COLUMN: Gold is not all that glitters
www.waltonsun.com
Buz Livingston,CFP
November 20, 2010 3:01 PM
Rick Ferri manages almost $900 million and buys no gold for his clients. Gold has its place though. A USAF Master Sergeant opined, ?Marines can?t fly the Osprey.? Marine Pilot Ferri?s retort? ?The naval aviator wings that I have are made of gold. I hear that Air Force pilot wings are made of tin.?
Ferri also authored several books on index investing, asset allocation and exchange traded funds including a second edition of ?All about Asset Allocation.? Make sure it is on your Christmas list. All proceeds from his books go to the Wounded Warrior Foundation.
In an interview with Canadian magazine Money Sense, Ferri skewers GLD, a State Street Advisors exchange traded fund whose assets have ballooned. GLD tracks the price of gold so its popularity should surprise few. Rick has been a long-time confidant and his blunt analysis of the current gold mania comes as no shock. If Armageddon looms, then a piece of paper like GLD, Ferri points out, has little value. Assuming the banking system collapses no one at State Street Advisors will redeem your paper for a gold bar or two.
Ferri agrees commodities can (maybe should) be part of a portfolio but the best way to own them is by owning companies that make money from commodities. Gold-mining companies can be profitable when the prices go down. Shareholders get paid dividends; just try getting a dividend from a bar of gold. As companies become more efficient, their increased performance translates to their bottom line thus benefiting shareholders.
Disdainfully Ferri likens gold bullion to a pile of bricks. Successful investing for the long term means cash flow either from dividends or interest. Often companies reinvest current cash flow inside the company spurring future growth. Lucrative real estate investing comes from cash flow, aka rent. However, one brick of gold will be one brick of gold next year and there is no cash flow.
If you sell the brick, you receive a currency, but gold bugs claim currencies are on the edge of collapse.
Ferri points out Money Sense?s audience can purchase XIC, an exchange-traded fund available on the Toronto Exchange. XIC includes several large gold mining companies. Vanguard recently announced the launch of an international exchange-traded fund with Canadian companies included. Historically, the standard index for international stocks, Europe, Asia and the Far East (EAFE) has excluded Canada. Examine your international allocation and determine if your portfolio needs any Canadian exposure. Consider EWC, an exchange traded fund invested solely in Canadian companies. Make sure you understand the risks of any stock investment.
Rick may be wrong. Gold could be the next Coca-Cola (correctly pronounced Ko-Ko- Lah) ? the best performing stock from 1927 to 1997. How high can gold prices go?
I have no idea.
However the old saw, ?It?s different this time? has obliterated fortunes over the years. In addition, soaring asset classes tend to crash. Walton County real estate serves as a vivid reminder.
MEDICARE OPEN ENROLLMENT ALERT ? From Nov. 15 to Dec. 31, US residents 65 or older can make changes to their government-subsidized health and drug plans. Fewer Medicare Advantage and standalone drug policies likely means less confusion but the process remains byzantine. Don?t delay.
Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@LivingstonFinancial.net.
www.waltonsun.com
Buz Livingston,CFP
November 20, 2010 3:01 PM
Rick Ferri manages almost $900 million and buys no gold for his clients. Gold has its place though. A USAF Master Sergeant opined, ?Marines can?t fly the Osprey.? Marine Pilot Ferri?s retort? ?The naval aviator wings that I have are made of gold. I hear that Air Force pilot wings are made of tin.?
Ferri also authored several books on index investing, asset allocation and exchange traded funds including a second edition of ?All about Asset Allocation.? Make sure it is on your Christmas list. All proceeds from his books go to the Wounded Warrior Foundation.
In an interview with Canadian magazine Money Sense, Ferri skewers GLD, a State Street Advisors exchange traded fund whose assets have ballooned. GLD tracks the price of gold so its popularity should surprise few. Rick has been a long-time confidant and his blunt analysis of the current gold mania comes as no shock. If Armageddon looms, then a piece of paper like GLD, Ferri points out, has little value. Assuming the banking system collapses no one at State Street Advisors will redeem your paper for a gold bar or two.
Ferri agrees commodities can (maybe should) be part of a portfolio but the best way to own them is by owning companies that make money from commodities. Gold-mining companies can be profitable when the prices go down. Shareholders get paid dividends; just try getting a dividend from a bar of gold. As companies become more efficient, their increased performance translates to their bottom line thus benefiting shareholders.
Disdainfully Ferri likens gold bullion to a pile of bricks. Successful investing for the long term means cash flow either from dividends or interest. Often companies reinvest current cash flow inside the company spurring future growth. Lucrative real estate investing comes from cash flow, aka rent. However, one brick of gold will be one brick of gold next year and there is no cash flow.
If you sell the brick, you receive a currency, but gold bugs claim currencies are on the edge of collapse.
Ferri points out Money Sense?s audience can purchase XIC, an exchange-traded fund available on the Toronto Exchange. XIC includes several large gold mining companies. Vanguard recently announced the launch of an international exchange-traded fund with Canadian companies included. Historically, the standard index for international stocks, Europe, Asia and the Far East (EAFE) has excluded Canada. Examine your international allocation and determine if your portfolio needs any Canadian exposure. Consider EWC, an exchange traded fund invested solely in Canadian companies. Make sure you understand the risks of any stock investment.
Rick may be wrong. Gold could be the next Coca-Cola (correctly pronounced Ko-Ko- Lah) ? the best performing stock from 1927 to 1997. How high can gold prices go?
I have no idea.
However the old saw, ?It?s different this time? has obliterated fortunes over the years. In addition, soaring asset classes tend to crash. Walton County real estate serves as a vivid reminder.
MEDICARE OPEN ENROLLMENT ALERT ? From Nov. 15 to Dec. 31, US residents 65 or older can make changes to their government-subsidized health and drug plans. Fewer Medicare Advantage and standalone drug policies likely means less confusion but the process remains byzantine. Don?t delay.
Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@LivingstonFinancial.net.