gold vs. anything else
« Reply #21 on: July 12, 2014, 10:30:55 PM »
Sublime, be careful about taking the coins to a professional for appraisal. If they offer to buy any of your coins on the spot, don't sell. Those will probably be worth much more than is offered, so do some more research. You might find prices for some of your coins at the CoinWorld website.

http://www.coinworld.com/coinvalues.html

Mr Mark

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Re: My First Post! Gold vs. anything else
« Reply #22 on: July 13, 2014, 09:42:16 PM »
You need to compare the current value of the coins (lets just assume they match inflation for the next 20 years) with what the money would be worth after 20 years in the market under your baseline portfolio assumptions, vs the thought that in 20 years you could still have the coins from your family, sentimental value, pass it on to next generations perhaps plus the final size of your stake without that investment return.

Another way: If you had your stash for FIRE right now, What % of your final FIRE portfolio would the value of the coins represent? How does that compare with owning those additional special 'super tulips' that your family owned, and are hence 'special'.