Avoid Running Out Of Money In Retirement

  • The truth about how long most people's retirement lasts

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Are you a Smarter Investor than a Fool?

Are you a Smarter Investor than a Fool?

In volatile times, good deals are plentiful for fearful investors. Safe money alternatives sound great. You’ll hear about annuities, gold, silver, and other commodities. So, are they really prudent investments?

We’ve all seen the commercials on tv and heard on the radio to buy gold and silver. Since the commercials are on all the time, they must be providing good advice, right?

Or, are they turning you into the greater fool?

10 years ago, commercials on tv to buy gold were rare. 10 years ago. Commercials about silver, and other commodities were just as rare. When do we hear about gold and silver, and other commodities? Usually, after they have done well. When gold does well, as it has in the last few years, commercials are all over the place telling you to diversify into gold. When gold takes a break, silver is promoted as being a good diversifier. Anything that’s done well recently is considered a great diversifier.

So, what does gold, silver, or other commodities do for you? Well, let’s take a look at what they don’t do:

First off,

  • Commodities have no productive activity- they don’t manufacture anything, and they certainly don’t provide a service.
  • They don’t have a coupon rate- like bonds do.
  • There is no dividend- like stocks have.
  • There are no earnings- like stocks have.
  • They have no internal rate of return, so therefore, it’s purely a speculative adventure. What are you betting on?

So, what are the reasons they want to sell you gold, silver, or other commodities?

Often times, you’ll hear about gold being a hedge against inflation. You’ll hear that gold is a safety net for a declining dollar. Let me ask you this: If these reasons are true, protecting against inflation and/or the declining value of the dollar, why would a company sell you their gold and silver for your declining dollar? What do they know that you don’t know? Would you make a trade like that? Would you be selling someone something of value for something that is deemed to be going down in value? In an ironic twist, those who rely on speculation, stock-picking or market-timing become the “greater fool,” and are left holding the bag when the investment falls and they either can’t find a buyer or they have to sell at a loss. If the dollar did decline to such a low level, when you needed to sell your gold or silver, would you exchange it for useless paper?

This is called the “Greater Fool Theory” The greater fool theory (GFT) refers to those who buy an investment based on the premise they will be able to sell it at a profit to a “greater fool.” Many investors subscribe to this theory, but don’t know they are engaging in it.

Obviously, the people selling you gold and silver don’t share the same view as you do, so which of you is the greater fool?

A prudent investor will focus on a globally diversified, low-cost, passively managed portfolio based on their risk tolerance.