Get all cash out of the bank

[CL]

But it does in an ETF as the shares are backed by gold. A trust is set up and they actually own the gold. You are legally a beneficiary of a debt owed by the trust and backed by its gold.

There are additional risks over physically holding gold, but then there are many benefits of gold ETFs as well, not least liquidity and no storage fees. In addition, you would pay VAT on physical gold purchases - which you wouldn't in a gold ETF.

If you do want to invest in gold, then a mixture of the two would be sensible - the gold ETF to allow liquidity and easy access to the market and physical gold for the additional security it offers. I'm not against physical gold ownership but it could be very dangerous to put all of your money in it. We've already seen this year that it can be very volatile, losing 20% of it's value in a few weeks.

I take your point about the collapse of the pound, but this is still unlikely and what happens if your apocalyptic view doesn't occur, but gold has fallen by 40%?



Your view is extremely simplistic - shown by talking about just 4 companies, but let's take that example for a minute:

What are these 4 companies? Banks, Pharmaceuticals, Tobacco & Alcohol, Manufacturing? Where are they based? China? Japan? USA? Brazil? UK? Iceland? Do you expect all of these type of sectors to react to market conditions in the same way?

Are the economies of the above countries built on the same principles? Does the China market react in the same way as USA? Does the autocratic nature of the Chinese government mean they have extra regulatory powers to try and reverse an economic downturn, when compared to the UK government?

What's the business model of the companies involved? Are you going to invest in equities, or bonds? What default rates are already built into the share price? What's your attitude to risk?

Do you want an income from the investment (can you get that from gold?) or are you investing for growth? Do the companies have a good track record of paying dividends, and just as importantly have those dividends increased each year?

Who mentioned companies anyway? What about Government backed securities like Gilts? How about index-linked gilts? How about National Savings certificates which pay returns tax free in excess of inflation (RPI), thus maintaining the real value? What do you expect inflation to do over the next 3/4 years? How about gold, gold ETFs, gold mining shares? How about other commodities like oil and energy? How about cash as a major part of your portfolio - are the returns likely to exceed inflation? How about holding property as part of your portfolio - is this sensible?

On a very basic level, in times of economic slowdown, interest rates are lowered to stimulate growth. When you decrease interest rates, the price of gilts and fixed interest securities tend to increase in value as they look attractive when compared to cash, but the reverse also occurs when interest rates rise. What is your expectation for interest rates over the next 2/3 years (most economists reckon they will go down to approx 3.5%)?

Most people don't have time to ask these kind of questions so they appoint a professional adviser. If you get a good one, (and there's a lot of crap out there) they should be able to ask these questions and make informed investment decisions for you. Diversification alone is not a guarantee for performance, but if you've asked all the right questions then it should usually provide a better hedge against an economic downturn than investing in individual stocks.

And remember the first rule of investing - buy low / sell high. The best time to buy stocks is when market pessimism is at its greatest and sell when market optimism is at its highest.

It's nice to know you've finally conceded that diversification is not necessarily good.

As far as I was aware there was no VAT on gold for investment purposes. You state that gold has lost its value(40%)recently but that misses the point. The point is gold like silver or platinum is a safe store of value.

Whilst governments are printing money the gold will increase in value, provided the printing is in excess of growth in the economy. When the governments are not printing money, the price of gold decreases.

Gold in other words will approximately buy you the same amount of goods regardless of the status of the pound or dollar. People at the moment want to protect their savings from government confiscation(borrowing). They can't do this with stocks and shares at the moment, and they can't do it by investing in a gold fund.

In fact those who invest in a gold fund whilst the current crisis unravels are asking for trouble. I know this because of the principles involved, and also because I've seen a forum discussion about this subject, and some of the people are saying exactly the same as what I'm saying. Mainly that when you try to get your gold out there is no gold.