Masters Series: The Best Insurance You Can Buy in Advance of a Crisis
Editor's note: Gold is the ultimate inflation hedge.
But that isn't gold's only use. As Dr. David "Doc" Eifrig explains in today's Masters Series – adapted and updated from an August 2011 DailyWealth – gold can also serve as a form of wealth "insurance" in times of crisis...
The Best Insurance You Can Buy in Advance of a Crisis
Over the years, I've shown readers how to earn high rates of tax-free income... what safe and cheap stocks to buy... how to "juice" those stocks for 15% annual income payments... and how to make money no matter what the market does.
This is the fun stuff... the "rewards" of investing. These ideas can produce great income streams and capital gains for investors. I encourage you to get started on them now.
But sophisticated investors know focusing solely on rewards, like income and capital gains, is a huge mistake. It's not the key to making an investment fortune. Great investors don't focus on rewards...
They focus on risk.
Great investors consider all the bad things that can happen to a company, commodity, bond, or piece of real estate that they're buying. Only after they deem the risk/reward situation to be appropriate do they put their money to work. Huge returns happen as a result.
Regular readers of my Retirement Millionaire advisory know I believe the current "doom-and-gloom" rhetoric – the idea that the world is headed for a huge debt crisis – is off the mark. Most of the doom-and-gloom analysts would have you put all your money in gold and canned goods, then move to a bomb shelter in Belize. I've studied the same numbers they have, and I'm comfortable owning stocks and bonds right now.
But no matter how confident I am in a glass-half-full world... I always want to keep a portion of my wealth in assets that will do well in case I am wrong. I want to join the doom and gloomers in owning precious metals, like gold and silver. These assets could skyrocket in value if the doom-and-gloom crowd is right. I think of owning gold and silver the way I would home insurance... something I'm glad to have, but hope to never have to use.
Here's an example of how owning my favorite chaos hedges, gold and silver, can turn out to be a fantastic idea...
We'll use a couple of hypothetical investors – Bill and Sam – as examples.
Let's imagine that four months ago, Bill took $250,000 and invested it in a 50%/50% mix of stocks and bonds. That was a good decision. Since then, the stock market (as measured by the exchange-traded fund IVV) is up slightly. Bonds (as measured by symbol IEF) are up 4%. As a result, his portfolio is up around 2% and now worth about $255,000.
Sam, on the other hand, invested 40% of his $250,000 portfolio in stocks, 40% in bonds, and 10% in both silver (as measured by symbol SLV) and gold (as measured by symbol GLD). The stock and bond side of his portfolio has performed like Bill's.
However, the $50,000 Sam invested in our gold and silver chaos hedges is now worth $56,830. As a result, his total portfolio is worth $260,800.
You can see from the chart below how much better Sam's portfolio has done compared with Bill's...
In times of chaos, investors drive up the price of gold and silver. As they become nervous about bad economic news... debt crises in Europe... and the specter of runaway inflation in the United States... investors have begun stockpiling gold and silver.
And the prices have skyrocketed... In the past four months, gold has run up 16%, from $1,050 an ounce to more than $1,220 an ounce. And silver is up more than 10%, from $13.65 to around $15.05.
You should know, I'm not the kind of guy who lives in a concrete bunker. I don't think the world is about to end. I'm not anyone's idea of a "gold bug." Like I said, I view "chaos hedges" as a kind of portfolio insurance.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: As Doc explained, gold serves as a "hedge" in times of economic crisis. And today, Porter says the Fed's actions could cause an economic collapse our country hasn't seen since the Great Depression. For those on the sidelines, the results could be catastrophic.
But you don't have to be a victim. That's why Porter has put together a video explaining the exact steps you can take to not only protect yourself, but to profit. Watch it here.