Posted on 08/20/2011 7:53:27 AM PDT by SeekAndFind
AS Europe’s debt troubles intensified earlier this month and United States debt was downgraded, many people rushed into gold and Treasury securities as a safe haven. It was the latest sign that in uncertain times, investors act in ways that can hurt them in the long run.
“They fled the perceived risk of falling stock prices right into the assured risk of overvalued assets,” said G. Scott Clemons, chief investment strategist for the wealth management division at Brown Brothers Harriman.
What drove those decisions was not logic but fear — fear of a repeat of September 2008. And that fear may only have intensified when markets dropped again late this week, sending yields on 10-year Treasury notes to record lows and the price of gold above $1,800 an ounce.
Even if the fear is understandable, however, acting on it may not be the best long-term strategy.
“If you were right about the timing decision to get out, you’re going to have to be right again about when to get back in,” said Joseph W. Spada, managing director at Summit Financial Resources in Parsippany, N.J. “Even professionals have trouble doing it. If that’s not going to be your strategy, then don’t do it once.”
But now that people have done it once, what are the risks of holding on to large positions in gold and Treasuries?
TREASURIES While the economy may seem bad to many people, it would not take much improvement for investors to lose money quickly on their investment in Treasury bonds.
A week and a half ago, the 10-year Treasury note was yielding only 2.10 percent, after Standard & Poor’s downgraded the United States’ credit rating. Since the yield of a bond moves in the opposite direction of its price, this meant demand for 10-year Treasuries was high.
(Excerpt) Read more at nytimes.com ...
Its a dilly of a pickle of a problem.
What to do?
Real estate looks like the place to go.
To bad you have to pay taxes on real estate.
To all you gold bugs out there... here is the author’s note of caution :
Only about 11 percent of gold has an industrial use. While gold can get lost or buried, it does not get used up like oil or natural gas. And its actual cost is between a third and half of where it is trading.
It cost about $600 to produce an ounce of gold, but that rises to about $1,000 when all the costs of mining are factored in.
A bigger risk may come from exchange-traded funds for gold (e.g. GLD). While they let small investors buy gold easily — the price of one share of the GLD exchange trade fund is roughly one-tenth the price of an ounce of gold — that same ease of buying means investors can just as quickly sell their shares in a panic.
No one I spoke to would venture a guess as to how high gold would rise before it hit its peak. But most stressed that people forgot that gold’s value was driven by sentiment.
Gold doesn’t have any intrinsic value. It’s this era’s wampum. At one point you could buy Manhattan for beads. At least blue-chip stock’s value rises and falls based on what the company actually produces.
Over a 43-year period ending in June 2011, the average annual increase for gold, accounting for inflation, was 3.82 percent compared with 4.92 percent for the Standard & Poor’s 500-stock index. Gold, however, was 28 percent more volatile.
For those who fled to gold and Treasuries, the hardest part will be deciding when to get back into other securities. The best way in uncertain markets may be to go slowly in small chunks — a practice known as dollar-cost averaging.
To all you gold bugs out there... here is the author’s note of caution :
Only about 11 percent of gold has an industrial use. While gold can get lost or buried, it does not get used up like oil or natural gas. And its actual cost is between a third and half of where it is trading.
It cost about $600 to produce an ounce of gold, but that rises to about $1,000 when all the costs of mining are factored in.
A bigger risk may come from exchange-traded funds for gold (e.g. GLD). While they let small investors buy gold easily — the price of one share of the GLD exchange trade fund is roughly one-tenth the price of an ounce of gold — that same ease of buying means investors can just as quickly sell their shares in a panic.
No one I spoke to would venture a guess as to how high gold would rise before it hit its peak. But most stressed that people forgot that gold’s value was driven by sentiment.
Gold doesn’t have any intrinsic value. It’s this era’s wampum. At one point you could buy Manhattan for beads. At least blue-chip stock’s value rises and falls based on what the company actually produces.
Over a 43-year period ending in June 2011, the average annual increase for gold, accounting for inflation, was 3.82 percent compared with 4.92 percent for the Standard & Poor’s 500-stock index. Gold, however, was 28 percent more volatile.
For those who fled to gold and Treasuries, the hardest part will be deciding when to get back into other securities. The best way in uncertain markets may be to go slowly in small chunks — a practice known as dollar-cost averaging.
u do realize 13 mil foreclosures at coming up in next 3 yrs?
This is one of the things that cracks me up about how they sold us on 401Ks.
They claimed "Oh its easy" and I said if it's so damn easy, how is it that the financial gurus Couldn't figure out how to manage traditional pension funds?
Yes I do.
I’ve been buying gold and silver for two reasons. Our money becomes worthless due to inflation or the economy collapsing. The so called investment professionals naturally want everybody buying stocks.
“fear of a repeat of September 2008”. Just three years ago.
Sorry, confidence does not happen because of assurances that the situation now is not the situation of yesterday.
If you are renting out your real estate then you have all those Schedule E deductions to offset the rental income. In fact, anyone in trouble with their house finances should consider and calculate the advantages of renting out their home and moving into a cheaper rental, or getting a roomer, and calculate the tax benefits.
Oh good, let’s take advice from the NYSlimes; a yellow rag in league with the marxist demorats that helped level our economy. Let’s all go back to the days of journalistic fraud when the award winning NYT reporter was caught fabricating a story from start to finish—he got caught, but dozens of others get away with it in obama’s world of lies and more lies from the state-controlled old media.
The best safe haven is a stable, non intrusive government.
Being a landlord is a lot of work and The Gubermint is about to enter that market.
I’m thinking raw undeveloped land.
“He said that from the perspectives of both return and volatility, a better strategy would have been to put 10 percent in gold and split the rest 60-40 between stocks and five-year Treasury bonds. Rebalancing the portfolio to maintain those ratios would have meant an average annual return of 4.66 percent, with more than half of the volatility of gold alone.”
I’m comfortable with having 10% of my portfolio in gold.
The “flight” to Treasuries make sense for big money investors (funds with Billions of $$). For us consumer folk, Treasuries make little or no sense—especially when they yield less than CDs. Unfortunately, there isn’t a whole heck of a lot out there to invest in. I myself keep to high quality corporate bonds, low P/E dividend stocks that yield over 5%, and CDs. Gold looks awfully like a bubble to me. Real estate is looking better and better.
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