Why 10-20%??

[Exarel]

Why do people say invest 10-20% of your savings in gold/silver? I don't understand.. why not 100%? We know the direction we are headed due to printing of money.. so why not dump all savings into the metals?

 

[forsmant]

I suppose it is because the market is generally risky. I would recommend 50% gold silver and 50% short term debt like treasuries. That way you are hedged against inflation and deflation.

 

[billyjoeallen]

An "investment" is something you believe will go up in value.

If you think of gold as "real money" as many people in tyhese forums do, then gold can't possibly be an investment because in terms of it's value in gold or its "real value" it never changes. If you accept the premise, then gold is a store of value and possibly a medium of exchange, but never an investment. Factoring in transaction costs would mean buying gold is always a losing proposition in absolute terms. It only becomes a good idea when you cansider opportunity costs.

So gold is a hedge, a bet against yourself as a way to manage risk. It's like buying a life insurance policy. In both cases, you hope you lose.

Personally, I think gold is an investment, and a good one right now. I think wealth is better measured in energy, not metals. All bears (people who think the economy is slowing) advise putting your money in commodities like gold, oil, electricity futures, soy beans pork bellies or whatever. It's a "hedge" on inflation.

 

[icon124]

it depends on a few things...

1. You always want some sort of cash, so you can catch the deals when they happen (maybe 10% cash)

2. Your investment Horizon...if you don't need to money in the short term you can invest a higher percent. IF you may need the money don't invest all your eggs in one basket. There might be a short downtrend (and with most peoples luck, they will need the cash bad during this down trend). For instance with gold...the IMF is going to dump a bunch soon, therefore increasing the supply...and for a short period probably lowering the price a little.

3. The unforeseen event. You could never predict when this could happen, but say you have all your money in gold and something extreme happens...like the Government takes control and you aren't allowed to own gold any more. All of your investment was in this one area, and now your pretty much screwed. Diversity can eliminate any unnecessary risk (think it's called systematic risk) leaving only unsystematic risk (maybe the other way around, but one of those risks are eliminated with diversification lol

 

[billyjoeallen]

I suppose it is because the market is generally risky. I would recommend 50% gold silver and 50% short term debt like treasuries. That way you are hedged against inflation and deflation.

That is probably the most conservative investment strategy possible. It is the best way to minimize risk, but almost certainly sacrifices opportunities to do better. I would only recommend a 50/50 strategy like that if you have extremely low risk tolerance.

Most of us on this forums are bears, but that doesn't mean we all are so risk averse. I like to gamble a bit more than most so I would recommend short positions. That's how Soros made a billion dollars in one day betting the Brittish pound would go down.

 

[Paulitician]

Mainly because people don't want to lose their shirts.

There are also better ways to make money than just investing in gold and silver (or other metals).

 

[forsmant]

That is probably the most conservative investment strategy possible. It is the best way to minimize risk, but almost certainly sacrifices opportunities to do better. I would only recommend a 50/50 strategy like that if you have extremely low risk tolerance.

Most of us on this forums are bears, but that doesn't mean we all are so risk averse. I like to gamble a bit more than most so I would recommend short positions. That's how Soros made a billion dollars in one day betting the Brittish pound would go down.

I am poor and would probably need the liquidity of the money market over the gold. I am looking to minimize risk.

 

[JSutter]

You don't "know" which way the market is going, you're betting on it. In the really early 80's people thought they "knew' which way the market was going to when silver was at $50 and we had some of the same problems we have today. But they got surprised when a shit ton of silver got dumped onto the market and killed the price. Market players holding a lot more metal than we could ever dream of could decide to put all their silver on the market at $30 when we get there and the added supply would put us into "surplus" territory again because there'd be more on the market than buyers were looking for and the price would start falling again.

Supply and demand run the market and you never know which is going to throw the price one way or the other. Case in point right now would be the African mines. with the power supply problems they've been having their output has dropped making supply less than demand for platinum and the price has skyrocketed because major auto manufacturers are trying to lock in costs now before it goes higher. Once the power supply problems are solved and output picks up again if the price starts falling then the auto manufacturers may try to short sell and dump what they bought back on the market while prices are high hoping to buy it back when the prices have dropped.

Don't ever assume you "know" anything when it comes to the markets.

 

[Corydoras]

Obviously you have the right to invest 100% in precious metals. After all, there are people who are 100% invested in their house. But PMs are a lot more volatile than houses. You'd better have the stomach to watch yourself lose dollar value every time there's a downtick.

Big question: You sure you know when to sell?

 

[youngbuck]

I just got the feeling that we are much more likely to delve deeper into inflation rather than experiencing any deflation. For this reason alone, I'd recommend stepping beyond the conventional 10-20%. A solid 50% IMHO, and the rest in necessities like food, water source, guns, ammo, etc.

 

[Cleaner44]

I am poor and would probably need the liquidity of the money market over the gold. I am looking to minimize risk.

I found in the past that www.INGDirect.com was a better option than money market accounts.

With an Orange Savings Account, you earn a variable 3.40% Annual Percentage Yield (effective 02/01/08)

 

[Paulitician]

Big question: You sure you know when to sell?

Indeed.

And JSutter makes a good point, obviously.

Mike Maloney outlines the whole situation quite nicely and with great insight. You should watch this:

http://www.youtube.com/watch?v=FOKn7tiUMyc

 

[DrCap]

You don't "know" which way the market is going, you're betting on it. ...
Don't ever assume you "know" anything when it comes to the markets.

In reality, if I knew for certain what the price of a commodity or stock was going to be at some day in the future, I could make a boatload of money, because with the options you can basically 'bet' on a price in the 'future' - so I could borrow gobs of money, place my bet, be right, and make 10 times or much more in one day. It's kind of like if you knew in advance what number the ball would fall on in roulette, you could place a huge bet and get a gigantic return. So we don't know, we 'believe' or make educated guesses. This really is a key point of Austrian Economics, in that we really can't predict economics with certainty - we can tell direction or change but not quantity or timing of change. And there are lots of big players who can 'move markets' at least for a short or intermediate time frame. So metals might go up up up, but they could also crash in the next few weeks back to gold being $600 an ounce or less, and then a year or two or 10 years go up like mad to $10,000 an ounce and never come down... so if I knew for certain I'd be placing trades and borrowing from loan sharks to place more trades instead of typing this explanation.

 

[AceNZ]

I don't understand.. why not 100%?

Because diversification is one of the cornerstones of sound investing.

There are a lot of other ways to protect yourself from a falling dollar than just precious metals.

 

[BW4Paul]

c
There are a lot of other ways to protect yourself from a falling dollar than just precious metals.

What else do you recommend, besides food and oil commodities? I don't know much about investment, but I'm trying to learn quickly. :o

 

[scooter]

What else do you recommend, besides food and oil commodities? I don't know much about investment, but I'm trying to learn quickly. :o

Precious metals, and commodities in general, can be very volatile. If you see them as an investment (as I do), then you must look at the fact that they are not just driven by inflation in currency. In fact, this is a pretty small portion of their valuation. Gold's demand is particularly driven by the amount taken from mines and the amount of jewelry consumption. India/China with jewelry have a significant impact on the prices.

It's important to realize that PM's are not a 1-to-1 relation with inflation of the money supply. The money supply increased in the 80s and 90s, but gold and silver still got hammered. Usually when you have high inflation precious metals will go up, but they go up along with other commodities.

So with that being explained, you never want to put all of your eggs in one basket. Unless you are saving for a big purchase, I wouldn't even put more than 20% in cash. You need a certain amount of cash, stocks, commodities, bonds, etc. for your timeframe. If you are young, nothing beats inflation better than stocks.

Right now there are TONS of stocks that will do well from our inflationary environment. And usually they will do much better than precious metals. Oil drillers benefit the most from rising oil prices. Agriculture companies are benefitting from the rise of ethanol and more expensive food prices worldwide.

Look to invest in gold miners, oil drillers, and agriculture to bring in some cash as a result of rising commodity prices. It is a lot less risky than investing in the commodities directly.

Also, I've been doing very well investing in companies that are based in the United States, but more than 50% of their profits come from overseas. They sell the goods in stronger currencies, then convert it to dollars and it adds all the inflation back to their bottom line.

 

[AceNZ]

What else do you recommend, besides food and oil commodities? I don't know much about investment, but I'm trying to learn quickly. :o

Currencies of countries with commodity-oriented economies (AUS, NZ, Canada) -- possibly as bank CDs
Stocks of commodity-oriented companies in those countries (some pay very nice dividends, which can be a plus)
Stocks in high-growth countries or areas that support them (China, Hong Kong, Singapore) -- although I'm anticipating a correction there when the situation in the US becomes more widely acknowledged

 

[Exarel]

Ok so, lets say i have 40k saved up and i'm new to investing. I was assuming i'd go and get gold and silver with that, but obviously i'm researching and trying to learn first.

What percentages should go to physical gold, physical silver, and what percentages to other stuff like agriculture as previously suggested

 

[AceNZ]

Ok so, lets say i have 40k saved up and i'm new to investing. I was assuming i'd go and get gold and silver with that, but obviously i'm researching and trying to learn first.

What percentages should go to physical gold, physical silver, and what percentages to other stuff like agriculture as previously suggested

Have a look at this thread for some ideas:

http://www.ronpaulforums.com/showthread.php?t=122800

 

[CitizenPlain]

Protect only what you want to save.

...