Investment Articles

Choosing an asset allocation, or the mix of stocks, bonds and cash in a portfolio, is the most important decision that you’ll face as an investor. A study by Ibbotson Associates concluded that asset allocation decisions determine about 100 percent of investment performance for those who follow a low-cost, long-term investing strategy. Similarly, according to a Dalbar and Associates study, many investors underperform the market because they deviate from their asset allocation plan during market downturns. Investors who want to maximize their long-term investment returns must develop a risk-appropriate asset allocation plan that they can stick with in good times and bad.

Asset Allocation Step 1: Evaluate Your Risk Profile

A reliable, long-term asset allocation plan starts with a thorough understanding of your risk profile. It’s helpful to think of your risk profile in two parts: your risk capacity, or the degree of portfolio volatility that you can absorb financially, and your risk attitude, or your emotional tolerance for risk.

Risk capacity is influenced by factors like income and net worth, but its largest determinant is time horizon. Early in life, when retirement is far off, your future earning potential can be thought of as a sizable bond, allowing you to allocate the majority of your retirement portfolio to more volatile equity investments. As you grow older and your future earning potential decreases, it’s important to replace those bond-like expected earnings with a higher percentage of bonds in your portfolio. By the time you retire, most of your investments should be in bonds in order to provide a reliable, low-volatility source of income.

Risk attitude is more difficult to quantify than risk capacity, especially for first-time investors who haven’t experienced difficult market conditions. Many investors make the mistake of failing to understand their risk attitude until a market downturn occurs. This usually leads to selling equity investments at the worst time (the bottom of the market), only to miss out on a subsequent market rebound. To help avoid this phenomenon, investors can use resources like risk questionnaires and historical performance charts to help find a stock/bond mix with an emotionally acceptable level of volatility. These tools are far from perfect, however, so when in doubt, it’s best to err on the side of conservatism.

Generally speaking, your most conservative risk dimension (capacity or attitude) should determine your portfolio’s equity/bond split. For example, if you have the risk capacity to handle a portfolio of 80% equities, but can only stomach the volatility of a 70% equity portfolio, you should choose the more conservative allocation. Developing a plan that you can stick with in good times and bad is much more important than maximizing your expected return.

Asset Allocation Step 2: Break Down Equities and Bonds

Once you’ve settled on a risk-appropriate stock/bond mix, you can think about subdividing the equity and fixed income portions of your portfolio. The key to this part of the asset allocation process is finding a suitable tradeoff between simplicity and maximum expected return.

Modern Portfolio Theory tells us that by adding volatile asset classes that don’t move in lockstep with the rest of our investments, we can increase our portfolio’s risk-adjusted return. Based on that principle, consider adding international stocks and Real Estate Investment Trusts (REITs) to your equity portfolio. Companies outside of the US represent more than half of the value of global equity markets, and investors have historically been compensated for the risks that accompany international investing. Likewise, REITs offer a great diversification benefit and give investors unique exposure to the commercial real estate market.

Within your US and international stock allocation, you may also want to boost your exposure to small company and value investments, as investors have historically been compensated for the risks inherent in these investing styles. If you’re not familiar with the arguments for overweighting these equity segments, however, you should probably steer clear of them in favor of simplicity.

To expand your fixed income allocation beyond a broad sampling of the US Bond Market, consider adding Treasury Inflation-Protected Securities (TIPS) and municipal bonds. TIPS are unique because, unlike traditional bonds, their principal and interest payments adjust with inflation, so they offer a government-guaranteed rate of return above inflation when held to maturity. Municipal bonds are appropriate for investors in high tax brackets with taxable investment accounts, as the interest from these bonds is generally tax-exempt in the issuing state and at the federal level.

Portfolios can be sliced and diced in any number of ways, but a more complex portfolio is not necessarily a better one. Wise investors understand that their investing success will largely be determined by their ability to stick with their asset allocation plan, and for that reason, they err on the side of simplicity.

Asset Allocation Step 3: Implement Your Plan

Once you’ve broken down your portfolio into target percentages, all that remains is to implement your asset allocation plan. With literally thousands of funds to choose from, it’s best to narrow down the field by focusing on one factor that you can control: investing costs.

First, you can minimize the impact of many fees, expenses and taxes by investing in low-cost index funds and ETFs. If your workplace retirement account has limited choices, simply pick the lowest cost funds that fill a position in your asset allocation plan. Secondly, pay close attention to all applicable fees and commissions prior to doing business with a brokerage firm or mutual fund company. IRAs and other investment accounts are extremely portable, so there’s no good reason to stick with a high-commission broker. Finally, maximize your portfolio’s after-tax returns by placing tax-inefficient asset classes (e.g., REITs, Bonds) in tax-sheltered accounts.

Once you’ve settled on specific investment choices, help yourself stay on track by formally documenting your asset allocation plan in an Investment Policy Statement (IPS). This document provides an organized framework for recording your investing goals, philosophy and target allocation so that you can help yourself resist the temptation to stray from your long-term strategy. The ideal time to draft an IPS is while the rationale for your asset allocation decision is fresh in your mind.

Conclusion

More than any other factor, your ability to develop and implement a risk-appropriate asset allocation plan will determine your investing success. By thoroughly evaluating your investing risk profile, choosing an appropriate level of portfolio complexity, and picking low-cost investments, you’ve taken a giant step toward your long-term investment goals.

George Watkins is President of West Wind Wealth Management, an independent, SEC-registered investment advisory firm that specializes in index fund and ETF portfolios. A former nuclear-trained Naval Officer, George has a BS in Economics from Duke University and an MBA from Harvard Business School. To receive a free asset allocation recommendation or a personalized portfolio recommendation for as little as $19, visit http://www.invest-it-yourself.com.

Choosing an asset allocation, or the mix of stocks, bonds and cash in a portfolio, is the most important decision that you’ll face as an investor. A study by Ibbotson Associates concluded that asset allocation decisions determine about 100 percent of investment performance for those who follow a low-cost, long-term investing strategy. Similarly, according to a Dalbar and Associates study, many investors underperform the market because they deviate from their asset allocation plan during market downturns. Investors who want to maximize their long-term investment returns must develop a risk-appropriate asset allocation plan that they can stick with in good times and bad.

Asset Allocation Step 1: Evaluate Your Risk Profile

A reliable, long-term asset allocation plan starts with a thorough understanding of your risk profile. It’s helpful to think of your risk profile in two parts: your risk capacity, or the degree of portfolio volatility that you can absorb financially, and your risk attitude, or your emotional tolerance for risk.

Risk capacity is influenced by factors like income and net worth, but its largest determinant is time horizon. Early in life, when retirement is far off, your future earning potential can be thought of as a sizable bond, allowing you to allocate the majority of your retirement portfolio to more volatile equity investments. As you grow older and your future earning potential decreases, it’s important to replace those bond-like expected earnings with a higher percentage of bonds in your portfolio. By the time you retire, most of your investments should be in bonds in order to provide a reliable, low-volatility source of income.

Risk attitude is more difficult to quantify than risk capacity, especially for first-time investors who haven’t experienced difficult market conditions. Many investors make the mistake of failing to understand their risk attitude until a market downturn occurs. This usually leads to selling equity investments at the worst time (the bottom of the market), only to miss out on a subsequent market rebound. To help avoid this phenomenon, investors can use resources like risk questionnaires and historical performance charts to help find a stock/bond mix with an emotionally acceptable level of volatility. These tools are far from perfect, however, so when in doubt, it’s best to err on the side of conservatism.

Generally speaking, your most conservative risk dimension (capacity or attitude) should determine your portfolio’s equity/bond split. For example, if you have the risk capacity to handle a portfolio of 80% equities, but can only stomach the volatility of a 70% equity portfolio, you should choose the more conservative allocation. Developing a plan that you can stick with in good times and bad is much more important than maximizing your expected return.

Asset Allocation Step 2: Break Down Equities and Bonds

Once you’ve settled on a risk-appropriate stock/bond mix, you can think about subdividing the equity and fixed income portions of your portfolio. The key to this part of the asset allocation process is finding a suitable tradeoff between simplicity and maximum expected return.

Modern Portfolio Theory tells us that by adding volatile asset classes that don’t move in lockstep with the rest of our investments, we can increase our portfolio’s risk-adjusted return. Based on that principle, consider adding international stocks and Real Estate Investment Trusts (REITs) to your equity portfolio. Companies outside of the US represent more than half of the value of global equity markets, and investors have historically been compensated for the risks that accompany international investing. Likewise, REITs offer a great diversification benefit and give investors unique exposure to the commercial real estate market.

Within your US and international stock allocation, you may also want to boost your exposure to small company and value investments, as investors have historically been compensated for the risks inherent in these investing styles. If you’re not familiar with the arguments for overweighting these equity segments, however, you should probably steer clear of them in favor of simplicity.

To expand your fixed income allocation beyond a broad sampling of the US Bond Market, consider adding Treasury Inflation-Protected Securities (TIPS) and municipal bonds. TIPS are unique because, unlike traditional bonds, their principal and interest payments adjust with inflation, so they offer a government-guaranteed rate of return above inflation when held to maturity. Municipal bonds are appropriate for investors in high tax brackets with taxable investment accounts, as the interest from these bonds is generally tax-exempt in the issuing state and at the federal level.

Portfolios can be sliced and diced in any number of ways, but a more complex portfolio is not necessarily a better one. Wise investors understand that their investing success will largely be determined by their ability to stick with their asset allocation plan, and for that reason, they err on the side of simplicity.

Asset Allocation Step 3: Implement Your Plan

Once you’ve broken down your portfolio into target percentages, all that remains is to implement your asset allocation plan. With literally thousands of funds to choose from, it’s best to narrow down the field by focusing on one factor that you can control: investing costs.

First, you can minimize the impact of many fees, expenses and taxes by investing in low-cost index funds and ETFs. If your workplace retirement account has limited choices, simply pick the lowest cost funds that fill a position in your asset allocation plan. Secondly, pay close attention to all applicable fees and commissions prior to doing business with a brokerage firm or mutual fund company. IRAs and other investment accounts are extremely portable, so there’s no good reason to stick with a high-commission broker. Finally, maximize your portfolio’s after-tax returns by placing tax-inefficient asset classes (e.g., REITs, Bonds) in tax-sheltered accounts.

Once you’ve settled on specific investment choices, help yourself stay on track by formally documenting your asset allocation plan in an Investment Policy Statement (IPS). This document provides an organized framework for recording your investing goals, philosophy and target allocation so that you can help yourself resist the temptation to stray from your long-term strategy. The ideal time to draft an IPS is while the rationale for your asset allocation decision is fresh in your mind.

Conclusion

More than any other factor, your ability to develop and implement a risk-appropriate asset allocation plan will determine your investing success. By thoroughly evaluating your investing risk profile, choosing an appropriate level of portfolio complexity, and picking low-cost investments, you’ve taken a giant step toward your long-term investment goals.

George Watkins is President of West Wind Wealth Management, an independent, SEC-registered investment advisory firm that specializes in index fund and ETF portfolios. A former nuclear-trained Naval Officer, George has a BS in Economics from Duke University and an MBA from Harvard Business School. To receive a free asset allocation recommendation or a personalized portfolio recommendation for as little as $19, visit http://www.invest-it-yourself.com.

If you have money that you want to optimize your rate of return or have the most gain while maintaining some diversification, where should you invest it? These are funds that you do NOT anticipate needing in the next five years or more. They may be in your IRA, your retirement account, brokerage, or other type of savings account.

In general you might invest in commodities, real estate, fixed income, or stocks.

Stocks or equities still offer tremendous upside and will probably provide higher returns than commodities, real estate, or fixed income over the next 5 years.

Fixed income is any investment where the terms of what an investor receives is fixed by a legal contract. Examples of fixed income include government bonds, bank certificates of deposit, corporate bonds, annuities, and guaranteed insurance contracts. Mutual funds that invest in fixed income instruments are NOT fixed income. They are equity shares in a managed pool of fixed income investments. There are NO guarantees of return of principal or interest payments in a bond fund. A bond fund is NOT a fixed income investment.

Does anyone think interest rates will go lower? Can the Federal Reserve set a rate lower than zero? Do you want to invest in a bull market that has been going on since 1982 which is 28 years old?

If interest rates go up, the market value of bonds will go down. If you answered no to the previous 3 questions then you probably believe at best interest rates will stay at current levels. Actually in the last year the rates on the 30, 20, 10, and 5 year bonds have all increased. It’s more likely that interest will continue to rise. The questions are for how long and how high they will go up.

As interest rates rise the market value of fixed income investments will drop. While an investor who holds their fixed income investment until maturity will receive their principal and interest under the terms of their purchase, they will suffer opportunity costs. Do you want to own a 3 year Certificate of Deposit yielding 3% when you could earn 4% on a two year Certificate of Deposit?

Fixed income is not the place to make money over the next few years. It is a great place to keep your funds for a short time because you are going to spend the money within the next 5 years or less.

Buy guarantees from qualified guarantors. I like the U.S. Government. Do not place money you expected returned to you in a specific time in a bond fund. Bond funds should be used only in rare special circumstances.

Real estate has improved in some markets. Real estate is less liquid. It is difficult to liquidate only 4% of a real estate investment. Currently there is an abundance of housing, commercial space, and raw land. Until these conditions change in the specific geographic area you are investing in real estate appreciation will be capped around the rate of inflation. I am referring to investing in real estate which is different than deciding whether to buy a home or rent a home. Buying or renting is different than investing in real estate.0

The International Monetary Fund (IMF) forecasts commodity prices to rise at 5.8% this year and 1.6% next year. While some traders will make good returns, they could probably do better trading futures on the equity markets.

The IMF projects World Output to grow by 3.9% in 2010 and 4.3% in 2011. The growth in World Output should drive an increase in earnings of the S&P Global 1200. The increase in earnings should drive price appreciation of at least 10% per year for the next two years. Price appreciation may be greater than 10% because the current price of the S&P Global 1200 is undervalued relative to the future net profits of its constituents.

Therefore a rational probability of attaining better than 10% per year gain in the market value of the S&P Global 1200 without any leverage exists. A greater than 10% return in equities is a better return than 2 year treasuries offered at.99% per year, commodity prices rising at 5.8% this year and 1.6% next year, or the real estate market in the United States. The real estate market is still confronted with too much supply and is likely to appreciate at less than 3% per year.

There is still a large amount of cash on the sidelines waiting for a retreat in stock prices.

In 2009 bond funds were positive on cash flows into them. In stock funds, more money was withdrawn than contributed. Money markets are paying.81% per year. These are NOT the conditions for an equity market top. These are the conditions of a bond market top!!

As the lagging mob reacts to the declining returns in their bond funds and the pain of missing the rise in equity prices, funds will move from bonds to equities. This will fuel a further rise in equity prices.

While the global stock market has made significant strides in the last 12 months up over 50% in the last 12 months, it needs to go up another 40% just to approach it’s fair value.

For investors with funds they do NOT plan on consuming over the next 5 years, I’m recommending an allocation of 98% equity and 2% cash.

For which equity investments, feel free to contact me.
Have a wonderful Day!
Dave

http://davesfavs.com/aboutus.html

Out of the blue, Indian Insurance Industry has become the talk of Dalal Street as it has become a major contributor in terms of investments in equity market. Though the premium collection has slowed down in early 2009 to some extent but it has been gaining pace with overall healthy market sentiments. The premiums collected under ULIPs are the major driver in boosting the equity investments. The renewal premium of the industry in ULIP category increased from Rs. 26,638 crore to Rs. 37,543 crore, an increase of 41 per cent on year on year basis. In addition, insurance companies have increased their exposure in equities – they have invested Rs. 44,358 crore in equity in the April-December period of current fiscal year.

The mis-selling practice in ULIPs are curbed to a major extent after the insurance watchdog, Insurance Regulatory and Development Authority (IRDA) introduced some ‘ investors’ friendly ruling, putting the cap on charges up to 3 per cent and 2.25 per cent for ULIPs having maturities up to 10 years and beyond 10 years respectively. Moreover, the IRDA ruling on solvency ratio, corporate governance, public disclosures, payment made to intermediaries and allowing unit linked health insurance plans, have benefitted greatly to Insurance industry.

How do ULIPs perform well in long-term?

The major objective of ULIPs is to build wealth, steadily in long-term along with an additional insurance cover. Investors should have a clear view that, investing in ULIPs is not to get a high insurance cover out of it.

The Fund Manager in Insurance firms has an edge over other market related products, in terms of holding stocks for an extended period. Hence, the churning in portfolio stocks, measured by Portfolio Turnover Ratio (PTR) is relatively less or negligible. Since the churning involves costs, it has a major impact on fund’s performance. Higher the Portfolio Turnover Ratio, higher is the cost involved.

Moreover, IRDA’s cap on total charges including cap on Fund Management Charges (FMC) in case of ULIPs have brought another transparency benefiting policyholders in terms of increased returns at their ends.

A close look on the performance of other market related products vis-à-vis ULIPs gives a startling fact; other market related products lags behind ULIPs return by a larger margin in the long run which confirms that investments in ULIPs are ideal investment vehicle for wealth creation in long term. On an average, the historical fund management charges (FMC) in other market related products (Mutual Funds come to be around 2.1 per cent) while in ULIPs, the maximum FMC is capped at 1.35 per cent.

For example, a periodic investment of Rs. 1 lakh in a diversified equity linked fund (ELSS) for a period of 15 years grows to Rs. 28.54 lakh at an assumed growth rate of 10 per cent giving an net yield of 7.69 per cent (considering an average FMC of 2.1 per cent) while the same amount invested in ULIP for the same period may range from Rs.28.63 lakhs to Rs. 31.59 lakh at an assumed growth rate of 10 per cent giving a net yield ranging from 7.97 per cent to 9.03 per cent. The final value goes down further if we consider other tax-saving instruments such as PPF giving a return of 8 per cent annum. An investment of Rs.1 lakh per annum in PPF for a period of 15 years grows to Rs.27.15 lakh.

So, clearly, ULIPs score over other products in terms of returns and additional benefit such as insurance cover; however, it scores below PPF as investment in ULIPs involves high risks. The return in ULIPs goes up further due to less FMC if the investment choice is debt fund and assumed rate of return is 10 per cent (in debt funds, the FMC is generally around 0.75-1 per cent). The table shows the different returns as given above. However, the high entry costs along with operational costs mar performance of ULIPs having or when opted for shorter maturity period.

Amar Ranu
India
“If fate means you to lose, give it a good fight anyhow..”

Today’s topic is a bit more 201 then 101 for subject matter, but good nonetheless for real estate investors of any experience level. You see, there are two basic types of private money investments: deal specific and what I call time period specific. And each has its own thorns to avoid. Some private money you bring in will be tied to a specific deal. You raise money to flip a house, the house sells, and it’s time to pay the investor back. Other deals involve money being invested for a set period of time (whether loans or equity investments). The return is paid on a monthly, quarterly or annual basis.

A lot of times, when you first get started raising money, you’ll tend to go the ‘deal specific’ route. You may find it easier to have someone commit funds for the time period of a deal, which could be a few weeks to a few months or possible (such as with an apartment building) a few years. It’s important to build the investors expectation the right way from the beginning. You should avoid investors who want to place funds with you as some sort of a high yield holding tank for their money. I’ve seen it happen before (it’s happened to me) where a potential investor wants to place funds for 3 or 6 months but then has an immediate home for that money after their investment with you cashes out. This is what I call “temporary” private money and it can really put you in a tough situation. It does beat hard money or not doing the deal at all, so keep than in mind – but they type of investor who cannot place funds for more than a few months isn’t one you can work with long term. So…back to our main question, which was: when is the best time to roll private investors back into the fold? What I mean is – as an investment is about to cash out or the time period for an investment is about to expire, how can you work to get the investor to roll their money back in?

First, you have to be proactive. Find a home for the money before it comes time to start talking to the investor about what they want to do with it. A lot of your private money investors will want to “keep a good thing going” and just roll the money back in. I suggest beginning discussions with investors at least 4-5 months before their investment matures. For deal specific investments, it helps to broach the subject at the beginning of the first deal. Make sure they are open to future investments if they are happy with this deal.

One big thing you have to pick up from all of this is what I call THE PROPER CARE AND FEEDING OF INVESTORS. I’m borrowing this from a Dr. Laura book my wife has, but it applies to private money investors. You have to make doing business with you an absolute joy the whole way through. You can get a lot of money re-invested and also get a lot of referrals to other investors this way too. Don’t automatically expect your investors to just roll their money back in. Actively work for it the entire time it’s invested. It sure beats going back to the well again (especially when you don’t have to).

Why not go back to the well for MORE money instead of just replacing existing funds?

Adam Davis is a real estate investor, author and speaker. He teaches real estate investors how to raise capital. Adam has completed hundreds of deals- from single family house flips to apartment buildings. He has raised millions of dollars from private individuals. For a FREE audio program on how to get private money go to: http://www.UltimatePrivateMoney.com.

Did you know that U.S. stocks make up only 42% of the value of all the planet’s equity markets? Yet, the average American investor still allocates ~72% of their stock portfolio to U.S. stocks!

Economists call this preference for investing close to home a “home bias.”

An extreme example was shown in an academic study from the 1980s. It showed that even though Sweden’s stock market represented only about 1% of the world’s stock market value, Swedish investors still put their money almost exclusively into domestic investments.

Living here in the U.S. and keeping most of your equity investments in the U.S. is a lot like working at Enron and filling your portfolio with the company’s shares.

This evening, get out your most recent account statement and look at it.

Are you over allocated to U.S. stocks?

How do you determine this threshold?

Well, one good way is to by taking a quick look at the MSCI All Country World Index which is designed to measure the equity market performance of developed and emerging markets around the world.

You will notice that 42% is allocated to U.S. stocks, 45% to foreign developed stocks, and 13% to emerging markets stocks. If you are over or under weighted in any of these areas you may wish to make changes to your portfolio so that you are properly diversified.

Plus, investing some money overseas will reduce both the upside and downside potential and allows you to obtain more consistent performance under a wider range of economic conditions. With so much talent spread out all around the globe you really never know where the next great opportunity or innovation will come from.

In China alone there are 1.3 billion people. In India there are 1.1 billion people. Many who have never owned a television. But progress is happening fast! These people are becoming educated in technical professions such as computer science and electrical engineering.

In the next decade many innovations will come from countries other than the United States. You do not want to miss it for no reason other than wanting to stay close to home.

Hold on… I’ve got one more secret to tell you about investing,… buy-and-hold is broken! My clients’ accounts made new equity highs this year while most people were still recovering from the bear market of 2008. Want to know this powerful investing secret? Get your FREE copy of ‘Buy-and-Hold Sucks Market Timing Rules’ at http://www.simplevesting.com

I love the word Eschatology and it is getting a lot of use recently. The study of End Times. But what is fascinating to me is its other, more subtler meaning: the end of the absolutely expected and familiar and the beginning of the starkly unknown. The Alpha and the Omega right in your face. Which is all a round about way of saying, wow, here we are, this generation, experiencing the terminal decline of gold, an omnipresent civilization industry for 6 thousand years or more.

According to the world’s top gold producer Barrick, annual production has fallen by approximately 1m ounces per year since 2000, even though exploration budgets have tripled. Further evidence is found in the drop in ore grade concentrations from 12 grams per tonne in 1950 to 3 grams (US). South Africa’s total production has dropped by 50% since the 1970s. And as ore quality drops and production falls we are looking at the dramatic extension of the greatest gold bull market in history.

“There is a strong case to be made that we are already at ‘peak gold’,” said Aaron Regent, president of the Barrick, the Canadian gold giant. “Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore,” he said.

Meanwhile China and India continue their buying sprees. India recently bought 200 tonnes from the International Monetary Fund increasing their reserves by 2%, diversifying its reserves holdings which focuses on the US dollar. China continues its long march towards possible reserve currency status by doubling it gold holdings to 1058 tonnes, all the while implementing a startling new policy of personal gold and silver ownership for its citizens. The Chinese long view is eying a future monetized population, a possible gold back yuan, and the last spindly legs kicked out from under Old Man Dollar. It is the latest sign that the rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt.

As in all end days uncertainty remains certain and we can count on confidence and capital seeking security in the increasing scarcity of gold. How high can it go?

How high do you got?

Mad days indeed.

Aaron Kutchinsky is a lecturer/seminar leader and expert precious metals broker on the subject of proactive and timely personal and community economic protection and preservation.

http://www.salvationgoldandsilver.wordpress.com
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In my work as a metals broker I have an almost constant refrain: Trust no one except your own judgment. So let us take a look at a few facts we can all agree on and let the silver chips fall where they may.

Industrial use of silver is absolutely necessary. And while consumer buying may be down right now, it is certain industrial application will only proliferate and bloom into more and use and production. Think of it as a sort of giant Pac Man eating up supply.

China is monetizing its citizens with gold and silver. Where once private ownership of bullion was a serious crime it has now become national policy to exhort that vast population to buy silver, buy gold, and buy it now. Reserve currency anyone?

Historically, silver trades at a 16/1 ratio to gold. And we are talking about a lot of history so remember your Shakespeare, “What is past is prologue.” With a current price ration of 63/1 silver is a bargain.

At the end of the day inflation is very easy to understand: trillions of dollars poured into the money supply dilutes the purchasing power of all dollars. Regardless of drop in prices due to inventory, which creates a false perception of sensible deflation, the actual relative value of the dollar has dropped over 7% so far this year. Whoever is feeling bullish on the dollar please take one step forward…

The gold locomotive has left the station and it is not coming back and silver is the caboose. I know that sounds flippant but the new bull metals market is being supported by much vaster, deeper, and more determined markets (read China, India, our own domestic market, etc.). Silver is going along for the ride.

The Chinese curse, “May you live in interesting times,” has found fuller expression day by day. Every generation feels especially tested but, by gosh by golly, these times are unprecedented in so many ways it boggles the mind. And that is what is called uncertainty – the mother’s milk of precious metals investing. Does anyone have any real idea where we are headed? How could they, there road no maps for this undiscovered country. Thus faith-based currencies blow thither in the wind while real gold and silver money finds purchase within our hearts.

So I offer for your consideration: It seems that a little prudent hedging in an undervalued silver coin or two (or hundred) makes much more sense than dollars. What is the realistic downside? After all, on the other side of currency (and all paper-backed assets and securities) lies the darkest abyss of fiat nothingness.

Aaron Kutchinsky is a lecturer/seminar leader and expert precious metals broker on the subject of proactive and timely personal and community economic protection and preservation.

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