I previously wrote an article, “I Own Too Much Gold” and I’ve gotten several replies on twitter such as, “Impossible” and “No Such Thing”.
I strongly suspect (although I can’t prove it) these folks didn’t read the article. But in case they did and still aren’t convinced here are five reasons why you don’t want to own too much gold as a percentage of your asset allocation:
Reason 1: Lack of Tax Benefits
In the US, gains on physical gold are taxed as ordinary income, which could be a lot higher for you than the capital gains rate.
Even if you were an uber-gold bull and thought it was going to $100,000 per ounce would you really want to pay all your taxes on those gains as ordinary income?
Why not invest in some gold mining stocks (which would certainly go up as well if gold skyrocketed) and pay the capital gains tax rate? Why not hold some of those gold mining stocks in a Roth IRA so you pay zero capital gains taxes?
Reason 2: Diversification
It’s important to be diversified in non-correlated assets. If I owned no gold, it would be important to own some, as gold tends to be less correlated with stocks and bonds. However, for the same reasons why you don’t want to be all in one asset class, you don’t want have too much of your assets tied up in gold.
If all you own is gold you don’t own any silver! Some speculate that silver will go up in value even higher than gold. If that’s the case you’ll want to diversity your precious metal holdings into the gray metal as well.
Reason 3: Liquidity
If you’re like most people, you need to buy food, clothing, energy, and the staples of living. You want to have some money in a more liquid format so you can pay for these things. If all your money was in gold, how are you going to pay your taxes or buy food?
Reason 4: No Cash Flow
If you invest in a business or a rental property or a dividend paying stock, there is cash-flow. If you own shares of a company, that company has employees trying to grow the business and increase shareholder value. Gold doesn’t do anything of those things. This is okay, gold doesn’t need to do those things (which come with their own set of risks), but if all your money is in gold then you are by definition missing out on opportunities to invest in cash-flow producing assets.
Reason 5: Charity
Wealth is a good servant but a terrible master. Ultimately you can’t take your gold with you and one of the great perks of having extra money (or wealth) is giving it away to those in need!
Do you want to gift your gold to a charity and have them have to deal with selling it?
If you keep some money in local currency it is easier to donate to a good cause. My favorite charitable organization is Children of Hope and Faith they help feed, clothe and educate orphans in Tanzania. I know the founder and board members personally and I know they have very low overhead which means it is efficient and there is more money going to the kids who need it. You can’t get any better than that!
The most important thing about a mistake is to learn from it and move forward. That’s easier said than done and it takes a lifetime of practice.
I’ve made various investing and financial mistakes over the years. It helps to keep in mind that even the most successful people in the world make mistakes.
The seven tips below are a great start to bouncing back from a mistake.
1. Acknowledge you made a Mistake
If you don’t admit you made a mistake you can’t correct the underlying problem and bounce back. This means approaching anyone affected by the mistake and owning it.
Every minute spent denying a mistake was made is time lost in fixing the problem and moving forward.
You might also lose the trust of those around you when you don’t own up to your mistakes.
2. Stop making the Mistake
Once you realize you’ve made a mistake it is important to stop doing whatever you’re doing that caused or is causing the mistake. If you’re spending too much money stop spending too much money. If you keep putting money in losing investments stop putting money in that losing investment.
In some cases there is a temptation to double down or simply try harder when doing so will only exacerbate the situation.
Trying hard is necessary for consistent success and it isn’t sufficient. You can work very hard in the wrong environment and not be successful. You can work very hard but use the wrong tools and be left with poor results. Hard work focused on the right goals using the rights methods is a proven formula for success.
Several years ago I lost a fair amount of money trading options. I kept trying in hopes things would turn around but I kept losing money. So I decided to stop and work on education and mindset.
There is an important distinction between the insanity of doing the same thing over and over again expecting a different result and perseverance. Perseverance requires introspection on your goals and methods.
“The definition of insanity is doing the same thing over and over again and expecting a different result.” – sometimes attributed to Albert Einstein
Often when I make a mistake I quickly feel some combination of panic, anxiety, shame, loss or any number of other unpleasant emotions. It’s important to reboot.
Maybe it means taking a walk in a park, talking to a trusted confident, going for a run, taking a kickboxing class, meditating or praying. Maybe it is moving to a safer or more comfortable location.
Changing your environment can help change how you’re thinking.
It’s important to reboot, avoid beating yourself up and view the mistake as an opportunity to learn.
“If you always do what you’ve always done, you always get what you’ve always gotten.” – attributed to Jessie Potter
It’s okay to make a mistake and it’s important not to make a habit of it.
A lot of financial success involves doing a few things right and avoiding big mistakes. At least that is what Warren Buffett has said. I’m not a huge fan of this billionaire hypocrite but I’m still willing to learn from him:
“An investor needs to do very few things right as long as he or she avoids big mistakes.” – Warren Buffett
When you’ve made a mistake it is often a sign that you’re on the wrong path. So it’s important to reroute. If you keep losing money on your investments stop making those investments, learn more, study more, gain the skills you need to make better choices and move forward along a different path.
5. Think about Why you made the Mistake
Change negative questions like, “How could I be so stupid?” to “How was I feeling and what was my reasoning based on that led to this mistake?” “Did I put too much weight in one particular variable?” “Was I impatient?” “Was I afraid of missing out?”
Decisions made out of fear, anger, anxiety, greed, or basically any strong emotion tend result in bad decisions. Think about the emotional state you were in when you made the decision that led to the mistake.
Decisions should be made when you’re calm based on sound reasoning and facts often in conjunction with a mentor, coach or confident. Ultimately you want to have a solid decision making process. Reflecting on what it was that led to a mistake is important for refining how you make decisions.
6. Look for the Silver Lining
Even in the midst of a mistake there are often positive outcomes. It’s an opportunity to grow, an opportunity to learn.
It’s been pointed out that often times we learn more from mistakes than successes.
Maybe some good came in spite of the mistake. Sometimes it is easy to slip into all or nothing thinking with mistakes when there were most likely small victories that occurred in the midst of the mistake.
Sometimes it is as simply as being grateful we didn’t make a bigger mistake.
Sharing mistakes vulnerably with another is a way to build a stronger relationship with that person. Sharing is also an antidote to any shame you might be feeling about your mistake. Having another person to hold you accountable also makes it less likely you will make that mistake again.
7. Never Give Up
“We are not retreating. We are advancing in another direction.” – Douglas MacArthur
As I mentioned before: stopping something is not the same as giving up. If your goals are noble and realistic you should not give up on them. Sometimes it does make sense to move in a different direction but never give up and keep moving towards what is good and worthwhile.
There are many paths to financial success and quitting one path does not mean giving up on the journey.
“Never, never, never give up.” – Winston Churchill
I find that the turning of the calendar is as good a time as any to set new goals for the coming year. I’m very much looking forward to seeing what 2018 has in store! So what are some of my goals for two thousand eighteen?
First I’d like to get 800 users to this website each month. I think I offer exceptional value on this website and I want more people to read what I have to say. In 2017 I averaged 630 users over the course of the twelvemonth and I think 800 is an achievable goal. I have you to thank for meeting my 2017 goal so thank you!
Closer Tracking of Discretionary Spending
Controlling expenses won’t make you rich, but it will prevent you from going bankrupt. It doesn’t matter how much money you make if you spend more than you make. There are countless examples of this happening. I live a fairly frugal lifestyle but I’d like to keep a closer watch on my discretionary expenses to make sure I’m not spending my hard earned money on too many frivolities.
Save $X this year
I’m not prepared to share how much my savings goals are, but I do have a specific amount of money I want to save this year. I’m going to accomplish this via direct deposit.
All the employers I’ve worked for allow me to direct deposit my paycheck into multiple accounts. So I simply set the amount required to meet my goal to go to the account where I store my savings and then forget about it. It’s important to be realistic so that you have enough money to meet your expenses but I find direct deposit is an easy and effective way for me to save money.
Those are some of my goals for 2018. I share them because they might inspire you to form goals of your own. I think it’s important to write your goals down or type them up and print them off. Carry your goals with you and have an accountability partner that you check in which to share your progress. Make sure your goals are SMART and think about a WHY. Why are these goals important to you and why will you sacrifice and work to make them happen.
Since this website is about alternative investments and growing and protecting wealth I’ve shared some of my financial goals. But I also have goals for other areas of my life. After all, money is a useful (and necessary) tool but there is a lot more to life.
A year ago I communicated some of my goals for 2017. Today I’d like to review how I did with my goals from last year. In the coming days I’ll share some of my new goals for 2018.
Grow my Trading Account by 8%
This was the least successful of all my goals. I was not able to grow my trading account using the covered call strategy. A number of my value stocks don’t have options, so I wasn’t able to sell covered calls on them. And some of the covered calls I sold were too close to where the stock was trading and the covered call was exercised.
Stick to my Budget
I was rather frugal in 2017 and for the most part stuck to my budget. I would like to watch it more closely in 2018. My strategy is mainly to pay myself first (retirement, savings, investment contributions) and then as long as I’m able to pay for my rent and other expenses without going into debt I’m doing fine. I would like to keep a closer watch in 2018.
Make $1,000 Selling Coins
In previous years there have been some very much in-demand coins that I was able to sell for a goodly profit, however, none of these opportunities presented themselves in 2017 so I did not make any money (or lose any money) selling coins.
Grow HowIGrowMyWealth.com Audience to 500 Users per Month
I had an average of 630 users (as defined by google analytics) per month in 2017. My best month was December, with 816 users. Thank you! So I was able to exceed this goal by 26%!
All in all it was mixed. I exceeded my goals for increasing the audience of this website (again thank you!), however, some of my other goals fell short.
Some of those reasons were outside of my control (exchanges booting US based customers, the mint not creating rare in demand coins). However there are several things I could have done better.
More accountability and tracking
Talking about one’s goals with someone else is critical. I also think it is important to print off your goals, carry your goals with you and check on them on a regular basis. I hope to do ever better in 2018 and look forward to sharing some of my new goals in the coming days.
I really enjoy baseball. It’s a great game. No timers, no clocks. The winning team has to get the losing team out at least 27 times.
A great movie about baseball is Moneyball. This film was released in 2011 and it’s about a small market team, the Oakland Athletics, and how they are having trouble competing against large market teams (like the New York Yankees) who have larger budgets and are able to pay more money for the best players. The story focuses around the Oakland General Manager, Billy Beane (played by Brad Pitt), and his quest to find a way to recruit players to form a winning team even though they can’t afford to pay the higher salaries the top talent requires.
Beane finds Yale graduate Peter Brand (played by Jonah Hill) who uses a system for evaluating players based on math. It’s a more scientific approach to player evaluation. Using metrics like on base percentage rather than a traditional batting average and looking beyond things like unorthodox pitching style or age and focusing strictly on performance they are able to find value in players that other people overlook.
Moneyball is based on a true story and the metrics they use are based on the “Sabermetrics” pioneered by Bill James and others.
It’s essentially applying the concept of value investing to baseball. While Billy Beane and Peter Brand looked for undervalued players who would get on base, get runs, and help Oakland win baseball games, value investors look for undervalued stocks that will produce earnings, positive cashflow and make an investor money.
There is a story in the Old Testament (or Torah) in which a man named Noah was instructed by God to build a large boat (called an Ark) in order to save himself, his family, and a lot of animals from a flood that would cover the entire earth.
Although it’s not clear exactly where Noah resided before the flood, and he must have had access to large quantities of lumber, there is reason to believe that he lived in a rather arid environment. We’ll call it the desert.
Put simply Noah was building a giant boat, on land, in the desert. He must have looked rather foolish. But Noah had good reason to believe building the Ark was a good idea and he built it in spite of what I can imagine would have been a lot of derision and mockery from his contemporaries.
Now, I’m not saying for a minute that the next financial crisis is going to be a biblical, extinction level event equivalent to the great flood in the bible. There are a lot of enterprising folks around the world and if the economy crashes and the government stays out of the way, entrepreneurs will be able to provide solutions to whatever problems ensue. Life will go on, even if it is painful for some or even many people.
But the point is, it sometimes takes courage to go against the common wisdom of the day and make some prudent preparations. If other people knew what Noah knew, I’m sure they would have been building boats as well.
As I’ve said before it’s important to have some moderation. After all, the excessive debt, spending, and general recklessness has gone on for some time, and could continue for some time to come. There is no reason to panic or go live in a bunker.
But some day, there will be a point in which governments will no longer be able to borrow and spend money beyond what the economy is producing. The United States in particular cannot continue to borrow money at low interest rates forever. When the marketplace equalizes and goes back to a normal level, a lot of the wealth people thought they had will no longer exist.
That’s why it makes sense to take some steps to consider building your own financial ark. I’ve written about various ways to do this, such as gold, value stocks, holding some cash and maybe even taking a chance on some cryptocurrencies, even though right now they are at the high side of their historic ranges. Silver, which I don’t write about that often, is also significantly undervalued in my opinion.
Some people will say owning gold is crazy. They’ll say cryptocurrencies are a large bubble or ponzi scheme (they could be right about that). They’ll say that buying stocks at all time highs is the only way to go. They’ll say that bonds are safe. They’ll say it’s impossible to beat the market and that if a stock is undervalued there is a good reason for it. They’ll say the dollar will always be relatively strong and that the US debt is manageable.
But that is head in the sand thinking. It’s dangerously naive. Being aware of the risks is important and it’s also important to take some practical steps to protect yourself.
Some people may think you’re silly for building an ark in the middle of the desert, but when the waters start rushing in, you’ll be glad you did.
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