In 2015, I purchased two gold mining ETFs as my “hot slices” of my nest egg. They doubled, but are now trading closer to my purchase price. Should I have sold the slices when they doubled? Is gold a loser? Should I dump the gold funds now, and try for something else? Signed: It Was Fun While It Lasted.
Dear, It’s Fun,
I know it feels like there is something wrong with an industry when the price falls out of favor. However, it’s actually fun to buy gold low, if you think that the price is going to explode going forward. That’s the real question here: “What’s the outlook for gold? Will it rally or sink further?” Below are a few tips to help you get to the right answers.
Why Did Gold Drop?
Gold dropped because there were more sellers than buyers in the gold ETF market in the U.S. In the U.S., the stock market is near its all-time high and the dollar has been strong. So, American gold ETFs lost strength on that news. At the same time, gold is becoming more and more popular with China, Russia, Turkey, and Kazakhstan, as these countries trim back their U.S. treasury holdings. There is a move away from the “dollar monopoly” by Russia, China, and other countries. (Here’s a link to a blog on that.) So, the rest of the world isn’t quite as optimistic about the future of U.S. stocks and the dollar as Americans are.
What’s In Store For the Future?
The truth is that when an investment rides higher than it has ever been and is stretched out beyond the scope of reason and fundamentals, it is likely that you are seeing a high and perhaps a bubble. Alan Greenspan, Warren Buffett, and multiple economists have all said that stocks (and bonds) are in a bubble. Gold is a good hedge against a drop in the stock market or the dollar’s strength.
Should I Buy More or Sell My Gold?
The maxim is to buy low; sell high. So, if the price drops, then you definitely want to consider buying more at a lower price — if you believe that the fund is still hot. Once you gain greater experience in rebalancing once a year, then you’ll be on a buy low; sell high system on auto-pilot. Remember that the gold is a slice or two of your “at-risk” portion of your nest egg pie chart, not the only investment you want to own. When you go to buy gold coins, make sure it is just one part of the general picture. Diversification is key in today’s world of low-interest rate-fueled booms and busts, which we’ve seen in stocks, real estate, gold, and more since 2000.
Annual rebalancing of your nest egg is also key for maximizing gains and would have helped you to capture some of the profits you saw in 2016 in your gold fund slices. Start by printing out a pie chart of what you have. (If you need help with this, call our office at 310-430-2397 to inquire about my second opinion, which includes a pie chart of what you currently have.) Print out a pie chart of what you should have. (You can personalize your own sample nest egg pie chart with my free web app.) Make what you have look like what you should have – a safe, diversified plan that is appropriate for your age and the market conditions. You can learn more about my nest egg pie charts in the revised 2nd Edition of The ABCs of Money and at my Investor Educational Retreats in Arizona and California.
When a fund slice gets smaller (because the fund price became more affordable), you buy more at a lower price. When a slice gets nice and fat, that’s your signal to sell high and trim back to a normal-sized slice. Annual rebalancing makes buy low; sell high easy as a pie chart (rather than the outdated Buy and Forget About It that hasn’t worked since 2000).
Rebalancing is what you missed out on in 2016 with the hot gold funds. That’s okay. Don’t expect yourself to be perfect. You did the right thing to ask now before acting because following your instinct in investing is often just following your fear and stomach acid and selling low. It takes time and experience to get excited about buying low; most people want to sell when the price drops. Wisdom, right action, and sound information will always yield a better investment outcome. These are all things we go over in my 3-day Investor Educational Retreat. It might be time to immerse yourself in more learning. Call 310-430-2397 to learn more about my 3-day Financial Empowerment retreats. As Ben Franklin says, “An investment in knowledge pays the best interest.”
Other Blogs and Links of Interest
Russia Dumps T-Bills and buys Gold
The Nest Egg Pie Chart Web App
Unaffordability: The Unspoken Housing Crisis in America
How a Strong GDP Report Could Go Bad.
5 Harbingers of Recessions. And how you can protect yourself.
Cut Your Health Care Costs in Half.
Social Security and Medicare Warn of Depletion.
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Do you have a budgeting, investing or economic questions for Natalie Pace? Simply email info@NataliePace.com.
Natalie Wynne Pace is the author of the Amazon bestsellers The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is (aka You Vs. Wall Street). She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical). Natalie Pace’s great, great grandfathers James Pace and Lorenzo Wright were some of the original pioneers of Graham County. Call 310-430-2397 to learn more about Natalie Pace’s books, private, prosperity coaching, and 3-day Financial Empowerment Retreats.