Post Race!

[Shaggy Hiker]

Anybody looked at gold prices since I brought it up... I think back in July? Wow.

I suspect part of it is really USD weakness and "real" inflation. But since other currencies are Dollar-based and they are doing even worse... something is going on. Canuckabucks are down to 72 cents US.

Bank runs next?

I'm in Albuquerque with my father and his wife. She's not doing great, but the key is that she sleeps sitting up in front of the TV, and tends to be awake at night. Therefore, I hear the TV when I wake up (or get woken up) late at night. Last night I heard gold ads. It might have been a home shopping kind of thing, but it was all about gold investing. Perhaps there's some heavy advertising also helping.

[Shaggy Hiker]

I've never been all that fond of gold as an investment. I know it's considered a hedge, but seems like one of those hedges that have lots of thorns: It's a hedge, but kind of painful to get into and out of.

[Shaggy Hiker]

Not that surprised.

Here in Europe someone "kicked off" the idea, what would happen, if all european-held US-Bonds would be sold now at the same time....

Food for thought.....

That might be a bigger issue for China's holdings, though my information is quite out of date in that regard.

[Shaggy Hiker]

Hey, we finally made a new page!

[Shaggy Hiker]

Or, at least I am seeing a new page. Your results may vary.

[Shaggy Hiker]

So far, I OWN this page.

[dday9]

Well, I think that I'm totally done with my VBLessons website.

[dday9]

I've added a capstone project with requirements as well as a simple solution on how to implement it.

[dday9]

At this point, I feel like any additional content would fall under the "intermediate" category.

[dday9]

But the purpose of my website is to give absolute beginners a solid foundation to build one by covering the basics.

[dilettante]

I've never been all that fond of gold as an investment. I know it's considered a hedge, but seems like one of those hedges that have lots of thorns: It's a hedge, but kind of painful to get into and out of.

Well to me it "smells" less like an investment (in normal years) than a form of savings. One that more or less keeps up with inflation or does somewhat better. More liquid that a multi-year CD, but less so than a high-yield cash savings account.

So I'd probably handled it that way: a tier of a savings strategy.

Of course since the beginning of last year it has behave more like a great investment... assuming one can realize the gains. I hear that local coin shops are in a pickle, especially on silver. Too many are cashing out even though buying is about normal levels. Gold itself still seems stable and rational though, even though valuation has risen dramatically.

[wes4dbt]

I've never been all that fond of gold as an investment. I know it's considered a hedge, but seems like one of those hedges that have lots of thorns: It's a hedge, but kind of painful to get into and out of.

I've never liked these volatile commodities. At least not with retirement savings. I have one mutual fund that has @ 5 - 10% in cash investments, it probably has some gold. That's fine because that actually only represents @ 1% of my investments being in gold. All the instability here and with or interactions with other countries has driven gold to new highs. What I find interesting is the stock market has been rising at the same time. Well, not today, the market dropped like a rock today. Trump threatening everyone with tariffs isn't going over well with the stock market. Hopefully he backs off when he sees the negative effects like he usually does.

For those who were brave enough, gold has certainly paid off so far. The trick is when do you sell???

[dilettante]

he trick is when do you sell???

I would think that it's a lot like a CD, except you don't bite your nails waiting for the CD to mature or accept early withdrawal penalties unless you must.

Maybe you need to spend $25K re-roofing. You pay that out of high-yield savings, then sell some of your gold to top the savings account back up.

As income arrives, anything you can save goes into high-yield savings. As that piles up you move some into gold and some into a new CD.

The cash savings account is a "buffer" against gold price vicissitudes.

Don't try it with silver though. The swings are wildly erratic and when it falls it can linger low for years.

[Shaggy Hiker]

Well to me it "smells" less like an investment (in normal years) than a form of savings. One that more or less keeps up with inflation or does somewhat better. More liquid that a multi-year CD, but less so than a high-yield cash savings account.

So I'd probably handled it that way: a tier of a savings strategy.

Of course since the beginning of last year it has behave more like a great investment... assuming one can realize the gains. I hear that local coin shops are in a pickle, especially on silver. Too many are cashing out even though buying is about normal levels. Gold itself still seems stable and rational though, even though valuation has risen dramatically.

It sounds like you are mostly talking about gold funds. What do you think about the metal as an investment. It's really the metal that I'm not so keen on, while things like shares sound better to me.

[dilettante]

No, I'm talking about the metal.

Gold funds and even mining stocks are speculative and fairly high-risk compared to the metal. If you want to play the market, play the market, but that isn't "savings" by any stretch of the imagination. It's essentially paper, since only the biggest players can ever take delivery of any of that metal it "represents." It's a fiction.

[Shaggy Hiker]

Don't try it with silver though. The swings are wildly erratic and when it falls it can linger low for years.

Go with lithium. THAT's nice and stable. HA!

[Shaggy Hiker]

One thing we can say, which we might not have been able to say so clearly a few decades back, is that there are LOADS of different investment vehicles.

My father is trying to get out of a closed end bond fund with so few shares that he was able to show me the impact of him selling 100 shares. There was a steep drop, just from that. To be sure, the drop looked steep because the Y-axis had little range to it, but it was one of the steeper drops in the history he showed (a few days or weeks). So, whatever this is, he has to sell slowly and in small chunks of 100 shares or less, to keep the price from dropping too much over the sale. I didn't even know such a vessel existed, and probably for good reason. He regrets being in it, as overall it hasn't really done much over the long run.

[wes4dbt]

I would think that it's a lot like a CD, except you don't bite your nails waiting for the CD to mature or accept early withdrawal penalties unless you must.

I never did any nail biting or worried about early withdraw. I've always had enough in saving, if something would of happened, I would sell part of one of my mutual fund. Gold isn't like a cd, there is no guarantee. Gold hit a high in 1980 and then went down, it didn't recovered till 2007. That's 27yrs. That's way more time than what I have left.

Gold has been on a good streak since then. I have no idea if that will continue or drop like a rock. I'm not trying to give any advise, it's just not a risk I'm interested in taking.

[Shaggy Hiker]

I still have a bunch of CDs.


Classic rock, mostly.

[dilettante]

Well, it can be hard standing in the dark and the cold watching the train we failed to climb aboard vanishing into the distance.

"The Fox and the Grapes" is one of Aesop's Fables, a short story about a fox who tries repeatedly to reach a bunch of high-hanging grapes but fails, eventually giving up and claiming they were sour anyway. The fable teaches that people often pretend to despise what they cannot have, a concept that gave rise to the idiom "sour grapes".

While Aesop wrote the original, many illustrated book versions exist for children, often retelling the story without the explicit moral!

[Shaggy Hiker]

Yeah, that's kind of true, but the reality is that we are missing LOADS of trains all the time. A buddy of mine who is seriously gold crazy was telling me about how great it would be if he had put $1000 into gold back in the 80s. Of course, had he put that $1000 into Apple stock at the same time, it would have been worth FAR more by 2000 than the gold would be today. Had he sold that gold and bought bitcoin early on, it would be worth billions.

If we knew the future, we'd all be rich. I don't see much point in pining for the road not taken...unless you haven't taken any roads at all. THEN you have something to regret.

[dday9]

If you are going to invest in anything more than an index fund, the safest way of doing it is to dollar cost average.

[dday9]

For example, if someone wanted to get into bitcoin today then I'd tell them to take an amount that they can spend every {pay period increment} without realizing it's gone then have it automatically purchase that amount of bitcoin.

[dday9]

The trick is to be disciplined. Having it automatically take out every week is the easy part. Convincing yourself to "ride the waves" is the hard part.

For example, my own crypto portfolio (almost all bitcoin) dropped 26% since October. But I've had very similar drops and much higher jumps before.

If I would have stopped at the first big drop then I would have pulled out after 9 months and if I would have withdrawn after the first big jump then I would have pulled out after 2 years. Both of those situations would have made me worse off than I am now.

[dday9]

But every week when I get paid, it automatically takes out a very small amount. I don't notice that money missing and it purchases something that I don't plan on touching for a very long time.

[Shaggy Hiker]

Yeah, that's a good way to do it. I was doing automatic withdrawals as well.

[Shaggy Hiker]

Knowing the future is an even better way to invest, though.

[dday9]

I can tell the future. In exactly 2 minutes, it will be 9:45 CST.

[dilettante]

From what I can tell "the rich" don't buy and sell gold. Instead they buy it in bulk, have it stored by private vault companies like Brinks. To avoid paying taxes on gains they never sell it, but take out collateralized loans against the gold.

These loans replace selling, and paying them off replaces rebuying to replenish their reserves.

Utterly impractical for normal people.

[dday9]

...Utterly impractical for normal people.

Not entirely if you shift the asset.

[dday9]

Imagine you purchase a whole life policy and intentionally overfund it (without triggering a MEC).

The cash value grows at a guaranteed rate (even if you don't overfund it) and if you purchase the policy from a mutual company that pays dividends then you can apply it towards additional coverage.

When the cash value accumulates enough, you can take a loan against the policy. These loans aren't taxed and your cash value of the policy continues to grow as if it were never touched.

You can either repay it later or just allow the policy payout to be reduced when you die.

[dday9]

Basically, you get a non-taxable money that is not tied up in the stock market with high liquidity.

The downside is that you have to have a longer time preference and you almost always have inflation hazard, i.e. this approach won't work for someone older than say 45. Mayyyyyyybe 50 if you aggressively fund it.

[wes4dbt]

Imagine you purchase a whole life policy and intentionally overfund it (without triggering a MEC).

The cash value grows at a guaranteed rate (even if you don't overfund it) and if you purchase the policy from a mutual company that pays dividends then you can apply it towards additional coverage.

When the cash value accumulates enough, you can take a loan against the policy. These loans aren't taxed and your cash value of the policy continues to grow as if it were never touched.

You can either repay it later or just allow the policy payout to be reduced when you die.

I can't get the math to work.

You take out a loan and use money you already have as collateral. That costs you the cost of getting the loan and the interest.

Why over fund the life insurance just to take out a loan??

[dday9]

The cash value is guaranteed to grow and dividends help. The loan you take is not taxable and the cash value continues to grow.

The key difference when you take out the loan is that you're not borrowing your own money, you're borrowing against the policy using the cash value essentially as collateral.

Long term, you come out ahead. But if you need liquidity within the first 10 years, it doesn't make sense. The approach is basically a conservative plan that gives you predictable growth without the tax hit.

[dday9]

For example, I'm 34 years old. Let's say that I do yearly contributions at $15k. The amount I paid would be $225k in 15 years with the cash value being ~$200k. If when I'm 50 I take a loan at $80k, while I may lose about 1% per year, my cash value continues to grow off the $~200k.

At that point I would have $80k, tax free and its liquid (there is a loan process, but the underwriting is laughable).

Take the same example, but I stop after 5 years. The amount paid would be $75k and the cash value would be much less (probably around $37.5k). At this time horizon, the cash value is too low, and I would need to make risky investments just to make up the difference.

[dday9]

The logical follow up is "why use a whole life policy instead of a high-yield savings".

It really comes down to tax laws. The growth on the whole life policy is not taxed whereas it is on savings. The interest rates in savings can also change whereas you're locked in with whole life policies. Assume a high-yield savings gives you the same yield as a whole life policy, when you go to use it, you'd be hit with a >30% tax hit and the after-tax return is less than if you simply borrow against the whole life policy.

With a longer time preference, that tax hit hurts more in a savings.

Plus, you have to consider that if you withdraw against a savings account, that drops the account balance which then affects future earned interest whereas borrowing against a life policy doesn't touch the accumulated cash value.

[dday9]

Long story short, if you want a conservative asset that produces a smaller growth but provides you with non-taxable liquidity similar to what dilettante suggested with "buying gold in bulk, never selling it to avoid taxable income, and using it as collateral to get liquidity".

It's something similar that the layman can leverage. Both aren't without risks, for example it costs money to store gold (exponentially more depending on the quantity) whereas with the whole life approach you're locked into funding it. And both have specific hazards, like the price of gold could drop or inflation could eat away at the guaranteed interest earned on your whole life policy.

[wes4dbt]

The key difference when you take out the loan is that you're not borrowing your own money, you're borrowing against the policy using the cash value essentially as collateral.

The tipping point seem to be, will the expenses associated with the loan less than what the life insurance policy growth will be for the same amount of money.

So it's a good method if the loan interest is 4% and the policy growth is 6%.

[dday9]

Like I said earlier, at the end of the day, it's just another long-term conservative financial strategy.

I'm being honest, probably the better option would be to just dollar cost average into an index fund. They beat out 99% of all managed funds and you don't try to time the market. The biggest downfall is that you have a much higher tax risk when you go to redeem it.

[wes4dbt]

Assume a high-yield savings gives you the same yield as a whole life policy, when you go to use it, you'd be hit with a >30% tax hit

I'm no where near that tax bracket.