Oh forgot to sayOriginally Posted by christopher leigh
All the taxis in London are being recalled. Seriously if yours is one from that company that makes them in err Tamworth check it out Chris.
They have had some burst in flames.
The cabbie at Trafalgar Sq yesterday was telling me this.
Err back to the economy. I still think its gonna go pair shaped big time.
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.
Last edited by TheHeathens; 29-09-2008 at 02:18 PM.
We agree on something, if not the magnitude of the event
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.
Last edited by CL; 29-09-2008 at 02:43 PM.
Thanks Daz H. I'm aware of this.
No I haven't. You're doing that spin thing again, and it's getting really tiresome. What I actually did was shoot your argument about diversification to pieces - you were talking about randomly diversifying a portfolio which is clearly not what you'd (well maybe you would, but most people certainly wouldn't) do.
Depends on the purity of the gold. Investment gold is gold in bar or wafer form that is of a purity too high for jewellery but also includes some gold coins. Plus, I didn't say gold had lost 40% of it's value - read it again. I said what would happen if you'd put all your money in gold based on your apocalyptic vision, and gold then lost 40% of it's value (for example), but the economy recovered?
So when are Tesco & Sainsburys going to start accepting Kruggerands?
Why can't you do it by investing in a gold ETF then? It's backed by gold and it tracks the gold price so it in effect acts as, gold.
Oh! Well if you've seen a forum discussion on it!!!Why don't you post the link to this forum discussion so we can see it for it's own merits?
You're really missing the point about funds and I'm not convinced you know much about them at all (and I'm not just talking gold funds). What exactly are the principles then?
Also, how can you 'get your gold out' of an ETF? Although it's backed by gold, you're only an actual creditor on the gold if the company running the ETF goes into liquidation, which as far as I'm aware has never happened as ETFs have only been around for a few years.
I suggest that if you have an interest in investments, sitting the CF2 exam offered by the Chartered Insurance Institute (CII), which is an introduction to investments and investment principles.
As I've said in previous posts, I do think that gold has a place in an investment portfolio (I've got exposure to it in my pension) but there is more than one way to skin a cat. Plus, the reasons you are giving to physically hold gold are based on financial meltdown which is still very very unlikely whatever the current financial situation (and the FTSE hit 11 year lows today - which just shows the dangers of having all of your investments in UK shares).
Last edited by TheHeathens; 09-09-2009 at 01:24 PM.
Paragraph 1) You stated in an earlier post that DIVERSIFICATION alone is not a guarantee to performance. Then you went on to the 'but' 'if you've asked all the right questions.' So I'm not spinning anything. You've gone from deterministic certainty about diversification to putting conditions on it, like 'asking all the right questions.'No I haven't. You're doing that spin thing again, and it's getting really tiresome. What I actually did was shoot your argument about diversification to pieces - you were talking about randomly diversifying a portfolio which is clearly not what you'd (well maybe you would, but most people certainly wouldn't) do.
Depends on the purity of the gold. Investment gold is gold in bar or wafer form that is of a purity too high for jewellery but also includes some gold coins. Plus, I didn't say gold had lost 40% of it's value - read it again. I said what would happen if you'd put all your money in gold based on your apocalyptic vision, and gold then lost 40% of it's value (for example), but the economy recovered?
So when are Tesco & Sainsburys going to start accepting Kruggerands?
The Government is not going to endlessly print more money to 'solve' the economic problems we've got at the moment because history shows it just leads to hyper-inflation (Weimar republic / Zimbabwe).
Why can't you do it by investing in a gold ETF then? It's backed by gold and it tracks the gold price so it in effect acts as, gold.
Oh! Well if you've seen a forum discussion on it!!!
You're really missing the point about funds and I'm not convinced you know much about them at all (and I'm not just talking gold funds). What exactly are the principles then?
Also, how can you 'get your gold out' of an ETF? Although it's backed by gold, you're only an actual creditor on the gold if the company running the ETF goes into liquidation, which as far as I'm aware has never happened as ETFs have only been around for a few years.
I suggest that if you have an interest in investments, sitting the CF2 exam offered by the Chartered Insurance Institute (CII), which is an introduction to investments and investment principles.
As I've said in previous posts, I do think that gold has a place in an investment portfolio (I've got exposure to it in my pension) but there is more than one way to skin a cat. Plus, the reasons you are giving to physically hold gold are based on financial meltdown which is still very very unlikely whatever the current financial situation (and the FTSE hit 11 year lows today - which just shows the dangers of having all of your investments in UK shares).
The problem with your argument is the asking of all the right questions. You cannot ask questions when there are no answers. One example will suffice: A few years ago pubs were doing very well here. So if you decided to buy a busy pub, then you could expect to do well. Then the fascists in government sprang the smoking ban on them. Now pubs all over the country are going out of business. Not just because of the smoking ban I know, but a big part of it.
The point of the above is in this country the government can do what ever it likes as long as it's in the 'public interest.' So you can never ask all the right questions about a business, because you never know what the government will do next(just look at Northern Rock).
Another point is the idea that investing in several companies(or whatever) is better than investing in one. Maybe it is, maybe it isn't. It really depends on the companies(or whatever). Actually if you invest in 3 companies and they all do well, you've made the wrong decision(think about it).
2nd paragraph) I've been talking about gold not a mixture, although I know at the purest level there are small quantities of other things, but that doesn't invalidate my argument. Neither does the fact I put 40% instead of the 20%.
All your other main points I've dealt with. Anybody who wants to know what others think of 'gold funds' can type in that on google and go to those pages.
Last edited by CL; 30-09-2008 at 12:01 PM.
Diversification is really for people who don't know what they're doing(the ignorant). Which is understandable considering the points I made about our government.
Well this has been an interesting lunctime read!
I have rarely seen an argument so comprehensively, convincingly and articulately won. Well played TheHeathens!
Your position is quite natural considering our history.
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