Published: Wednesday, 1st September, 2010 5:00pm
Moneytimes with Jill Kerby
Diversify your savings and protect your wealth
Personal finance columnist, Jill Kerby.
Pic by==: 97
I am very interested in investing in some of the foreign funds to which you refer in your articles. What is the best way to do this and which countries would be good to consider? writes one reader.
Another asks, You suggest that leaving all savings in the euro is not a good idea. But how does one go about buying safer bonds or other safer currencies?
Meanwhile, another reader wonders by email how much gold they should hold, and how do you invest in gold? I certainly don't want to keep it in my house as I have heard that break-ins are up.
Ireland's sovereign borrowing status has once again been downgraded, this time to AA- by the Standard & Poors rating agency (it was the highest AAA rating not long ago). As the risk of some kind of a debt default or euro devaluation around the eurozone becomes more than just heresay, it isn't unreasonable for ordinary people to wonder about what they can do to protect their savings from the deepening great recession.
Part of the answer is to consider more diversification, something every good advisor is recommending these days.
So, starting this week with our reader's last question first: how do you buy gold? And just as importantly, why?
Real gold (or silver) is still a recognised form of money, even if it isn't traded across a counter to pay for a suit of clothes or a basket of groceries (though in America some shops do accept gold or silver for payment, even scrap gold.)
By converting some of your paper money into gold you can hedge the risk that the paper might be debased and devalued by politicians and central bankers who can either inflate the supply to pay their debts (and eventually cause dangerous price inflation, or who can simply withdraw the notes and re-issue new ones at a new lower value against the US dollar or sterling or even against the market price of gold.
Because it is a precious metal and rare, gold can't be printed at whim or be debased by edict. Unlike paper and ink, it doesn't fade away. And while its price per ounce will go up and down, once you own it, it has no third party claim against it like paper money which is ultimately the property of the government that issues it (and that can withdraw it.)
You can buy physical gold (in coin or bar form) from reputable gold bullion dealers and high street banks (in Austria and Canada) or in the form of relatively lower cost gold certificates from the Perth Mint of Australia where your gold will also be safely stored.
Check out the Irish bullion dealers goldcore.com on buying gold in bullion or certificates - Goldcore is also the European agent for the Perth Mint.
If you prefer not to own physical gold, which always needs safe storage away from your home (bullion dealers offer safe deposit services), you can buy gold in the form of low cost exchange traded funds (ETFs) that trade just like shares on stock exchanges.
Many of the big stock exchanges have gold ETFs listed, and they sell them as actual gold funds, or as gold company funds. In the case of the former (GLD, the ticker symbol for the SPDR gold trust) this involves the purchase by the ETF provider of a large amount of gold, say 400 ounce bars, kept in storage and from which the provider issues shares. If the price of gold goes up 10%, the individual GLD shares that are bought by the ETF investor also goes up in value by 10%.
In the case of an ETF that represents a pool of gold mining companies (like the popular Market Vectors Gold Miners ETF, GDX) you will be investing in a basket of companies, some of which are global mining leaders. The annual charge is usually under 0.5% though you must also pay stockbroker commissions. (See etfgold.net/ for a good explanation about gold ETFs and how easy they are to buy and sell.)
There are also pooled gold investment funds that are sold by some life assurance companies or fund managers with varying (but often higher) set up costs and annual management charges. They too usually represent a mixture of large and smaller gold mining companies such as Newmount Mining, Barrick Gold, Kinross, IAMGOLD Corp, to name a few of the largest and best known. (See miningnerds.com/gold-mining-report-all-countries for a list of all publicly traded gold miners.) You can also invest directly in gold mining shares, but they are highly volatile, with the junior mining shares amongst the riskiest.
How much gold do advisors recommend you own? A typical holding in a diversified portfolio would usually amount to 5%-10% of the personal net realizable worth, but the amount varies depending very much on the confidence of the investor in the strength of their paper currency and the general health of their economy.
The steady rise in the value of gold since 2000 - from about $300 an ounce to today's c$1,230 an ounce, and the subsequent fall-off in the value of most fiat currencies, suggest that some people are certainly converting more than just 5% or 10% of their net worth into gold.
Next week: What about bonds and emerging market funds?
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