Monday, May 2, 2011

Are You Suffering Gold And Silver Investment Envy Syndrome?

gold cast barImage by hto2008 via FlickrI opened the morning paper to read the headline "Investors Stampede To Silver". What's going on? First it was the rush to gold, now it's silver. The price of silver is definitely going up. Are you participating in this modern day silver rush?

People worried about the U.S. governments soaring debt load, the Federal Reserve's easy money policy and the slumping dollar; investors have run to silver and gold as money refuges. I can't blame them they see the value of their dollar eroding and see this as the only way to keep ahead.

For those of you who have not jumped on the band wagon yet yet; do you think you should have? Are you getting that sick feeling in your stomach that you missed something big? What should you do?

The basics of investing are to buy low and sell high but do they apply in this situation. The people who are buying gold and silver are not buying as investors, they are buying as a hedge against inflation. A way to keep the value of their money. This frenzy is being fueled buy the small time players, the average guy who is afraid of the financial future ahead.

If you are already invested in gold and silver you must be pleased with your good decision. If your not invested do you feel you should be? I for one feel no need to buy gold and silver. If there is one thing that I have learned from years of investing is never buy at the top. Don't chase an investment. Every time I did buy high, I lost money. The volatility of these precious metals makes me to nervous. The general consensus is that the price of these metals still have room to appreciate, but for me I don't have the stomach for it.

I am perfectly happy investing in my index fund portfolio. I don't envy those who are investing in gold and silver. I judge all investments by the "sleep at night factor". If I have an investment and it doesn't worry me and I sleep well owning it, then it passes for me as a good investment. I believe gold and silver investing is too speculative and not an investment. Those who understand the nuances of gold and silver investing, more power to them. If you have a core holding of good investments and you want to play around with gold set aside no more than 5% of your total investment balance and buy some gold or silver.

My investing style is simple. I use stock index funds:

  • 20% VTI: Vanguard Total Stock Market 
  • 20% IVE: iShares S&P 500 Value Index 
  • 20% IWD: iShares S&P 1000 Value Index 
  • 15% IWN: iShares Russell 2000 Value Index 
  • 15% IWS: iShares Russell Midcap Value Index 
  • 10% DIA: DIAMONDS Trust Series 1

Also Bond Index Funds:

  • 50% TIP: iShares Barclays TIPS Bond Fund 
  • 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund 

With this group I get a broad spectrum of stocks across the entire market. The bonds are short term and TIPS which are inflation adjusted.

Investing should not be hard. It's made more complicated buy the equity industry. We are always being sold something. Step back from all the noise and check out index funds.

Here are some additional resources for a short course on investing:

Asset Allocation

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