Investing in Gold & Silver For Dummies. Paul Mladjenovic
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lose long-time value during inflationary times, here I’m talking about its short-term value. Everyone should have (during bad times) a minimum of three to six months’ worth of gross living expenses sitting in their savings account for unexpected events, such as losing their job, money for big-ticket necessities, and so on.
In other words, if your gross monthly expenses are $3,000, then you should have a minimum of $9,000 (three months’ worth of gross living expenses) to $18,000 (six months’ worth). This is cushion money, or emergency funds.
Using your talents in your spare time
I’m one of the few certified financial planners (CFP) who recommends to his clients and students that they should have (or start) a part-time, home-based business in their spare time to be diversified in their active wealth-building pursuits. The primary reason is to generate income and be diversified from their job. During the COVID-19 pandemic and government lockdown of 2020, nearly 50 million people lost their jobs between March and June 2020. These are folks who didn’t see this catastrophe only a few months earlier.
My point is that if all your active wealth-building income (100 percent) is coming from a single job, that means you are not diversified.
Doing your research on gold and silver
Yes, I realize that some of the preceding points aren’t about gold and silver, but they’re part of a sensible plan with both your passive and active wealth-building, and you can see that gold and silver play a crucial part in the passive wealth-building portion.
Look, many investors and financial advisors are ignoring or avoiding gold and silver, and that will be to their detriment. Educate yourself on the pros and cons of all the major investment categories (covered in Parts 2 and 3 of this book) so that you know what can work for your financial security and what can’t.
Chapter 2
Understanding Gold and Silver’s Greatest Benefit
IN THIS CHAPTER
As a certified financial planner (CFP) who teaches and consults on investing, I eat, sleep, and think about diversification all the time (it’s not as fun as it sounds!) because it’s always seen as a positive move for investors. Most financial advisors believe in diversification, but I take it to a level that many don’t. When financial advisors talk about diversification, it’s predominantly about “paper assets” such as stocks, bonds, exchange-traded funds (ETFs), mutual funds, and so on.
Yes, those advisors may also cover “hard assets” such as traditional real estate property and conventional assets such as personal holdings (jewelry, collectibles, and so on), but I’m an advocate for including hard assets such as gold and silver in the investor’s portfolio. And here’s the primary reason why.
Because each class of paper assets has a different counterparty risk, I flesh out this foundational point in this chapter, and you’ll do an “Ooooh … I see what you mean!” (Flip to Chapter 4 for more information on other kinds of investment risks.)
Looking at Counterparty Risk in Today’s Investments
Having all your money in a variety of paper assets may be diversified, and many (most?) financial advisors may be confident that you’re properly diversified, but an issue occurs, which is getting more and more pronounced during the 2020s.
Maybe the best way I can illustrate the problem with having “all your eggs in the paper-asset basket” is to use the old reliable example of the Titanic (don’t roll your eyes!). If you were onboard the Titanic and you owned a luxury compartment at midlevel, a warehousing unit on the bottom level, and a gorgeous unit with a stunning view of the ocean on the top deck, then you’d be “in like flint” versus that schlub who occupies the unit with no view and the size of a phone booth on level 15.
But if the ship sinks, the great equalizer is that both of you lose. With a “100 percent paper-assets boat,” it’d be good to have as part of your setup a “life boat” that doesn’t rely on the sinking ship. It has the power to float no matter what happens to the paper-assets ship.
The year 2020 is a major, consequential year that reminds us that our paper-assets ship is surrounded by icebergs, and a life boat is a huge plus. (“But Paul, what if your life boat hits an iceberg?” Because you ruined my great example, switch that to a helicopter so I can move on. Sheesh!)
In the following sections, I explain the counterparty risk with paper investments and how investing in gold and silver can help balance that risk.
Stocks
When you buy stock, you’re really buying (or participating in) the performance of a company or, more to the point, a company’s executive management. If the company behaves poorly or in a substandard fashion, then the company won’t succeed. This cuts to the heart of the matter: A successful company is profitable.
Profit is the lifeblood of the company, and I could easily make the case that profit is the lifeblood of a successful economy. Without profit, the company fails. If it continues