4/8/2013 5:30 PM ET|
Don't invest like a 'prepper'
Bearish predictions and fears of the Fed have a lot of investors scorning stocks and storing gold and silver in preparation for doomsday. But panic is never wise.
Have you ever watched "Doomsday Preppers"? It's a popular National Geographic Channel reality show about average Americans who make elaborate plans to protect themselves and their loved ones from earthquakes, mega-volcanos, economic disaster, geomagnetic storms, you name it.
These people have spent countless hours and tens of thousands of dollars to keep their families safe from TEOTWAWKI --The End of the World as We Know It.
Now don’t get me wrong -- disaster preparation is prudent and necessary, as we all learned when Hurricane Sandy hit the East Coast. But many of these preppers are, well, slightly over the top. That’s why they’re on reality TV.
Unfortunately, the doomsday prepper mentality has spilled over into investing. Many individuals, spooked by the financial crisis and the Federal Reserve’s unprecedented easy-money policy, have abandoned stocks and loaded up on so-called alternative assets -- especially precious metals -- to protect themselves against the coming apocalypse.
In a poll, 1,800 WSJ.com readers said they put an astonishing 44% of their portfolios into alternative assets, but invested only 8% in U.S. stocks. TD Ameritrade told me 29% of its clients’ balances in exchange-traded funds are in alternative investments, often precious metals.
And a recent study by Northern Trust of 1,700 wealthy U.S. investors found that 30% of households with investable assets of $5 million or more “say they are more inclined to consider alternative investments now than they were five years ago.”
The high-net-worth individuals polled by Northern Trust were looking at many different alternatives, including currencies, hedge funds, and private equity.
'Speculating, not investing'
But three financial advisers I spoke with -- all certified financial planners representing the CFP Board of Standards -- said that when their clients discussed alternatives, they were mostly looking for gold and silver and protection against TEOTWAWKI.
These planners try to talk determined doomsters off the proverbial ledge with nothing more than common sense about holding widely diversified portfolios and investing for the long haul.
“I always revert back to, how does this fit into your financial plan?,” asked Cary Guffey, a financial advisor with PNC Investments in Birmingham, Ala. Some of the precious metal fetishization becomes “speculating, not investing,” he told me.
Gold, for instance, has had “a remarkable run-up, but it can come back down,” he said.
It already has -- from a high of over $1,900 an ounce in August 2011 to around $1,550 now, a nine-month low. The yellow metal is approaching the 20% decline normally associated with bear markets, and may test key support levels soon.
When gold peaked in August 2011, the SPDR Gold SharesETF (GLD) was worth more than the SPDR S&P 500ETF (SPY), which tracks the Standard & Poor's 500 index ($INX). Since then, the S&P index has soared 40%, not including dividends, so gold bugs have trailed the big-cap benchmark index by 60 percentage points.
Meanwhile, silver is officially in a bear market. “Many investors have abandoned silver in pursuit of better returns in the stock market,” The Wall Street Journal reported Wednesday. “Other investors see less of a need to hold the metal as a hedge against inflation.”
But the stock rally is all phony, doomsday preppers argue, pumped up by the Fed’s easy-money policy. As soon as that ends, the markets and the economy will come crashing down, and those who have a treasure chest full of gold and silver coins (and portfolios stuffed with GLD and SLV) will rule the world.
Prepping for a financial meltdown
Never mind that they’re envisioning an off-the-charts meltdown in which paper money is useless and only gold is legal tender. It also assumes a hyperinflation of the kind we’ve seen rarely in history.
Too many of these prepper investors have been influenced by gurus like Dr. Marc Faber and Peter Schiff, who predicted for years that the U.S. will suffer hyperinflation like Zimbabwe or Weimar Germany.
Whatever you may think of the Fed’s policy -- and I find it troubling -- that just hasn’t happened. Maybe that's why gold, which had a great 10-year run, is now stuck in a trading range.
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Because hey, it’s not like the stock market could fall 40-50% in six months, or produce negative real yields for more than ten years, or that Wall Street hubris could throw us into a debt crisis, or that some of the largest banks and financial companies in the world could go bankrupt, or that Japan, Europe, and China are facing financial crisis even worse than the U.S., or anything serious like that. Come on you can trust us.
This article must be for those who have never watched or been in the markets before the beginning of this year.
I find the picture with this story insulting. If the story was about crime in the ghetto and you put an equally ridiculous picture of a black man with the story we would be debating racism all day. Why is some racism good? ...... or just imagine what would happen if it were a story about green energy and they put a picture of a nerdy looking fellow humping a tree.
Never buy "Paper Gold or other Metals" Unless you have it in your hands it really doesn't exist.
If you must have it buy silver & Gold in the smallest amounts possible to make it easy to trade. Say 1oz Silver Bullion and 1/10th oz Gold Bullion. Stay away from the Mints - they are rip offs.
the stock market is at an all time high and the smart money always says 'buy lo, sell high' so now would be the time to dump all and sit on the money till the market drops again. which it will sure as night follows day. i would rather lose a couple points gain in a temporary spike than get caught with a 50% drop. anyone remember the 2008 drop? its time to buy after the drop when your sure it has bottomed out and actually started to climb.
these wonks will say anything against gold and silver because their world is made up of fiat currency. the metals market is being manipulated by the govts now to shore up their fiat currency's
2) Europe, the Euro, PIIGS, and the European banking system
3) Too Big To Fail (or Jail) Banks, Derivatives, aka Financial Weapons of Mass Destruction (Warren Buffet)
4) Cyprus haircut for uninsured depositors
5) United States debt, petro-dollar and reserve currency collapse, debt ceiling debate
You Tube: Domino Chain Reaction
Interestingly, I became very defensive after reading Jubak and Fleckenstein right here on MSN. In fact, they and others sounded the alarm about mortgage-backed securities and I sold all stocks. I rode out the crisis in cash, then bought low. May I always be that lucky.
Moral, don't be paranoid, but also don't be afraid to take the advice of experts despite what others tell you. And what pundits tell you the best time to buy is at a market top, just say "go ahead and buy high, fool!"
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