GOLD - Are We Investing In Gold To PROTECT Our Early Retirement During This Recession?

Should You Invest in Gold to Protect Your Early Retirement?

Over the years as the economy has declined and the economic future of many people has become more uncertain, we’ve been asked more and more about investing in GOLD. Even since the creation of regular currency, gold has always been considered a safe and reliable investment, particularly during times of economic instability.

So in this article I’m going to cover what we think about gold - is it a good investment, especially for those of us seeking F.I.R.E? What are the pros and cons? And how do people generally invest in it?

Why People Invest In Gold

So why do people invest in gold? First of all, it's a tangible asset. You can physically hold it in your hands, or put it in your pocket. There are very few assets where you can do this.

The second big reason is diversification, and the fact it usually has a negative correlation to the stock market. Meaning that its price tends to be lower when the market is doing well, and vice versa. It’s also seen as a hedge against inflation since the value of gold usually increases alongside other living expenses. This includes hyperinflation. When it’s on the horizon many investors like to store their money in gold, in the situation that their local currency becomes worthless.

History is another reason. For millennia gold has been used as a currency all over the world, well before the concept of a dollar existed. And when you look at all of these reasons, they boil down to one thing - gold is a safe haven during times of chaos. When all other currencies fail, it will be the last currency standing. That’s what gold enthusiasts believe at least.

The Most Common Options For Purchasing Gold

Now let’s look at how people typically purchase gold and the pros and cons of those options.

1. Buying Gold Through an ETF

People buy gold through ETFs because it gives indirect exposure to the gold market, as well as being very liquid. It’s also very easy to buy and sell an ETF.

The downside of this is that you do not own physical gold. So in the case of a stock market crash or other kinds of economic chaos, it’s largely useless as it will only be exchanged for dollars. You can claim the physical gold that you buy through an ETF, but it’s complicated and a lot of investors aren’t able to do it.

2. Buy It Through a Third-Party Vaulting Service

Vaulting services allow you to buy, transfer, and even take delivery of gold and store it for you. With this option, you buy physical gold but someone else keeps it secure, so you don’t have to worry about storing it at home.

The cons of vaulting services are similar to those of ETFs. If chaos breaks out, you want to access your gold immediately, which you can’t necessarily do if it’s held with a vaulting service.

3. Buy Physical Gold Coins

Yes, you can buy coins directly from dealers in coins and precious metals, brokerage houses, and even some banks. American Eagle gold bullion is a good example, as they’re mined in the US and their purity is guaranteed by the US government. Obviously, the pros are that you now have tangible assets in your home that are easily accessible.

And the downside is… they’re easily accessible. Your kids can find them and lose them. You can also become a target for robbery if people know you store gold in your home. If you do this, keep it a secret!

4. Buy Gold Jewelry

A lot of people buy nice jewelry as a way to invest in gold. Again, you have a physical asset on hand at all times, and you’re responsible for its security.

The downside is the markup that you pay to the people who make it. You’re not buying gold in its purest form, so gold jewelry can vary wildly in price.

Is Gold a Good Investment?

Now that you know how you can invest in it, let’s get on to the important question: Is gold a good investment, and is it worthwhile for those of us pursuing F.I.R.E?

I’ll be honest, Amon and I don’t invest in gold, and we have our own opinions and our own reasons for not investing. So why not?

● Gold performance pales in comparison to stock market investments. Look at this graph I’ve added below that tracks the performance of gold and stocks since 1975 [insert graph from the video below]. The NASDAQ is up over 6000%, the SP & Dow-Jones is up over 2000% and gold is only up 900%. For us, stocks are the better long-term option.

● It doesn’t generate income. When you’re pursuing F.I.R.E you need assets that generate passive income into your early retirement. Even a stock portfolio generates dividends that you can live off. You don’t reap those benefits with gold.

● Warren Buffet’s basic principles for investing. He posits that you should only invest in useful things that have a purpose or fulfill a practical need. Even silver can be used to make useful things, but gold, not so much. Warren Buffet himself doesn’t invest in it, because in his own words it “just sits there and eats insurance and storage.”

● Redeeming gold is HARD. It’s not a simple or straightforward process to sell it. You have to find a buyer and agree on the value, which is harder than you think. Often the stated price of gold is very different from what you're offered when you want to redeem it. This is only relevant to traditional gold investing, not ETFs.

● It’s expensive! The fees associated with owning gold are much higher than other assets. For example, we own VTSAX and FZROX, and in some cases owning these market index funds are zero. On the other hand, the fees for gold ETFs are usually ten times higher than just owning VTSAX. With physical gold, you may have storage fees tacked on, or there may be significant markups when you try to resell.

● There are better alternatives. For safe-haven investments, you can invest in government-backed Treasury bonds and other investments that are more dependable than gold.

● We don’t believe it’s a safe-haven investment! This goes against the beliefs of most gold investors, but I personally think it’s debatable that gold can replace currency in a time of severe economic crisis. Think about it - in this situation, everyone has to agree that gold is the accepted currency replacement. And why would they? It could be literally anything.

Those are just our thoughts on gold investing, but we don’t expect you to subscribe to everything we say. I simply want to present the basic idea of gold investing and the major pros and cons. What you decide to do with that information is up to you! As with a lot of investing, it depends on what best fits your investment portfolio.