2012 - 3rd Quarter Economic Update

W.A. Smith Financial Group - 3rd Quarter Economic Update Featuring Bill Smith and Chris Bertelsen Information contained in this economic update recording are from 10/17/2012 and are for educational purposes only. It does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk, and unless otherwise stated, are not guaranteed. Past performance does not indicate future results. Be sure to first consult with a qualified financial professional or a tax professional before implementing any strategy stated within the recording.

Evaluating gold in today’s retirement landscape

When a habit begins to cost you money, it becomes a hobby. So goes the saying with mostly any investment in your portfolio. Whether you are apt to investing in bonds, or financial stocks, or you simply like to put your money into gold – following your normal routine on an investment that has “treated you well” in the past can be dangerous. In fact, in the science of behavioral economics, this is called “anchoring”. According to Gary Belsky and Thomas Gilovich, the authors of Why Smart People Make Big Money Mistakes and How to Correct Them, anchoring refers to the tendency we all have of latching on to an idea or fact and using it as a reference point for future decisions. This idea is especially important when in or nearing retirement. As 10,000 people turn 65 every day for the next 19 years, you can fully expect millions to trillions of dollars being pulled from riskier investments and funneled into safe havens that produce peace of mind. After all, everyone keeps saying the #1 fear that today’s retirees have is running out of money before they die. So, it is only reasonable that people will develop a lesser tolerance for losing their nest egg. So brings the conversation to the topic of investing in gold. According to SmartMoney.com, gold has been up for 11 years in a row. That’s a decade of growth for an asset that buys and sells like any typical stock or mutual fund. That decade of growth had investors dumping as much as 25% or more of their portfolio into gold and gold funds by the year 2010. However, feelings are beginning to turn for many. The typical argument most gold buyers give is that gold serves as a hedge to inflation for their portfolio, and some even believe that gold is a true safe-haven for your money. Still others buy the precious metal as a diversification measure. Safety, however, could be the furthest thing from the truth. Probably the most extreme excuse for owning gold relates to the idea that if or when our government were to fail, U.S. currency could revert to the gold standard again. Gold is what I call the “Armageddon” trade.

The fact of the matter is that gold has been touted as a safe place by the people who sell it to you. While arguments can be made for the benefits of holding small amounts of commodities or precious metals, touting gold as the ultimate hedge for inflation or a “safe” place for your portfolio is quite simply false and ludicrous at best.

In recent weeks and months, gold has begun to rise and fall similarly to stocks with some frequency. In May of this year, gold fell 6%. Just a few weeks ago, gold rebounded and rose 3.7%. That kind of volatility usually does not correlate with the traditional safe haven and inflation hedge type of investments. Look at the graphs to the right. Gold saw a steady growth over the past decade, and until recent months, rarely ever experienced the type of volatility the asset class is now experiencing. Data suggests that gold may have seen a high between July and October of 2011, and many believe investors should be poised for a major commodity and gold bubble that is set to burst in the near future. After all, if you bought gold at its high in September of 2011, you are down approximately 14%! If you own gold-based stocks or funds, most appear to be among the market’s weakest, with gold funds trading far below the 200-day-moving average. As an investor, and specifically an investor nearing or in retirement, my best tip for you when it comes to buying gold, is to maintain course. In my educational workshops, I make a comparison to the sinking of the Titanic and the sinking of someone’s retirement portfolio or “retirement ship.” It is important to maintain focus on what is most important when it comes to your money in retirement. Investing with the herd (making a decision because someone else did it) or investing based on familiarity (investing in gold because the last 10 years have seen gold go up) could be the iceberg that causes your retirement ship to sink. Maintain course. If producing a retirement pension from your portfolio is most important, develop a portfolio that allocates a portion of your investable assets into protected and reliable assets that provide contractually guaranteed income for life. If you do not need income, but you want to develop a more conservative portfolio, develop a plan to reduce the risk and fees you are paying. We can show you how to do one or the other, or more commonly a good balance of the two. For more information, visit WASmithFinancial.com to request a free consultation with one of our retirement advisors over the phone or in one of our three office locations in Ohio. You can also visit NoIncomeWorries.com for more information about my book, Knock Out Your Retirement Income Worries FOREVER.