Gold Shines; Myths Busted With Facts

Posted 6/4/2019 A minority of the population understands that gold is a monetary asset that should be held as wealth insurance. A larger percentage of the population is confused about gold because of mainstream sources of information many people consider gold a risky investment.  It is important to understand the role of gold as money in relation to Fiat currency. Fiat currency is money that is not backed by a physical asset like Gold or Silver. It’s value is only worth what others are willing to trade goods and services. Governments and banks work hard to ensure that people remain confident in their debt backed paper currencies - and the economy in general. Financing is Wall Street's (America’s) lifeblood, so money will always seek a productive means to be lent or borrowed. Consumer spending and bank lending is what keeps the Fiat shell game - and our economy - going. People do not borrow or spend when they feel uncertain about their financial future. Think about after the 9/11 attacks in 2001, and then in the 2007-2008 recession for a couple recent memory time-frames.  Were you very confident to spend or borrow then? There are three essential characteristics of money: (1) it must be a store of value; (2) it must be accepted as a medium of exchange; (3) and it must be a unit of account, meaning that it must be divisible in each unit and must be equivalent.  Fiat currencies have failed as a store of value in many countries, resulting in high inflation and a depressed currency. Your Washington $1 and $100 Benjamins in your wallet have no intrinsic value. How much does it cost to type and zeros on the computer screen or onto a piece of Government paper? Certainly much less than it does today to drill a mile into the earth and extract and refine 2 grams of gold from a ton of rock. Gold is rare. Just how rare? It’s estimated that all the Gold ever discovered and now held above ground would fill just 2 Olympic swimming pools! Gold does not rust, it’s ductile and malleable and fire-proof to 1,950 degrees. Plus, doesn’t it feel good when you wear a fine piece of Gold jewelry? The U.S. Federal Reserve was created in 1913. From its creation through to this day, the U.S. dollar has lost approximately 98% of its purchasing power due to inflation. On the other hand, Gold has retained its purchasing power rising from around $21 an ounce in 1913 to $1,325 today, a 4% yearly increase. In Roman times, about 350 B.C., 1 ounce of gold would buy 400 loaves of bread. Today, that‘s about accurate for a $3.29 loaf at your favorite grocer. Using gold as a portfolio insurance plan Gold is the closest most negatively correlated asset to traditional financial assets such as stocks and bonds. Physical gold bullion should be a significant part of the strategic long-term allocation within a diversified portfolio. Wall Street pundits and the uneducated media regularly dismiss Gold, and other commodities as speculation, not to be owned for most investors. Do they know – or have taken any time – to research Gold’s role in a portfolio; to dig into the numbers? Or how it works in conjunction with other assets in a diversified investment portfolio? I have followed Gold and Silver for the past 40 years, from my teenage interest in coin collecting in the 1970s. Using historical information, while Gold does not move in lock-step in the opposite direction always to offset losses in stocks, it does show a very reliable pattern to mitigate losses in bad stock market bear markets. Your particular assets in Gold should be your decision, based on your individual needs with your money; income needs, withdrawal rates, capital gains, etc. May I suggest a 5% to 10% allocation to start. And don't be confused by owning gold mining companies as a proxy for owning a pure play such as gold bullion or Gold content coins or gold bullion-backed investments such as exchange traded funds that track directly the move in Gold’s price. These funds hold ownership in Gold bars stored in vaults in London and Switzerland. Owning gold is a form of wealth insurance, and will most often protect a portfolio during market declines. You may even think of it as ‘disaster insurance’. Gold’s History as a Safe Haven for Stock Investors Note Golds surge after then President Nixon took the U.S.A. off the Gold Standard in 1971. Stocks were entering a bear market, losing 40% while Gold skyrocketed almost 4 times in price, from $40 to $160 in three years. (Gold reserves would no longer be required to back the U.S. dollar; the dollar would transition to a FIAT currency). Then a few years later, in 1978, we were hit with an Oil Embargo (remember gas rationing during the Carter administration?). That started 4 years of high prices (inflation), which hurt the U.S. Dollar’s purchasing power. From 1978 through 1981, inflation ramped up a combined 50%. Gold prices rose +135%. Fast forward to the next major bear market, known as DOT COM. This referred to the period at the turn of the century, 2000, where the Internet funding craze ramped up to unprecedented levels. Initial Public Offerings in the technology sector were met with wide-open pocketbooks with individual investors and institutions alike clamoring for ginormous profits. In the five years ending in late 1999, when the DOT COM craze finally ended, stocks gained 228%, while Gold also rose 55%. Then when stocks fell about 40% in 2000-2002, Gold participated on the upside, rising  18%. Gold then began a 10-year rally, with no losing years starting in 2003, rising from $350 to $1,650 an ounce. So far, it looks like Gold is helping a portfolio including stocks, especially when the stock market is falling in bear markets? The last period to measure is the 2007-2008 era real estate / banking led bear market in homes prices and financial assets, causing the stock market to lose half its value in a short 17 months. Gold had its best year in 2007 (up 30% to $835) since the late 1970’s, as it rose perhaps in anticipation of / and on the fears of the banking and lending fiasco that led up to the falling stock market during 2007-2009. Stocks lost 15% in those 3 years combined, while Gold gained $450 an ounce, or up 70%. Granted, the record also should show Gold’s stagnant performance the past 4 years. Is this cause for concern? We feel the lack of interest in in Gold are due to super the roaring stock market, and decent bond yields – 2% money funds beats Gold’s 0% yield. Owning Gold has been a drag on your returns in a diversified portfolio – but remember – Gold’s role is to offset some equity (stock) losses; so your stock gains were good events, right? I threw a lot of numbers and data at you, so kick back some evening, pour a nice drink - and admire your karats of jewelry with this Gold history lesson.  Call or e-mail me with any questions please.

Generation X Women Face Retirement Shortfall

Generation X Women Face Uphill Retirement Issues.

Women born between 1961 and 1981, give or take a couple years - are coined the Gen-X. So are men. That would make them approximately 37 to 57 years of age today. Single women face the hardest uphill climb to a secure retirement, according to a published article in Barron's Financial Magazine on March 4th.

Among the bullet points addressed ...
Women have:
* Smaller retirement savings balances due to time off for child-rearing.
* A wage disparity vs. men.
* Little or no spousal benefits vs. married couple's resources and pension / social security benefits.

Here is the text of that story following by Reshma Kapadia. I hope you find it helpful.
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For anyone who has ever spent a frustrating few hours clothes shopping knows that one size does not fit all. When it comes to retirement, many women, in particular - need a custom fit.


                                    

For single women, the situation often is even worse. Their retirement savings tend to be lower than their married—and even widowed—peers. While widows can face a sharp decline in income when a spouse dies, they often inherit their partner’s assets and spousal benefits from Social Security—a source of funds unavailable to single women. Plus, single women face unique challenges related to higher costs for retirement living and long-term care.

“I hear from a lot of women who say all the retirement advice is about couples,” says Cindy Hounsell, president of the Washington, D.C.–based nonprofit Women’s Institute for a Secure Retirement. “You really need to look for a different plan if you are single, and nobody else is going to help you, so you need more saved.”

A recent report by the Employee Benefit Research Institute, a nonpartisan think tank, looked at retirement security for Gen Xers—the population cohort born roughly from 1961 to 1981. The study found that only in one group of Gen Xers—single women—were half the people at risk of not having enough money to cover basic retirement expenses. The average expected shortfall also is greater for single women, at $73,000, or twice the estimated average shortfall for single men and more than triple that for widows. The gap persists even in the highest income quartiles, where 13% of single women are at risk of having a shortfall of $100,000 or more. That compares with just 7% of single men and 4% of widows.

Singles' ShortfallGen-X women who are single at 65 face the biggest expected shortfall in coveringbasic retirement expenses.

Americans are staying single longer, and marriage rates are declining, which means that more women could face this scenario in the future. About 57% of millennials (the median age for this generation is now 28.5 years) have never been married, according to a recent survey by the Pew Research Center. When today’s older retirees—the silent generation—were the age of today’s millennials, only 17% had never been married.

             Graph Removed Due to Technical Glitch

While a recent Society of Actuaries report found that fewer singles than couples put a high priority on retirement savings, financial advisors stress the importance of single women starting to think about retirement even earlier than other people. Their focus should be not only on saving more than their married peers, but also thinking differently about insurance, retirement housing, caregiving plans, and estate planning.

Take the accumulation stage. Lacking a partner to fall back on if they get ill or lose their jobs, single women should build a more robust cash reserve for emergencies, and also consider buying disability insurance, at least until they have built enough wealth to draw on in an emergency, says Marguerita Cheng, a financial planner and head of Blue Ocean Global Wealth.

Because the risk of running out of money is greater for single than married women, some advisors favor a more conservative approach to financial planning. They assume lower expected returns on an investment portfolio to account for possible market volatility and higher costs in retirement.

And, while women tend to provide much of the caregiving to others, they often end up without any such help themselves. It’s one reason why the majority of nursing-home residents are women.

Some people can pay out of pocket for long-term care, but many advisors recommend that single women analyze whether buying some level of insurance to help with such aid is warranted.

“What we tend to see is that the first phase of long-term care tends to come from family members. For those who don’t have children or family near, you have to be more careful about costs because the clock on costs starts on day one,” says Laly Kassa, a certified financial planner at Chevy Chase Trust, which oversees $27 billion in assets.

She advises single clients to prepare to spend 70% of what a couple would spend in retirement, not 50%, to account for higher costs.

Another key consideration is the likelihood of companionship in retirement. A 2017 report by the Society of Actuaries, based on surveys of people 85 and over, found about two-thirds living alone, with women more likely to be in that situation than men. One key reason:

Only 15% of the women were still married at 85, versus 55% of men.

Living at home brings many potential challenges, and is one reason advisors recommend that single women consider continuing-care retirement communities earlier than married couples usually do. These offer a spectrum of care from independent living to skilled nursing care, under one roof.

Moving into such facilities earlier usually enables residents, whether single or married, to create a community and safety net while they’re still healthy.

Single women also can look into shared housing options, or buying homes together, to reduce costs and also create a care-giving safety net, says Catherine Collinson, chief executive of the nonprofit Transamerica Center for Retirement Studies.Co-housing communities focused on seniors recently were spotlighted in a National Building Museum exhibit in Washington D.C.

And then there’s the paperwork: Estate planning is important for everyone, but it’s especially crucial for single women to make sure that documents such as a will, a waiver that allows health information to be disclosed to a third party, and powers of attorney are in place. For those who struggle with finding a proxy, financial institutions can be hired to take on the task and act as a co-trustee.

Also important is checking the beneficiaries on accounts. For example, some pensions don’t allow for nonspousal beneficiaries—one reason that single pension holders who want that money to go to a child or someone else might want to roll the pension into an individual retirement account, for which they can name a trust as a beneficiary, Cheng says.

Our 2018 Re-Cap of the Markets

The financial markets to a large extent showed losses across stocks, bonds, and many commodities last year. Looking into the categories a bit more closely, bonds eeked out a small gains of even to 1-2  percent, including interest earned.

That was the rare bright spot, folks. Looking at stocks, 8 of the 10 S&P sectors ended in the red: Utility stocks and Health Care ended positive for the year. Commodities were mixed to down. Oil prices fell 25% last year, which was good for consumers, but bad for profits in the Energy sector.

Through nine months, the stock market looked impeccable; another year of double- digit growth looked very achievable. Then the road got rough – fast. As October unfolded, interest rates started to rise, and housing and mortgage growth slowed. China trade skirmishes didn’t help matters. Earnings growth was perceived as slowing, although very robust nearing its 10th year of an economic recovery (the longest in Post WWII times).

At the end of the day, more sellers were interested in moving money out of stocks, rather than make new commitments to buy. Suddenly, there were more reasons to be scared of stocks, and less reasons for confidence. And sentiment – what investors think and feel – are most important. You can rationalize all day, but the markets often act irrational in behavior.

The Dow Jones Industrials and Standard & Poor’s 500 Indices fell 3.5% and 4.5% respectively for 2018 including dividends, while the Nasdaq Composite lost -3.9%. Many stock fell much more, the smaller the company, the more chance of larger losses last year.

One final positive push was in store, as The Santa Claus rally surfaced, starting on Christmas eve, as the stock market (Dow) rallied a BIG 7% during the next 4 sessions to close out the old year, 2018. It’s an understatement that volatility increased dramatically in the fourth quarter.

Our favored commodity to own, Gold – fared well comparatively, as it moved just 1% lower; that’s $12 an ounce decline, to $1,279 on the year.

Where do we go from here?

First, we recommend to keep lots of cash on hand until conditions and the charts tell us it’s safer to invest and an uptrend is developing. You may miss some gains off the bottom bounce - that's starting to develop now as favorable news is reported and interest rates are backing down a bit. As the stock indexes move higher, confidence will come back, and it'll be a safer entry point.

Next, we watch the pot and don’t leave it unattended. BUY and HOLD is not in our vocabulary.
Thaks for reading and Happy New Year !