Nervous about the 25% Gold Allocation - Want to Ease In

[Jan Van]

Just let the PP take care of you.  The smoothness of the ride over time (both financially and emotionally) will surprise you.

That's what I'm hoping for. I currently have 1/3 of my money in the PP, the other 2/3 still in UB&H. And I must admit my gold allocation is now at 20% within the PP, but I'm adding to that weekly...

[MediumTex]

Just let the PP take care of you.  The smoothness of the ride over time (both financially and emotionally) will surprise you.

That's what I'm hoping for. I currently have 1/3 of my money in the PP, the other 2/3 still in UB&H. And I must admit my gold allocation is now at 20% within the PP, but I'm adding to that weekly...

If you can get through the first six months, you will find it is easy from there on out. 

The PP is a completely different approach to investing and intuitively you are probably sensing that the PP also has some very different assumptions about the world embedded in it than the standard investment mix.  As you begin to understand these embedded ideas in more detail, you will begin to appreciate the wisdom of Harry Browne more fully.  He was an astonishingly perceptive and subtle thinker. 

You will marvel at how the craziest and most unpredictable event in world affairs seems to somehow already be accounted for in the PP mix. 

The talking heads will begin to look especially foolish and even well-informed investors will begin to look like people with large cognitive blind spots, which results in all of their followers having similar cognitive blind spots as well.

[LNGTERMER]

Thanks for the excellent insights and analogies, i.e considering the portfolio as a room full of money to be looked at once. I laughed at that one.
I guess I just need to study Gold as as asset a bit more. I am coming from a pure stock investing perspective, i.e the usual distribution between different fund classes. It's now very clear to me how foolish this idea was, however, gold which I am starting to like the fact that it's distinct asset that has some currency hedge kinda build in it some how scares me as well. I am just not sure as to how susceptible it is for manipulation for example. In an efficient market were there are a lot of players and the asset is more or less distributed amongst many holders it would be fine, however I am not sure if that is the case. I know many governments and a few large players hold a huge quantities of it. Now that I am in the PP for the long term my only worry is that at some point gold will be dumped so much that it might take generations for it to recover. Not sure how much the re-balancing will help in this case since the idea behind re-balancing is that laggards will catch up at some point.

[craigr]

Well always remember rule #16 which is to never invest in anything you don't understand. While I think the portfolio needs gold to provide full protection, if you are uncomfortable with it then park the money in cash until you understand it more. The last thing you want is to buy an asset you don't feel comfortable with and then bail out if it hits a snag.

Also consider that it's not such a bad thing to own an asset that the govt says is worthless yet they continue to store tons of it themselves around the planet. There is a lot of duplicity in their arguments against gold.

As for gold market manipulation. I personally think no market can really be controlled. Gold is a relatively small commodity in the world. If the markets decide it's time for it to go up, nobody can stop it.

But again I think the secret to diversified investing is to get away from this idea of looking at assets in isolation. It's just not a good idea. Unfortunately I see even respected "experts" constantly do this when trying to make a case to avoid asset X and buy their favorite pet asset instead.    

[craigr]

re:gold could take years to recover.

Yep. Could happen. Happened to stocks too the past decade. Or it could stay where it is now.  We don't know. When the Dow was at 14000 I owned stocks in my permanent portfolio even though it seemed they were expensive. Yes, I could have market timed. But how dumb would I have been if the market went up to 20000? And it could have happened. But hindsight is always 20/20. As it were, I had gold and LT bonds and they saved my bacon (when various experts said they were useless assets). You just need to have a plan and stick to it.

[MediumTex]

Thanks for the excellent insights and analogies, i.e considering the portfolio as a room full of money to be looked at once. I laughed at that one.
I guess I just need to study Gold as as asset a bit more.

Here is a suggestion:  If you have not already purchased some physical gold, go buy an American Eagle one ounce coin as soon as you can.  For a few minutes each day hold it in your hand and think about how that coin is part of your own permanent asset allocation and how it represents a store of value outside the world banking/monetary/political system.  It's an interesting exercise and one that can help clarify what gold is really all about.

The problem with investing is that most of it is highly abstract, with shifting entitlements and valuations that are normally far removed from reality.  For example, what does it really mean to own a share of stock in a company?  OTOH, owning an ounce of gold is a thoroughly reality-based experience.

I think that one of the problems with the PM ETFs is that they prevent people from being able to have the experience I am describing above.  The first time you hold a gold coin in your hand, it may feel strange, but as you begin to accumulate a personal store of gold, you will begin to see it as an integral part of your overall investment strategy.  You will also begin to understand why gold has remained a durable store of value, and how even in a world of debt-based fiat money, the largest holders of gold in the world today continue to be governments and central banks.

Once you have owned gold for a while as part of a balanced portfolio like the PP, you will never want to be without it.

[Jan Van]

Here is a suggestion:  If you have not already purchased some physical gold, go buy an American Eagle one ounce coin as soon as you can.

Kind of funny, I guess, I have more trouble pulling the trigger to buy one or two coins, but I have bought a bunch of IAU and SGOL. I've been looking at the BullionDirect site again and again, and couldn't do it yet. I do want to hold one in my hand though... But then I think, what if I want to sell it. Who'll want to buy it from me? What if it's a fake coin? How do I sell it? So I've stuck to the ETFs so far. Really I do want an American Eagle. And a Krugerrand. 

[MediumTex]

Here is a suggestion:  If you have not already purchased some physical gold, go buy an American Eagle one ounce coin as soon as you can.

Kind of funny, I guess, I have more trouble pulling the trigger to buy one or two coins, but I have bought a bunch of IAU and SGOL. I've been looking at the BullionDirect site again and again, and couldn't do it yet. I do want to hold one in my hand though... But then I think, what if I want to sell it. Who'll want to buy it from me? What if it's a fake coin? How do I sell it? So I've stuck to the ETFs so far. Really I do want an American Eagle. And a Krugerrand. 

All I can tell you is that I was once where you are right now and I know the precise cluster of emotions you are experiencing.

Only time and practice will allow reality to fill in the gaps that your imagination is currently filling for you.  One common experience, I think, is to view buying gold as a deeply pessimistic thing to do.  Once you get over the hump, though, you will see that buying gold is no more pessimistic than buying car insurance--it's just something you need to do to operate safely.

A few comments, though:

1. You are VERY unlikely to get a fake coin from a reputable dealer.  Gold is hard to counterfeit.  I wouldn't worry about this too much.

2. If you ever want to sell coins (which you shouldn't if you only own a few) it's no problem to do so.  Any dealer will buy them from you at the spot price of gold or a little more.  Every coin that dealers sell is a coin that they bought from someone else.