This week, we welcome back Paul Mladjenovic for part 2 of an exclusive two-part interview with GSI Exchange. Paul Mladjenovic is a CFP, national seminar leader and author. Since 1981, his specialties have been investing, financial planning and home business issues. During those 35-plus years, he has helped thousands of students and readers build wealth through his nationwide seminars, workshops, conferences and coaching program.
Paul has written Stock Investing for Dummies (all five editions), High-Level Investing for Dummies and Precious Metals Investing for Dummies and other books which are detailed at www.amazon.com/author/paulmladjenovic.
Paul has done many financial & home business seminars such as “The $50 Wealth–Builder”, “Ultra–Investing with Options” and the “Home Business Goldmine” among others that are available as downloads at RavingCapitalist.com. You can also connect with Paul at www.linkedin.com/in/PaulMladjenovic.
What advantages do precious metals bring to an investment portfolio?
Precious metals such as gold and silver have a unique advantage that paper assets such as bonds, stocks, mutual funds, etc. don't have and that is that they do not have “counter-party” risk. Virtually all Paper assets (including currencies) have counter-party risk which means that the value of the paper asset is directly related to the promise or performance of a 3rd party. Bonds are a good example since their value is directly related to whether the bond issuer will keep the promise of paying back the principal & interest. Stocks, for example, are only as good as the performance of the underlying companies. The market prices of gold and silver may fluctuate but has never gone to “zero”. In the coming months and years there will be paper assets going to zero value so precious metals can be an important diversified addition to any paper asset portfolio.
Generally speaking, what percentage of a portfolio should one allocate to precious metals?
For most investors, 5% is suitable. For some it may be a little more such as 7.5 or 10%. It will depend on the individual investor's risk profile, personal needs, etc.
How do precious metals fit into a retirement savings strategy?
In various economic environments, they act as either inflation hedges or as safe harbor investments when there is instability or economic chaos. For retirees, they should consider some physical (5% or less) for an inflation hedge while having a dividend-paying large cap stock as a small part of a conservative income-based portfolio.
Do you have a preference to exposure to precious metals through mining stocks, ETFs or purchasing the physical metal via coins or bullion?
In physical bullion, I like either gold and/or silver eagles issued by the US Mint. They are widely owned and very liquid. Millions are bought/sold every week in a global market. There are also quality stocks and ETFs that can be easily added to any stock portfolio that I believe can be a good diversified addition to traditional portfolios.
As the risk of inflation increases, how do you think this will impact gold?
Gold “shines” in an inflationary environment and I believe that inflation will be a growing issue during 2017 and beyond. Investors need to remember that inflation is not about rising prices (that is a symptom) it is about a given currency (such as the dollar) being diminished in value due to be being over-produced. Currencies can today be produced in millions of units (dollars, euros, yen, etc.) with a few mouse clicks by the country's central bank (ours is the Federal Reserve) while that is not the case with gold which is only increased in quantity through the arduous pursuit of physical mining. Given that, gold has scarcity which is an important feature of a strong currency. When currencies are over-produced, they become less scarce and therefore less valuable as “units of trade.”