Oh Come On

[buddtholomew]

....Seems like the biggest risk is in cash.
Is this what an inflationary environment feels like?

Cash is fine with me, as I own most of it in those much-scorned I-bonds, inflation-proof for a whopping 30 years. Largely due to chance, a number of years ago I backed up the truck and bought a load of them when it was easy to purchase $30,000 per year, with a 1.3% premium above the inflation rate to boot.

Some of the other cash, a remnant of my earlier Boglehead portfolio, is in TIPs, held in a Roth account.

And speaking of Bogleheads, who are some of the wisest people I know, it is still a mystery to me why they have so adamantly closed their minds on the subject of gold, the ultimate in uncorrelated assets.

I think most of them do, just not openly in a public forum.

[Libertarian666]

....Seems like the biggest risk is in cash.
Is this what an inflationary environment feels like?

Cash is fine with me, as I own most of it in those much-scorned I-bonds, inflation-proof for a whopping 30 years. Largely due to chance, a number of years ago I backed up the truck and bought a load of them when it was easy to purchase $30,000 per year, with a 1.3% premium above the inflation rate to boot.

Some of the other cash, a remnant of my earlier Boglehead portfolio, is in TIPs, held in a Roth account.

And speaking of Bogleheads, who are some of the wisest people I know, it is still a mystery to me why they have so adamantly closed their minds on the subject of gold, the ultimate in uncorrelated assets.

That is a mystery to me too. I guess they just can't make that last step away from conventional wisdom.

[MachineGhost]

Anyone care to comment?
"Just Own Something". Seems like the biggest risk is in cash.
Is this what an inflationary environment feels like?

This is not inflation. It's Chinese gambling, the Brexit Domino fear trade and insurance & pension funds yield chasing positive returns globally (which may include buying cash and gold instead of bonds).

True inflation is when the lamestream media is misering about rising prices all the time and everythign is indeed going up in price relentlessly -- no escape. To have that kind of inflation, you need serious aggregate demand vs limited supply which we don't have at all. Study the 70's -- it is very instruction: supply side inflation, demand side inflation, turgid economic growth, a collapsing USD that everyone and their mother was LITERALLY convinced would evaporate into worthlessness (which is why technophobe bought gold back then! tee hee) and best of all, collapsing government confidence. Thanks, Nixon!

Trust me, its not even remotely comparable to that... yet. You really think gold is gonna go to $5000 an ounce on the minor belly aches of today? Naw, it's gotta get much, much worse first.

[sophie]

....Seems like the biggest risk is in cash.
Is this what an inflationary environment feels like?

Cash is fine with me, as I own most of it in those much-scorned I-bonds, inflation-proof for a whopping 30 years. Largely due to chance, a number of years ago I backed up the truck and bought a load of them when it was easy to purchase $30,000 per year, with a 1.3% premium above the inflation rate to boot.

Nice!

I think we all recognize that I-bonds are generally worthy for deep cash, which I define as the 1/3 of the cash allocation that you probably won't need to touch in a rebalance. It's just that right now the official CPI figures are (possibly unrealistically) low, so it wouldn't be a great time to buy in. A one year T bill gets you the same rate but much better liquidity.

I would hate to have to rebalance out of I-bonds before fully retiring, because of the tax hit. That's the only problem with the inflation proofing plan. Are you still accumulating?

[goodasgold]

I would hate to have to rebalance out of I-bonds before fully retiring, because of the tax hit. That's the only problem with the inflation proofing plan. Are you still accumulating?

No, I took early retirement in 2012. But like some folks who have focused on savings for decades, I have a hard time actually drawing down my savings. A bit like a woodcutter who builds a large woodpile and is then reluctant to actually start putting it in the stove.

This is compounded by the need (as I see it) to cash in a chunk of TLTs every year to purchase "real" treasuries. I am uncomfortable with TLT loaning its clients' bonds. In a financial crunch, some of the corporations borrowing the TLTs may become insolvent, leading to big problems. So, for me, cashing in the TLTs and directly buying "real" long-term treasuries is appealing. But this process has tax consequences.

[Kbg]

This is easily avoidable as a little guy if you are concerned...just watch libor rates. If they start going up like crazy close out everything you are concerned about and go to cash or whatever you are comfortable with. And If you are dramatically concerned, then get it out of your brokerage and into several different banks.

The timing likely will not be great and Warren Buffet will be buying what you sell, but the risk is absolutely avoidable for small accounts like ours. Nimbleness is one of the few advantages for the small investor who is alert.

Seriously folks, counterparty risk for the likely size of our accounts is over done on this board. I find it particularly humorous when I read posts of folks talking about who from and where to buy gold. Id be way more concerned waiting for my gold to arrive than buying a Deutsche Bank ETF.

[iwealth]

Seriously folks, counterparty risk for the likely size of our accounts is over done on this board. I find it particularly humorous when I read posts of folks talking about who from and where to buy gold. Id be way more concerned waiting for my gold to arrive than buying a Deutsche Bank ETF.

Agreed. May as well not hold cash in the bank, bonds with the treasury, or equities with a broker if counterparty risk is that much of a concern. Some may expect an ounce of gold in hand to be useful for transacting if we experience some sort of total catastrophic financial collapse, but that's an entire separate conversation.

[dualstow]

Seriously folks, counterparty risk for the likely size of our accounts is over done on this board. I find it particularly humorous when I read posts of folks talking about who from and where to buy gold. Id be way more concerned waiting for my gold to arrive than buying a Deutsche Bank ETF.

I do find it nervewracking to wait for gold to arrive, and to store it, and to transport it to and fro the safe deposit box.
Still, I wouldn't be surprised if *a* gold ETF turned out to be a sham someday, and I am looking forward to having more in physical and less in ETFs. It just doesn't feel the same to me as owning Pepsi shares.

[Kbg]

I do find it nervewracking to wait for gold to arrive, and to store it, and to transport it to and fro the safe deposit box.
Still, I wouldn't be surprised if *a* gold ETF turned out to be a sham someday, and I am looking forward to having more in physical and less in ETFs. It just doesn't feel the same to me as owning Pepsi shares.

My last post has almost (but not quite because it would take a lot of work) convinced me to write a post on rationally looking at risk and weighing them in one's decision making. For example, I can't not prove but would guess that the odds of you getting robbed or dying in a car wreck on the way to the vault far exceed the odds of GLD going belly up. Assuming the above is true (and I have no idea if it is), a more rational strategy might be to diversify into several gold funds vice packing around physical gold concentrated in a single location.

Another for example that would be item #1 in this potential post would be something like...the risk to your personal future wealth of you not choosing a portfolio that accurately reflects your real risk tolerance and making poor trading choices at inopportune times exceeds the entire combined probability of all other systemic risk factors discussed on this board. My point isn't folks shouldn't identify potential, pay attention to and discuss various risks, but that they should pay appropriate time and attention proportional to the likelihood of said risks. But more importantly they should act accordingly.

[l82start]

My last post has almost (but not quite because it would take a lot of work) convinced me to write a post on rationally looking at risk and weighing them in one's decision making. For example, I can't not prove but would guess that the odds of you getting robbed or dying in a car wreck on the way to the vault far exceed the odds of GLD going belly up. Assuming the above is true (and I have no idea if it is), a more rational strategy might be to diversify into several gold funds vice packing around physical gold concentrated in a single location.

i have no proof either but i would put the odds as being the exact opposite, and suspect the odds of GLD going belly up to be higher... it would be an interesting calculation to figure out, the time spent driving, crash risk + the risk of robbery (assuming you keep your mouth shut and avoid bad areas) vs the near inevitability of etf's and funds vanishing or changing over time and the risk of total failure due to bad practices by managers... i don't imagine it would be an easy calculation to make but i do agree with the idea we should rationally look at risk and weighing them in one's decision making. but what if the best we can do is best guess, instinctive feel for this type of complex multi factor risk assessment?

[dragoncar]

Someone' s probably done the work on the physical gold (in the average case) -- check insurance rates

[Kbg]

For the record...I believe people should do what is most suited to them as they see fit with their assets.

[dualstow]

MediumTex once wrote an elegant post about his grandmother's (mother's?) junk silver quietly sitting around, increasing in value, exacting no expense ratio. I found that attractive. There is markup at the beginning and end (purchase & sale), but none in between.

A little intangible etf gold in retirement accounts is nice because I can easily sell it, while holding on to my coins for my heirs. Wait, what heirs? ;-)

[dragoncar]

For the record...I believe people should do what is most suited to them as they see fit with their assets.

I believe everyone should send me their gold for safekeeping

[Kbg]

For the record...I believe people should do what is most suited to them as they see fit with their assets.

I believe everyone should send me their gold for safekeeping

[MachineGhost]

A little intangible etf gold in retirement accounts is nice because I can easily sell it, while holding on to my coins for my heirs. Wait, what heirs? ;-)

Don't forget to add me to your will. I'll take good care of your coins!

Anyway, the counterparty risk is not overstated. The financial system COMPLETELY FROZE UP back in 2008. Literally, no corporation was lending to another because they had no trust the other side had no counterparty risk. Deer in headlights syndrome. And a gold trust has several financial system counterparty players all involved in dancing a delicate ballet to keep the metaphysical paper gold concept going. The allure of physical gold is it has no counterparty risk, so paper gold is truly an abomination. It's useful for trading, nothing less, nothing more. You really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really, really do not want to be left holding the bag in a crisis when one of your paper gold also goes into a crisis for whatever reason. Imagine how you will feel being the patsy... you'd feel like a fucking dumbass, stupid, a moron and all that after first being shocked silly then raped.

Take MG's sage advice and avoid all that drama.

[sophie]

Seriously folks, counterparty risk for the likely size of our accounts is over done on this board. I find it particularly humorous when I read posts of folks talking about who from and where to buy gold. Id be way more concerned waiting for my gold to arrive than buying a Deutsche Bank ETF.

I do find it nervewracking to wait for gold to arrive, and to store it, and to transport it to and fro the safe deposit box.
Still, I wouldn't be surprised if *a* gold ETF turned out to be a sham someday, and I am looking forward to having more in physical and less in ETFs. It just doesn't feel the same to me as owning Pepsi shares.

I'm with you on the gold ETFs. They make me nervous, and I also am actively working on hacking away at the amount of gold I had to buy in retirement accounts. There is nothing quite like holding a chunk of wealth in your hand in the form of gold bullion coins. It makes me feel like I've busted out of financial jail.

There's another advantage to physical gold: I fully, 100%, expect that a wealth tax will be imposed one day. Maybe a one-time event, maybe ongoing, who knows. All I know is that we are headed for a huge retirement crisis, with Social Security dwindling, costs for the things you need most as you age (i.e. medical care, utilities, and food) going up, up, and more up, and with 90% of the population spending themselves into oblivion instead of saving for retirement in their high fee 401K actively managed funds that will all magically disappear the next time there's a stock market crash.

[dualstow]

A wealth tax? I hope I don't live to see the day. (Crosses fingers), I mean not in a twisted Monkey's Paw story kind of way. I don't want to die young.
I just really fear something like a wealth tax. Seems like communism.

[dualstow]

A little intangible etf gold in retirement accounts is nice because I can easily sell it, while holding on to my coins for my heirs. Wait, what heirs? ;-)

Don't forget to add me to your will. I'll take good care of your coins!

No problem. I'll just need your full name and social.

[MachineGhost]

A little intangible etf gold in retirement accounts is nice because I can easily sell it, while holding on to my coins for my heirs. Wait, what heirs? ;-)

Don't forget to add me to your will. I'll take good care of your coins!

No problem. I'll just need your full name and social.

Can I trust you?

[dualstow]

Can I trust you?

You know that logic puzzle with the knights who always answer honestly and the knaves who always answer falsely?
Either way, the answer is 'yes'.

[Kbg]

So exactly what happened to GLD during the largest financial crisis since the Great Depression? And what happened to real gold during the Great Depression?

Answers: Nothing, confiscated.

We can have theory all day long, but the facts of the two actual SHTF scenarios conflict with the theory. Sans a true apocalypse digital money isn't going away in our lifetimes. And I already have farmland and guns. I don't need no stinking gold. :-)

[dualstow]

So exactly what happened to GLD during the largest financial crisis since the Great Depression? And what happened to real gold during the Great Depression?

Answers: Nothing, confiscated.

We can have theory all day long, but the facts of the two actual SHTF scenarios conflict with the theory. Sans a true apocalypse digital money isn't going away in our lifetimes. And I already have farmland and guns. I don't need no stinking gold. :-)

3 small things:
So, you think that the folks at GLD (or whatever etf) would get to keep their gold if ours was confiscated?
Past performance disaster is no indication of the future.
I don't think a financial crisis will cause trouble with an etf. I think it's possible that there will be a scandal due to to mismanagement. It might be uncovered by a financial crisis, I suppose.

[Kbg]

3 small things:
So, you think that the folks at GLD (or whatever etf) would get to keep their gold if ours was confiscated?
Past performance disaster is no indication of the future.
I don't think a financial crisis will cause trouble with an etf. I think it's possible that there will be a scandal due to to mismanagement. It might be uncovered by a financial crisis, I suppose.

No.
Agree.
Possible, but I doubt it with Blackrock or State Street for example. Do you think it just might be possible that due diligence is being performed by those with a much larger piece of that 50B AUM than us which keeps them honest? Also, what possible reason could State Street (GLD's sponsor) have to put 164M annually in fees at risk?

[MachineGhost]

So exactly what happened to GLD during the largest financial crisis since the Great Depression? And what happened to real gold during the Great Depression?

Answers: Nothing, confiscated.

We can have theory all day long, but the facts of the two actual SHTF scenarios conflict with the theory. Sans a true apocalypse digital money isn't going away in our lifetimes. And I already have farmland and guns. I don't need no stinking gold. :-)

I think you're confused about operational reality. Money in any form is not a store of value, it is merely a medium for transacting value to others. So back in the Great Depression when the USD and banking system were required to be backed by reserves of gold (used to clear interbank transactions), it made sense to confiscate gold to force a USD devaluation and stoke inflation (or at least cut the legs off of deflation). If the USD was still pegged to gold during 2008, you better believe they would have tried that again. There's nothing controversial about this. Whenver a currency unit is too strong and people are hoarding it, devaluation is always resorted to. The difference now is without artificial pegs, the USD is free floating and can devalue based on the free market rather than by government edict. QEternity is an attempt at devaluation but central bankers are clueless about operational reality as well.

Like all real assets, gold also got spanked pretty hard during 2008 and just managed to eek out a gain by calendar year end. Why it has virtures over other real assets is its long history of being used as coin money & bank reserves, the portability (its not rooted and easily overtaxed like real estate is) and immediate liquidity.