The Problem With Investing in Gold – Episode 093

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, best-selling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have best-selling financial author who also has a new book out, Kim Butler. Hello Todd, happy to be here today. And I have to give you a chance to mention the name of the new book. Busting the Interest Rate Lies, and we’re so excited about it. This one has been like two years in the making and I’m just delighted to be able to share it with everybody.

[00:46] And it has a picture of your dog and talks about your flying squirrel. Yes, the important things. Awesome. Today we’re going to be talking about gold as an investment. And boy, this is something that throughout history, I think there has been a fascination with investing in precious metals and I think initially it was just a way to represent wealth. In other words, you know, if I had 700 cabbages, it was awful hard to carry them around and spend those cabbages when I wanted something. So if I could convert some of my cabbages into gold, then it was a little easier to carry. But I think somewhere along the line, it became an investment. And at Prosperity Economics, we don’t feel it is an investment and we’re going

[01:39] to talk about what an investment is and really why gold is more speculation than investment. How’s that? That’s a great setup and it is interesting how often clients ask, well, should I have some money in gold? And my reaction is typically a question, which is, well, what do you want it to do? And if people think about what they want their money to do, I feel that all of the things that we want our money to do break down into three specific categories. Either we want our money to be liquid and available as an emergency slash opportunity fund, or we want our money to grow for use at a later time, which is typically a lot later, or we want our money to create an income stream that we can spend and

[02:31] or use for other things, but a consistent income stream. And so if you boil everything down, that the money has to do one of those three things, and then you look at gold either as a place to store cash or wealth, if you will, or as a place to create income or cash flow, if you will, or as a place that we can be confident that it’s going to grow and not shrink, gold does not fit any of those three categories. And then you can take this a little bit further and look at our seven principles of prosperity. You can look at our clue acronym, control, liquidity, use and equity. And gold doesn’t fit any of those things either. And so I have a real challenge with gold unless somebody can say to me, I really

[03:26] just feel better sleeping at night if I have some gold coins stored in a safe in my house. Well, OK, put some gold coins in a safe in your house and sleep better. That’s awesome. That’s a good use of gold coin or gold bullion or what have you, maybe even gold bars if you want a couple of those. If you sleep better with gold bars than have at it. Beyond that, I’m having a hard time seeing the value. How about you? Well, my first question is, is does it create value or solve a problem? And that’s what investments that’s what investments do. Successful investments somehow or another enhance the lives of the user. If you think about investing in a stock, you think about investing in a bond, which we’re not huge market fans, but at least with a stock or a bond, you

[04:16] are investing in a company that is performing a service and solving a problem. And if I look at it from that perspective, it’s not really doing that either, although some people would argue that the beauty side of gold and gems and things like that certainly has intrinsic value. So I guess you would have to give them value on that scale. Well, I’m all for my gold ring, no doubt. And I like gold jewelry, but let’s not call it either an emergency slash opportunity fund or a place to grow our wealth or create income because clearly the jewelry is just that it is for wearing and joy and giving and all the things that jewelry is for. But let’s also dig a little bit deeper on this issue and remember that in

[05:08] the past, the government, the U.S. government has actually taken away our ability to store gold. And I mean, they came looking for it. So let’s what 1934, I think it was that they came around and said, OK, here we go. We’re going to take what you thought was yours and store it in this special place where we, the government, can control it. That’s a scary thought in 1934 and an equally scary one today, especially when we think about the more international workings of our economies. You know, in the past, we lived in the U.S., we did business in the U.S. period, but now we have a much broader scale. And our our personal economy is affected by our U.S. economy and our worldwide economy. The other thing I think that we need to discuss and get your

[06:04] opinion on here is that there are people who say, yes, the government took our gold. So now we need to new new mystically. Am I saying that correctly? If you buy coins that are actually considered basically works of art, in other words, you can invest in gold as in bullion or you can invest in something that is supposed to have value above and beyond the metal that it is so that it’s technically no longer just that raw piece of metal. And to me, this is even scarier yet, but what’s your opinion? Well, it is speculation when you invest in something that’s supposed to be worth more than the pieces and the parts. If you will, you are speculating on that. And there’s certainly a place in people’s portfolios for speculation,

[07:00] as long as they’re clear that that is what it is. Frankly, anytime you buy a stock, anytime you buy into a business, like let’s say you chose to fund somebody’s business, anytime you bought a piece of real estate that you were hoping to go up versus buying a piece of real estate for cash flow, any of those things are speculation. And when you buy gold, either as the metal or as a piece of art, you’re hoping that it value goes up. And then my question to you is, OK, well, then when are you going to sell? Because if you truly bought it for art for art’s sake and you actually displayed it, then you might not want to sell because it has its place in your home or what have you. If you’re buying it for speculation, well, if you sell it today,

[07:45] what if it goes up more tomorrow? And so all of these things are a challenge when you consider the alternative. And as our listeners know, one of our favorite questions is compared to what? And that’s from Daniel Pink in a book called To Sell as Human. And it’s so helpful to us as investors because you may say, well, that has more risk. Well, compared to what? Or you may say that has more capable return. OK, well, compared to what? And so we look at our three main things. And if you can get gold to equate or to compare, if you will, to cash at, say, four to five percent, income at, say, seven to ten percent and growth at ten percent with no loss of principle, if gold can do any of those three jobs at a better rate

[08:39] than what I just indicated, then it could very feasibly be a good deal for you. But again, compared to what? This is the single largest problem that I have with gold. And this is scary to think about is that gold is often sold as a hedge against inflation. And what you’re doing is is you’re saying that I’m betting everything else is going to be worth less. That’s the way gold is supposed to maintain value is the fact that it won’t change in value, but everything else I own is supposed to be worth less. And this is what I’m planning for in my future. Seems a little counterintuitive, doesn’t it? So when we look for things to beat inflation, we, in my opinion, want to be focused on something that is going to create cash flow and grow at a rate

[09:37] better than inflation. And I shouldn’t say or. I mean, I shouldn’t say and because it’s really an or statement because things typically either create cash flow really, really well or they grow really, really well. But either of those two things can be measured. And if they can be measured at, say, 10 percent and gold is growing at 20 percent and we can be assured of that 20 percent growth, we don’t have to be afraid that gold is going to then be cut in half. The next go around, then that’s a good deal. But we all know that gold can grow at 20 percent and also can get cut in half the next go around. And we want to put our dollars in places where it cannot do that. So if you want to beat inflation, then get something

[10:23] that’s going to help you beat inflation by its rate of return, not by its speculative value. Super. Would you have an example of something that would do that? Well, absolutely. Our bridge loans grow and create inflation on a consistent basis at a value that is excuse me, our bridge loans grow and create cash flow on a consistent basis at a value that is greater than inflation. And our life settlements grow and do not shrink at a value that is typically greater than inflation. And so I like those as places to create income. And grow our net worth. And then, of course, the liquidity spot is held by the cash value of whole life insurance, which shouldn’t be equated to gold at all, because that is not liquid.

[11:15] Gold’s not liquid. You cannot trade it in today’s world for a loaf of bread or a piece of meat. I realize that may have been something that you could do in the past. And who knows? I guess maybe you could in the future. But I would a lot rather have a garden than a whole bunch of gold if I were really concerned about what I was going to be eating. Absolutely. I have heard arguments about using ammunition as currency as well. And I guess potentially to kill and eat your food, that could be true. A literal use of ammunition. Well, how about control? That’s the one thing we really haven’t talked about is, you know, storing this asset can be a little dangerous as well. No doubt. You know, when you go back to the government

[12:06] confiscating it or neighbors that might know that you have it confiscating it or what have you, or just the fact that if you own a lot of it, you can’t really physically keep it. And so now you’re trusting some service or a vault somewhere or what have you to store and hold this literal physical thing to me, that’s risky. You know, it cracks me up when people say, well, you know, when we’re talking about the bridge loans or the life settlements, isn’t that risky? Well, we’ve got to define risk first. And then we can say whether or not it’s risky. And there’s something like 12 or 13 different definitions of risk. You have inflation risk, you have market risk, you have business risk, you have interest rate risk, et cetera, et cetera, et cetera.

[12:55] So when a client says, is that risky? I always ask them to define what they’re talking about. Well, what do you mean by risk? And I think gold has a lot of risks associated with it. The biggest being that if your storage facility or your vault or the service that you’re having hold your gold does not do what they’re supposed to do, then you are potentially out those dollars. And I don’t know what kind of records those people have to keep. But I guarantee you, if the government’s going to go hunting for gold, it’s not going to come to your house. It’s going to come to those storage facilities first, where it might literally physically be. And they would they, the government, would have a lot easier time

[13:36] of collecting all the gold up. And then what would you do? So, gosh, talk about loss of control and lack of control in this area. It’s just not something I’m willing to put up with. We’ve spent a lot of time today talking about gold. But when we talk about gold, are we also talking about silver, diamonds or their exceptions? Are they all kind of in the same category? In my mind, they’re in the same category. And obviously not literally. They are different in terms of metal or a jam or what have you. But I’ll never forget my parents had a diamond in their safe deposit box for years as a quote investment. And when I got out of school a ways and became more aware of what money was doing, I proposed to buy it from them

[14:21] because I wanted to wear it. That was the only use of that diamond in my mind. And I bought it from them. It came out of the safe deposit box, got put into a ring. Well, now it had some use. And I still wear that diamond today. That’s a much more, in my opinion, better use of not only money, but of that gemstone as well. Crazy to have that pretty thing stored in a box. Super. Well, while we’re giving away diamonds and gems, I think you’ve got a diamond or gem to give to our listeners, too, don’t you? Yeah, always. So thank you for listening and paying attention. We are getting such great response from our podcast, and we’re so grateful for that. So we’ve got our e-book. Financial planning has failed.

[15:02] If you have not gotten a peek or a listen to that, it is available in both e-book as well as audiobook form. Please go to partners. Number four, Prosperity dot com slash e-book and stay tuned because we will have the Busting Interest Rate lies out. It’ll be available on it’s on Amazon now and I believe even on Kindle now. We’ve got a audio version as well on that coming your way. Super. Thanks again. This is No BS Money Guy Todd Strobel for the Prosperity podcast. Take care, everybody. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you, visit us at partners for Prosperity dot com. If you liked this episode, make sure you subscribe and leave a review.