Tag: stocks and bonds

Investing in Gold

A year or two ago there were non stop ads on radio and television promoting the purchase of gold.  The primary thrust of the messages was that the United   States and perhaps the rest of the world was on the verge of massive inflation.  The only protection of your wealth is gold ownership was the drum beat argument.

I did buy a few thousand dollars of GLD shares.  I bought and sold the shares twice. In that time my net profit was about zero.  I decided sticking to stocks and bonds was a wiser plan after receiving a caution call from the stock broker that handled those trades. That was 2011.

With all the talk about declining value of gold I decided to plot its movement in relation to the movement of the S&P 500 starting January 1, 2013.  My source for the data is the Yahoo Finance graphing tools.  As you can see on the linked graph the S&P 500 has increased in value about 14% while GLD gold shares have dropped about 14%.

What happened to inflation and its effect on the price of gold?  Someone will have to explain it to me.  I do know one man who said the bubble will be bursting soon.

Anyone care to comment?

Some Investments are Appropriate

Why are you relying in savings account interest?  Some banks are paying .05% APY on certificates of deposit.  I saw an ad this morning trumpeting 0.9% APY.  That is an unacceptable rate of return.

As we start the new year we are all looking at our savings and the earnings those savings provided.  Commentaries on financial networks like CNBC and in the financial sections of newspapers all say that most of us have put our money in low interest earning savings accounts at banks.  The reason is obvious.  We fear losing those hard gained savings.

Businessweek December 24-Janauary 6 edition cover story Titled “Get Rich Slow” points out that at today’s bank interest rates it would take 1,387 years to double your money.  Yes, the Federal Reserve is trying to encourage you to invest elsewhere.  Honestly there are many investments that pay more than FDIC insured savings accounts.  Some are just as safe as a savings account.  My favorite is Ginnie Mae Bonds that are “providing a guaranty backed by the full faith and credit of the United States”.  These bonds currently pay an interest rate of 2.68%.  They have earned higher interest rates in past years.  According to Morningstar, if you had invested $10,000 in January 2003 and had all interest re-invested in GNMA bonds, the current value would be $16,398.

There are other somewhat more risky investments but those risks are minimal.  Consider Procter and Gamble the world’s largest consumer goods company, whose products like Tide detergent and Gillette razors are in 98 percent of U.S. households.  Other products of theirs are Crest Toothpaste, Pantene Shampoo, Duracell, and Prilosec OTC.  That is not the complete list that encompasses at least 32 items.  The share price has varied over the decade but it has been a reliable dividend payer that now yields 3.19%.  As one lady told me, “I do not care what the share price is as long as I receive my dividends”.  She lives in an expensive independent living facility and draws her income to pay the bill from the dividends.

http://finance.yahoo.com/echarts?s=%5Egspc#symbol=^gspc;range=3m;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

The S&P 500 was at 1257.60 on January 1, 2012.  Today the value is 1502.96.  That is a 19.5% increase in value.  There is no guarantee this growth will continue.  Is this a bubble?  Perhaps! 

Can you afford to be a non-participant?  If the market drops 10% just sell and you just might have more money than you do today.