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Old 03-26-2015, 08:11 AM   #21
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Besides as a hedge for hyperinflation, some gold buyers are concerned with a collapse of the global monetary system because of the high levels of combined government, commercial and personal debt. Some believe if we have this crisis that we may return to the gold standard which would drive the price of gold to about $9,000/ounce with the levels of money floating around the world today. Many people laugh this off, but the same happened to those warning about the real estate bubble just a few years ago. It would be foolish to put everything into gold, but there's no harm in keeping a few percent of a portfolio in precious metals. Some governments, such as China, are even increasing their gold holdings. Personally, I have some gold and silver collectable coins that have done quite well over the years.
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Old 03-26-2015, 09:35 AM   #22
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Old 03-27-2015, 06:36 PM   #23
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As others have hinted at, holding “precious metals” is a strategy to compensate for concerns of events such as hyperinflation. To that end, if there are extra funds beyond other rational investments, go for some.

Consider though, if there is the global crash that gold bugs seem to expect, who is it that is going to buy your gold at the hyperinflated price, and what are you going to do with the money?

Overall, it’s just a commodity to speculate in.
By definition, there are plenty of buyers if the price of gold is "hyperinflated"! One doesn't worry about "who will buy" any liquid asset that's being traded. There's a market price, and that's all we need to know.

So, back to the non-complete meltdown (aka society functions, but the financial markets are in turmoil), if one presumes that the price of gold will go up, then it would offer the holder of gold some flexibility during that bump in the road. But I'm sure I'm not going to convince anyone of anything here. This is one of those topics that people just are going to disagree on.
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Old 03-29-2015, 10:21 PM   #24
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By definition, there are plenty of buyers if the price of gold is "hyperinflated"! One doesn't worry about "who will buy" any liquid asset that's being traded. There's a market price, and that's all we need to know.

So, back to the non-complete meltdown (aka society functions, but the financial markets are in turmoil), if one presumes that the price of gold will go up, then it would offer the holder of gold some flexibility during that bump in the road. But I'm sure I'm not going to convince anyone of anything here. This is one of those topics that people just are going to disagree on.
I believe that Harry Browne makes a compelling case for gold in the permanent portfolio. This portfolio is not designed to make you rich, it is designed to hold 4 very different asset classes that all do well at different times and protect your portfolio and should return very positive over inflation over the long term with reduced volatility:

2014 8.9%
2013 -2.5%
2012 6.8%
2011 10.5%
2010 14.5%
2009 10.5%
2008 -0.7%
2007 13.3%
2006 10.7%
The biggest yearly loss since 1971 when gold was allowed to float was 4.1 percent. The CAGR from 1971 is 9.6%, so from a historical unbiased review of published financial proposed investing ideas this is one of the best, simplest and does what it was stated to do.

There are times gold becomes invaluable and in the 20th century there are two I am well aware of --- Germany from 1936 - 1940 and Vietnam in the 1970's , where the ownership of gold was the only means of escaping a tyrannical government. In Germany during WWII all financial assets pretty much crumbled, being able to own gold allowed one to leave the country with real money, having it in a bank outside your home country was clearly superior.

I worked with a computer programer from Vietnam whose father paid for for his 14 year old's son freedom on the black market and got him to Switzerland with the family gold. His father had been a rich doctor and the North Vietnamese took all his financial assets and turned him into a bus driver. With the conscription into the army at 16 years of age he was trying to save his sone. He paid for a boat operator on the black market to get his son out of the country, with all the gold the family had to their name. The son was then adopted as a runaway by a doctor in Switzerland, who the son refers to as his 2nd father. His son got a degree in computer programming, moved to Canada got employed worked very hard, refusing to marry until he had enough to rescue his family and saved all his money to get them out of Vietnam, this took 18 years but the family eventually all moved to the Vietnamese section of Montreal and are now Canadian citizens. In talking to him he is very aware that without his fathers gold he most likely would not be living a very free and well paid lifestyle. Their investment style is very much naturally like the permanent portfolio, and their family is doing very well.

All of that disaster scenario insurance is actually a freebee as a result of the Harry Browne portfolio and utilizing different ways of owning gold allows one to own gold overseas away from the country with the most restrictive reporting requirements of foreign assets in the world. The more important aspect of the gold is as a balancing asset class to the portfolio, despite the results it produces it will never be too popular which makes the portfolio more likely to continue to succeed in the future.
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Old 03-30-2015, 02:41 AM   #25
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It is important to understand an investment as much as possible. GOLD pays no dividends. But it does appear to go up MOST but not all the time when other things go down, and some hedge against inflation-- hence providing some ballast---In a balanced portfolio. That means REBALANCING. Selling Gold when it is up, to bring the allocation back into balance. If one owns Physical Gold - selling generates a special tax burden at 28% in the US...if one owns gold via the ETF GLD, that is taxed like other investments. So if they are determined to own gold they may want to reconsider whether it is for the physical vs the asset allocation they want.


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Old 03-30-2015, 09:52 AM   #26
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Originally Posted by urn2bfree View Post
It is important to understand an investment as much as possible. GOLD pays no dividends. But it does appear to go up MOST but not all the time when other things go down, and some hedge against inflation-- hence providing some ballast---In a balanced portfolio. That means REBALANCING. Selling Gold when it is up, to bring the allocation back into balance. If one owns Physical Gold - selling generates a special tax burden at 28% in the US...if one owns gold via the ETF GLD, that is taxed like other investments. So if they are determined to own gold they may want to reconsider whether it is for the physical vs the asset allocation they want.


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Owning other than physical gold (by preference sewn into one's garments) seems like a misunderstanding of one of the biggest reasons to own gold: ability to bribe or do business to get out of the country in case of dire emergency (escaping Viet Nam as the US was leaving for example). It is serious sh*t going down escape protection. Yeah, yeah, lead beats gold, but there are probably more that bribed their way out of a situation than gunned their way out. Not saying that isn't wacky thinking, but if one can afford it isn't some protection against collapse of government reasonable?

Just checked - we have, by pure accident, 0.5% of our assets in gold and silver at present.
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Old 03-30-2015, 03:19 PM   #27
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Just checked - we have, by pure accident, 0.5% of our assets in gold and silver at present.
Mine's probably about 1% or so. Certainly not Harry Browne style.
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Is Gold worth owning?
Old 03-30-2015, 11:19 PM   #28
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Is Gold worth owning?

one owns Physical Gold - selling generates a special tax burden at 28% in the US...if one owns gold via the ETF GLD, that is taxed like other investments. So if they are determined to own gold they may want to reconsider whether it is for the physical vs the asset allocation they want.


http://www.bloomberg.com/news/articl...-28-gains-rate

Don't think above quote from other poster is correct. Gold ETF sales are taxed at 28%.


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Is Gold worth owning?
Old 03-30-2015, 11:50 PM   #29
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Is Gold worth owning?

Quote:
Originally Posted by gcgang View Post
one owns Physical Gold - selling generates a special tax burden at 28% in the US...if one owns gold via the ETF GLD, that is taxed like other investments. So if they are determined to own gold they may want to reconsider whether it is for the physical vs the asset allocation they want.


http://www.bloomberg.com/news/articl...-28-gains-rate

Don't think above quote from other poster is correct. Gold ETF sales are taxed at 28%.


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Well, I guess I was misinformed.
I had always assumed any gold was taxed at 28% and had questioned the effect of this higher tax on return calculations on portfolios with gold from the guy at [url]www.retireearlyhomepage.com[\url] when he published returns results for various portfolios like Harry Brown's vs other approaches--and he claimed the GOLD was not taxed like regular physical gold. But I think he used VGPMX (a Vanguard precious metals mutual fund) Maybe that is the way to invest in gold without the tax issue??

Obviously if you hold it in a tax-deferred account it could be taxed even higher when ultimately liquidated to spend depending on whatever bracket you end up in.

(Edited to address GLD vs VGPMX)
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Old 03-31-2015, 02:33 AM   #30
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http://portfolios.morningstar.com/fund/holdings?t=VGPMX

VGPMX is a primarily a stock fund, so it's taxed like stocks. PM stocks are obviously correlated strongly with gold. Browne meant gold.

I assume that if a mutual fund had realized gains on physical gold, via etf or bullion, they'd have to pass them thru at the special 28% rate.


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Old 03-31-2015, 04:46 AM   #31
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Originally Posted by gcgang View Post
one owns Physical Gold - selling generates a special tax burden at 28% in the US...if one owns gold via the ETF GLD, that is taxed like other investments. So if they are determined to own gold they may want to reconsider whether it is for the physical vs the asset allocation they want.


http://www.bloomberg.com/news/articl...-28-gains-rate

Don't think above quote from other poster is correct. Gold ETF sales are taxed at 28%.


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The problem with an ETF is there is far more "paper" out there with claims against gold than there is actual gold. So, if the purpose of owning gold is for concerns over a global or national financial crisis, an ETF s not the way to go since the shares may prove worthless. If the purpose is for an investment where you want to get in and out of it easily, then an ETF may be the way to go.
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Old 03-31-2015, 07:55 AM   #32
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http://portfolios.morningstar.com/fund/holdings?t=VGPMX

VGPMX is a primarily a stock fund, so it's taxed like stocks. PM stocks are obviously correlated strongly with gold. Browne meant gold.

I assume that if a mutual fund had realized gains on physical gold, via etf or bullion, they'd have to pass them thru at the special 28% rate.


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The comparison of different retired guy portfolio returns from 1999-2013 on The RetireEarlyHomepage http://www.retireearlyhomepage.com/reallife14.html used VGPMX as a substitute for gold in the "Harry Browne" portfolio...and it was the best performing portfolio for a 4%SWR retirement during that time period.

...So I guess my question remains, when the real Harry Browne portfolio posts returns does it take into account the possibility that with rebalancing there could be a yearly tax obligation reducing any gold gains by 28%?


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Old 03-31-2015, 08:54 AM   #33
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The problem with an ETF is there is far more "paper" out there with claims against gold than there is actual gold. So, if the purpose of owning gold is for concerns over a global or national financial crisis, an ETF s not the way to go since the shares may prove worthless. If the purpose is for an investment where you want to get in and out of it easily, then an ETF may be the way to go.
I, personally, wouldn't bother with a paper that says I own precious metals. It sort of defeats the purpose (that I would consider important). I think those avenues are for speculators as opposed to insurance against weathering a short storm in the financial system.
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Old 03-31-2015, 01:16 PM   #34
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The comparison of different retired guy portfolio returns from 1999-2013 on The RetireEarlyHomepage 2013 Update: Real-Life Retiree Investment Returns used VGPMX as a substitute for gold in the "Harry Browne" portfolio...and it was the best performing portfolio for a 4%SWR retirement during that time period.

...So I guess my question remains, when the real Harry Browne portfolio posts returns does it take into account the possibility that with rebalancing there could be a yearly tax obligation reducing any gold gains by 28%?


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There are any number of ways to account for this in a retirement portfolio if one wishes to minimize taxes. For instance one could own half the gold in a ETF in a retirement account and another 1/2 allocation of physical gold outside the IRA post tax. Rebalancing could be managed inside the retirement account to minimize tax effects. Taking into account taxes when they are so individualized is rarely done for portfolio comparison purposes.
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Old 03-31-2015, 01:39 PM   #35
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ALSO, the actual tax you will pay isn't necessarily 28% that many people lead you to believe you owe.

The rate you pay is the same rate you pay for your regular income tax as taxable income, with a maximum of 28%. Let's say you are married, with no dependent children. Your first $19,000 or so of income is tax-free, allowing you over $88,000 of income within the 15% tax bracket. So the GOLD profit to the extent you need income would get taxed at the 15% tax rate, not 28%. Managing this is not extraordinarily difficult and a good problem to have.

So for instance lets assume it's 2010 and you had a million dollars invested in the Permanent Portfolio. You would start the year with $250,000 in each asset class and end the year after a $40,000 withdrawal needing a balance of $276,187.50. The Gold returning 29.3 percent would require a reduction of $47,062.50 MM would need 19,687 added bonds 3,938 added and stocks a sale of 16,562 to get to the proper balancing for 2011. At worst assuming the stock sale is also taxed at regular income tax rates the tax expense is $6,694 or an effective tax rate of 11 percent. Obviously there are many factors that can effect the tax rate but in general your income needs to be well over $100K before the 28 percent rate comes into play.
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Old 03-31-2015, 01:45 PM   #36
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We have 2% of total assets in G&S. I believe strongly in diversification and it's just another facet of that for me. Besides our paid for home, it is our only real, tangible asset.
The other 82% is just numbers on a screen. It makes me feel a little better.

Self delusional ? Sure. But it's a delusion that occasionally makes me feel better.
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Old 03-31-2015, 01:57 PM   #37
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Soooooo...what if someone has gold coins they got over the years from who knows

where, no receipts, what happens when you sell it, say, to APMEX?

Would they withhold 28% of it's value?
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Old 03-31-2015, 02:04 PM   #38
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Owning other than physical gold (by preference sewn into one's garments) seems like a misunderstanding of one of the biggest reasons to own gold: ability to bribe or do business to get out of the country in case of dire emergency (escaping Viet Nam as the US was leaving for example). It is serious sh*t going down escape protection. Yeah, yeah, lead beats gold, but there are probably more that bribed their way out of a situation than gunned their way out. Not saying that isn't wacky thinking, but if one can afford it isn't some protection against collapse of government reasonable?

Just checked - we have, by pure accident, 0.5% of our assets in gold and silver at present.
What I like about the permanent portfolio is that you actually have a portfolio that outperforms and as a side benefit provides "wacky" insurance, the more level returns makes it a good candidate as a withdrawal portfolio than others which is why it has done so well with a 4% withdrawal since 1994
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Old 03-31-2015, 06:21 PM   #39
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Soooooo...what if someone has gold coins they got over the years from who knows

where, no receipts, what happens when you sell it, say, to APMEX?

Would they withhold 28% of it's value?
It would seem that an outfit that withheld and reported to the IRS would be at a disadvantage. I can't imagine that a "we buy gold" fly-by-night in the strip mall would be doing much in the way of record keeping, but then again, I've never set foot in the door of one of those places.
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Old 03-31-2015, 06:30 PM   #40
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Here are the reporting requirements on a dealer's site that I've used:
https://www.texmetals.com/sell-gold-coins

Basically for American Eagles there is no reporting requirement. For gold bars or some foreign coins there may be if the sale is over a certain limit, such as 25-1 ounce Canadian Maple Leafs.
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