What to do with Precious Metals

[hsmom4]

This is my first post and I would appreciate any advice I can get from seasoned investors. We would like to retire early and hope to do so in about 7 years, when my DH retires from the military. We have four kids to put through college first. Our Roth IRAs are currently at USAA, but I'm preparing to move them to Vanguard next month. I've learned a lot about expense ratios here and find this site to be a goldmine of information.

We also own Precious Metals at USAA. These funds are non-Roth and we don't need the money at this point. But, it's hard to see them taking such a major beating. Sadly (or should I say stupidly?), we bought them at their peak in 2011 and they are now worth less than 50% of their value. I'm half tempted to buy more shares, to try and offset the loss. We could hold them for another decade before we need the funds (i.e. to buy a house). Right now the precious metals (USAGX) are worth about 2.5% of our overall portfolio. Initially, they were worth about 5%.

But I'm not sure if that would be throwing good money after bad. If you were in my situation, would you sell the funds and take the loss? Would you hold them, hoping for a recovery? Or would you buy more shares since we seem to be near the bottom?

Thanks for any feedback or advice you can send my way.

 

[REWahoo]

I would do nothing at the moment. Since you don't need the money now, no reason to sell. OTOH, no reason to buy more of what has not been a good investment for you in an effort to make back some of your loss - you may only make things worse.

 

[Al in Ohio]

This is my first post and I would appreciate any advice I can get from seasoned investors. We would like to retire early and hope to do so in about 7 years, when my DH retires from the military. We have four kids to put through college first. Our Roth IRAs are currently at USAA, but I'm preparing to move them to Vanguard next month. I've learned a lot about expense ratios here and find this site to be a goldmine of information.

We also own Precious Metals at USAA. These funds are non-Roth and we don't need the money at this point. But, it's hard to see them taking such a major beating. Sadly (or should I say stupidly?), we bought them at their peak in 2011 and they are now worth less than 50% of their value. I'm half tempted to buy more shares, to try and offset the loss. We could hold them for another decade before we need the funds (i.e. to buy a house). Right now the precious metals (USAGX) are worth about 2.5% of our overall portfolio. Initially, they were worth about 5%.

But I'm not sure if that would be throwing good money after bad. If you were in my situation, would you sell the funds and take the loss? Would you hold them, hoping for a recovery? Or would you buy more shares since we seem to be near the bottom?

Thanks for any feedback or advice you can send my way.

Gold is volatile, but don't panic, and don't sell. It will go up in the future and be worth more than what you paid per ounce. If anything, wait until you think it bottoms out and buy more.

 

[haha]

We also own Precious Metals at USAA. These funds are non-Roth and we don't need the money at this point. But, it's hard to see them taking such a major beating. Sadly (or should I say stupidly?), we bought them at their peak in 2011 and they are now worth less than 50% of their value. I'm half tempted to buy more shares, to try and offset the loss. We could hold them for another decade before we need the funds (i.e. to buy a house). Right now the precious metals (USAGX) are worth about 2.5% of our overall portfolio. Initially, they were worth about 5%.

But I'm not sure if that would be throwing good money after bad. If you were in my situation, would you sell the funds and take the loss? Would you hold them, hoping for a recovery? Or would you buy more shares since we seem to be near the bottom?

Thanks for any feedback or advice you can send my way.

I know nothing about these funds you mention, but I have been a gold or gold stock investor on and off since the early 70s. Commodities go up and down, sometimes a lot, but unlike stocks I have never seen one go to zero. I again bought gold in the early 00s, and made a pretty good profit but sold out far below the top. This will happen more often than not. I bought in again earlier this year, but miners rather than bullion. So far I been killed, but I took my losses, and switched horses-same stable but different nag.

I have no fears about this- gold may go to wherever, no way to know, but neither gold nor gold miners as a group are going to close up shop. I prefer miners right now, as given the horrible conditions in the industry right now, something's gotta give. Only use funds or ETFs, too easy to lose forever on individual miners.

Be sure you have a handle on what is "substantially similar" in the eyes of the IRS, and consider booking your losses and reinvesting in some other fund that will not expose you to the wash sale rule.

BTW, I bought some gold miners this AM. Gold is up, but miners still down pretty big.

In one sense betting on miners in a falling market for gold and gold stocks is a very risky bet, and not likely a good idea for the rent money. Still, they can really fly, and right now I don't see any paper money that I would rather have long term than gold.

Ha

 

[RenoJay]

Gold is not like most stocks, bonds and real estate investments in that it has little practical utility value and it does not produce any income. Therefore, it's only as valuable as what the new guy will pay, and that's impossible to know. (All investments are subject to what others will pay, but most have floors based on the value of the income they produce.) To the original poster: It seems that you get swayed with short term market trends, and that's a dangerous mentality. My suggestion is do not buy more, do not sell more. Make a written asset allocation plan for the next 30 years, and stick with it. Best of luck.

 

[Texas Proud]

I know nothing about these funds you mention, but I have been a gold or gold stock investor on and off since the early 70s. Commodities go up and down, sometimes a lot, but unlike stocks I have never seen one go to zero. I again bought gold in the early 00s, and made a pretty good profit but sold out far below the top. This will happen more often than not. I bought in again earlier this year, but miners rather than bullion. So far I been killed, but I took my losses, and switched horses-same stable but different nag.

I have no fears about this- gold may go to wherever, no way to know, but neither gold nor gold miners as a group are going to close up shop. I prefer miners right now, as given the horrible conditions in the industry right now, something's gotta give. Only use funds or ETFs, too easy to lose forever on individual miners.

Be sure you have a handle on what is "substantially similar" in the eyes of the IRS, and consider booking your losses and reinvesting in some other fund that will not expose you to the wash sale rule.

BTW, I bought some gold miners this AM. Gold is up, but miners still down pretty big.

In one sense betting on miners in a falling market for gold and gold stocks is a very risky bet, and not likely a good idea for the rent money. Still, they can really fly, and right now I don't see any paper money that I would rather have long term than gold.

Ha

Gold will not go to zero... but the miners can.... the cost of extraction can be high and if not done right you can lose money big time... just watch Gold Rush to see how not to be a gold miner.... they make stupid decisions all the time... (as to Gold Rush, I heard the two main guys are getting over $500K each, so you do not need to be good at actually mining gold to make a profit)...

 

[RunningBum]

But I'm not sure if that would be throwing good money after bad. If you were in my situation, would you sell the funds and take the loss? Would you hold them, hoping for a recovery? Or would you buy more shares since we seem to be near the bottom?

Don't make a decision to buy more based on your current loses. You should try to optimize your entire portfolio, not try to break even on a specific investment. From today on, it really doesn't matter what the fund has done in the past (over than tax consequences), it's what you think it will do in the future that matters.

If you don't feel good about it, take the loss and invest in something you think will do better.

If you think it can recover but don't have a great deal of confidence, probably just hold onto it.

If you really think it will bounce back, or if you want a certain % of your portfolio in precious metals and that % has fallen low, buy more.

I suspect we're approaching a low, but I'm just sitting on my very small holding of VG Prec Metals that's down over 70% since I bought not quite 6 years ago.

 

[Surewhitey]

I do not have any exposure to metals, but have been looking at SLV for maybe dipping my toe in. Still have not, but looking and watching.

 

[hsmom4]

Thank you for the different perspectives on this fund. I've never been a big fan of volatility, but we are relatively new to the mutual funds arena and learning through trial and error, what works for us. I'll pass this info onto my DH and we'll take another look at this fund and decide what to do with it. Thanks again!

 

[haha]

Gold will not go to zero... but the miners can.... the cost of extraction can be high and if not done right you can lose money big time... just watch Gold Rush to see how not to be a gold miner.... they make stupid decisions all the time... (as to Gold Rush, I heard the two main guys are getting over $500K each, so you do not need to be good at actually mining gold to make a profit)...

As far as I know the OP invests in gold metal. That is why I said, while stocks may go to zero, commodities don't.

I am fairly well acquainted with the miserable economics of gold mining today. But the only way an entire industry disappears is if it's markets disappear. Obviously it is a gamble, but so is all of life.

It is easy to invest in something that has everything going for it, but often this is not a very profitable action. OTOH it is hard to invest in something that apparently has little or nothing to recommend it. Nothing except a low price.


Ha

 

[urn2bfree]

As I understand it, Gold is a hedge, just as bonds are a hedge, as stocks are a hedge. Each supposedly acts differently enough form the other Dothan when one goes down the other goes up more often than not. The way to profit from all this is to have a balanced approach that keeps each of these UNCORRELATED assets in the same allocation. So if gold was 5% of your portfolio, something else, presumably stocks, we're up and made up a larger percent of your portfolio. So the plan should have been to sell,some of the stock position and increase the gold to get the percentages back in line. Or if you have other funds, just buy more gold. In the long run this should raise your performance and lessen overall portfolio volatility. The Harry Browne Permanent Portfolio which used an even 25% in each of four classes, cash, long term bonds, stock index and precious metals had the best performance of all the approaches tested from 1994-2012 as reported here: http://www.retireearlyhomepage.com/reallife13.html
I would caution that this is a short period of time and does not necessarily account for the effects of buying and selling certain assets to rebalance with regard to the tax Implications. (example-gains in gold are taxed at 28%, long term stock gains either 0% or 15%, short term stock gains at ordinary income rates)

 

[haha]

As I understand it, Gold is a hedge, just as bonds are a hedge, as stocks are a hedge. Each supposedly acts differently enough form the other Dothan when one goes down the other goes up more often than not. The way to profit from all this is to have a balanced approach that keeps each of these UNCORRELATED assets in the same allocation.

Your word supposedly is key here. Lately monetary conditions play the tune, and every asset class tends to dance to that same tune.

Ha

 

[clifp]

Thank you for the different perspectives on this fund. I've never been a big fan of volatility, but we are relatively new to the mutual funds arena and learning through trial and error, what works for us. I'll pass this info onto my DH and we'll take another look at this fund and decide what to do with it. Thanks again!

One really important skill to learn in investing is tax loss selling. Every year a little before Thanksgiving I check that status of all of my investments. Any investment which I am currently losing money I decide is a turkey and I need slaughter the fowl beast. The reason to do this is quite simple, Uncle Sam will give you a rebate on your losses depending on your tax bracket and state you live in perhaps as much as 1/3 of your losses.


Now if you still decide you want to to own gold or precious you can buy a similar fund like the gold ETF (GLD) or the Vanguard Precious Metal fund VGPMX. Although my experience is that having sold the turkey you may not be inclined to buy it again.

Now an investment is my IRA, where there is no tax benefit to selling I do sometime hold a loser. The interesting thing is roughly twice as often I'd have been better off following the same practice in my IRA.

 

[ERD50]

It is easy to invest in something that has everything going for it, but often this is not a very profitable action. OTOH it is hard to invest in something that apparently has little or nothing to recommend it. Nothing except a low price.

Ha

Well said.

For me, this is the paradox to consider with just about any investment. I think it is very tough to be rational about this for most people.

-ERD50

 

[Lsbcal]

If it were me in this predicament I would first decide if the timing was just poor, but the strategy was sound. Here is an article by Swedroe on gold as an investment Gold continues its free fall - CBS News

If the strategy was sound, just hold the position but do not add to it. If the strategy was flawed, select a reasonable time span to sell, then sell in steps. For instance, select a 2 year time frame and sell 25% of the position each 0.5 year.

 

[hsmom4]

Thank you for the additional advice and links. We're still discussing the best strategy, but leaning towards holding until the end of the year and see what happens. I don't think DH and I are on the same page as far as having Precious Metals, in our overall investment portfolio. But since it's not a high percentage, it's not worth a huge debate.

 

[gcgang]

Realize the loss. Invest in other gold ( avoid wash sale). Or, if you have the cash, add to current position now, sell original shares in at least 31 days.

 

[haha]

Summary of some results when buying totally busted groups

What Happens When You Buy Assets Down 80%? – Mebane Faber Research – Stock Market and Investing Blog

Tricky, but not necessarily unwise.

 

[Koolau]

As the world's worst investor, no one should take any advice I offer. So, I won't offer any. As I have mentioned more than once, I have seen more than one source (and can't lead you to a single one) suggesting 2 to 5% investment in PMs (as a part of your AA) So, you might have 5% cash, 55% stocks, 35% bonds and 5% PMs (could be actual metals in a lock box or as mining stocks or some other play - or a combo). BUT, the concept is the same as an AA of stocks and bonds. i.e., KEEP your AA by selling a bit of anything that gets out of whack (right now, for most of us, that would be stocks, but who knows). THEN buy more of what has been beaten down to get it back to YOUR AA. Doing so AND including a small amount to PMs COULD give you an overall smoother ride (total value of all of your portfolio) ACCORDING to the EXPERTS I have seen. Will it work for you? How good is your crystal ball. So far, it has worked miracles for me, but who knows in the future. As always, YMMV. Be sure YOU (and DH) are comfortable with any AA you choose. If you are comfortable, you are more likely to keep that AA going.

 

[Bestwifeever]

Okay, here's what to do. Sell the gold from the portfolio and replace it with some gold necklaces and bracelets and earrings (no gemstones, just gold). You'll get to enjoy wearing it forever (and it will surely go up in value by the time it gets cashed in as part of an estate).

 

[hsmom4]

Okay, here's what to do. Sell the gold from the portfolio and replace it with some gold necklaces and bracelets and earrings (no gemstones, just gold). You'll get to enjoy wearing it forever (and it will surely go up in value by the time it gets cashed in as part of an estate).

I already have more gold than I know what to do with. In our culture it's common to give 24K gold when you get married. The problem is, I hate yellow gold (prefer white gold or platinum). So it all sits in the safe...obviously, I should have sold it when gold was at an all-time high.

 

[Texas Proud]

Okay, here's what to do. Sell the gold from the portfolio and replace it with some gold necklaces and bracelets and earrings (no gemstones, just gold). You'll get to enjoy wearing it forever (and it will surely go up in value by the time it gets cashed in as part of an estate).

It in interesting that I saw a program and that is what they do in India (which I think is the country with the largest purchase of gold)....

The jewelry is also easy to transport at a moments notice.....

 

[hsmom4]

It in interesting that I saw a program and that is what they do in India (which I think is the country with the largest purchase of gold)....

The jewelry is also easy to transport at a moments notice.....

Yes, it seems like old traditions die hard, even when you're raised in Canada. Personally, I would have rather gotten a nice set of flatware, an espresso machine, CASH, etc...

 

[Lsbcal]

If one is looking for a technical discussion of gold pricing, there is an interesting and balanced article here by Mark Hulbert:
Gold: Is the bad news over? - Mark Hulbert - MarketWatch

When gold hit its high over $1,900 an ounce in September 2011, for example, the ratio was more than 8 to 1. In January 1980, the ratio stood at more than 11 to 1.



Unfortunately for the gold bugs, the current gold/CPI ratio — 5.3 to 1 — is still above average, even in the wake of gold’s plunge over the past three months. To be in line with that average, gold would have to trade for $780 an ounce. “Note carefully,” Erb says, “our research doesn’t provide a basis for predicting when gold will once again trade at fair value, however — only that it will eventually do so.”

BTW, I was one of the stupid ones that purchased gold in 1980. Fortunately I sold all of it except for one Canadian Maple Leaf coin kept as a reminder. Will probably never sell that 1 ounce coin.

 

[CoolChange]

What Happens When You Buy Assets Down 80%? – Mebane Faber Research – Stock Market and Investing Blog

Tricky, but not necessarily unwise.

I have looked around on the site a bit; but, did not find obvious answers to the questions that came immediately to mind with this approach:

• How to avoid catching a falling knife?
• What is the sell signal?

While I like the idea of buying low and selling high and am not opposed to moving against the general crowd sentiment, I would like to see more details around their model, back testing, etc.


I have tried this approach in the past, both with sectors and individual stocks, when I thought that stock picking was cool and that I could do it at a profit. And, I am sure you can imagine how well that worked out for me.


Emotionally, I have wanted to buy various country or region specific Asian and European indexes; now, gold is starting to tug at my [-]heart [/-]purse strings. While I keep telling myself that establishing and maintaining an AA is a much better approach, the gambler in me really wants to chase some extra returns with beaten down sectors. (Neither gold nor individual countries, other than USA, figure into my current AA.)