I wanted to address a topic today that might step on a few people’s toes and actually show that the “conventional wisdom” of the alternative media might actually be a bit of a bad long-term strategy.
When a rational person steps back and looks at the financial situation of the U.S. economy, one can only conclude that there are some serious problems that are on the horizon. Considering the alternative media was the first group to step out and warn the world about a collapse and the depression that we are in right now, the credibility of this group is highly regarded.
One big name in the alternative media investment space is Peter Schiff, President of Euro Pacific Capital. He has encouraged people to protect themselves from the collapse by purchasing mining, oil, and agriculture stocks in other countries that would thrive during the financial crisis. This strategy, as well as loading up on precious metals, is what was argued would save everyone that was frightened by the collapse of the stock market at this time. Unfortunately these companies collapsed dramatically during and after 2008 and the message has been the same with precious metals since: “Buy blindly at any price!”
The truth is, since 2008, gold has gone up around 7% a year compounded. This being if you purchased all your gold for an average price of $871 which was the average price for the year and have held it until now where it’s trading at $1,300. Not a bad return from that point, of course if you made the bulk of your purchases in 2010 and 2011, your returns are negative. The mindset seems to be to keep stacking and ignore the price because a hard asset priced against fiat currency is meaningless anyways. Thousands of people have gotten caught up with purchasing these inflation protected assets blindly with a passionate belief that what they are doing will inevitably payoff.
This is also true of the mining stocks and natural resource plays which are down 50-90% from their highs.
Unfortunately the alternative media has been spot on when it comes to exposing the government and the fraud but far off when it comes to correct action on how to profit from it.Purchasing precious metals and resource stocks really are a great way to hedge against an imminent collapse, but just keep in mind that each year that goes by and nothing happens is a year that you’ve missed out on 7-12% gains on large cap stocks that pay dividends. The kinds of companies I’m talking about are companies that aren’t going anywhere. They will likely endure the hardship of a harsh financial collapse.
Being in the financial sector, I can give everyone insights on what people are doing that are actually on the inside of this movement when it comes to their investments. Diversifying is key and it exists greatly even among the “doom and gloom” alternative media guys.
Most will agree and still argue that it’s a good idea to buy precious metals but have an understanding that it’s for protection against a potential collapse; that you don’t want to put all your eggs in one basket. You also miss out on any sort of cash flow in this strategy. This will play out in a crisis and you will be glad you have it especially when you acquire assets during times where the metals are depressed such as now. Don’t get the mindset that having five ounces of gold doubling is going to be your ticket to wealth and riches though. Seeing gold at $1,300 and silver at $20 makes me very excited to make allocated purchases. I still would say to not invest more than 10-20% of your income in this sector and to purchase wisely getting good deals.
The mining and natural resource stocks are speculative. This is another investment sector that the big names do invest in but do so in smaller scales using small percentages of total net worth to invest with. The financial collapse could in fact take these stocks to new highs if the underlined metals takeoff, but keep in mind that it could take years for these stocks to double and triple and they could in fact just do nothing and go bankrupt instead, which makes the stock highly speculative. Having said that, we urge you not to buy these stocks only for the inflation story, but actually analyze the business model and try not to put more than 5-10% of your total net worth in these companies. Again, the big names might be preaching the end of the world, but their investments are much more diversified and balanced than just gold, silver, and mining companies.
Investing and not being able to sleep at night is not a great way to live your life. Invest like the insiders and purchase value instead of strictly emotion.
To your prosperity,
Chief Editor of CrushTheStreet.com