Tuesday, May 10, 2005

Gold, Canned Soup, and the Coming Doom

NateMail: Hudson has been exposed to Dave Ramsey, and wants my take.

Myth: Gold is a good investment and will cover me if the economy collapses.

Truth: Gold has a poor track record and isn't used when an economy collapses.

He goes on to say that "gold is a lousy investment with a long track record of mediocrity" and "gold is not used when economies fail." He says that historyshows that in economic collapses people revert back to a black market or barter system and that gold loses nearly all value. His solution is that it would be better to invest in real estate or canned soup.

First let me start by saying that Dave Ramsey is a good guy, and his ideas on being debt free, and financial security are pretty much spot on. That however, hardly means that he's right on everything else.

Before you take his advice on real estate you should be aware that his real estate investments have lead him multiple bankruptcies. His idea's on mortgages are simply stupid, and amount to giving away money, as they ignore the most important variable... i.e. the interest rate at which the money can be borrowed.

I'm not throwing Dave under the bus here for no reason though. I just want you know that he's by no means an authority beyond question. For that matter, no one is.

But on to the question...

The belief that Gold is a poor investment in hard times, stems from the idea that gold will be impracticle. Like Bill and Gregg pointed out, you cain't eat it. They'll also tell ya that it will be awefully hard to exchange for goods.

While neither of these are incorrect, they certainly don't tell the tale. As cash loses its value, the cash value of gold will sky-rocket. This means that while everyone else's bank account has become increasingly worthless, your gold has stayed the same. So while you can't go to the grociery store and buy bread with it, you certainly can cash it in. Don't let anyone tell you that gold dealers will suddenly disappear.

Even when FDR confiscated gold, it was still around. Though the lessons are learned now.. so lots of folks who horde the stuff make no mention of it, and always pay cash for it.

Tangible assets like Gold are a vehicle for saving your money. See... it just doesn't do you any good to save your cash, if that cash is rapidly being destroyed by inflation.

But what about investing in something like real estate? In this particular case... that's about the dumbest thing you can do. This is a Real Estate Bubble for crying out loud. Remember... By LOW, sell high. Not the other way around. Real estate prices are insane right now.

In fact, if I were in real estate... and well... I kinda am... I would be looking to get out... and I kinda am. Once the bubble pops, you can get back in, and get back in cheap. But hey... it's idea like this that lead ol' Dave to bankruptcy. I mean hell... if he knew that much about investing, he'd still be doin' it, instead of making his money by talkin' on the radio and sellin' books.

Back to surviving the Coming Doom for a second. I don't mean to imply that you should sock everything you own into Gold or silver or something. You should have a store of cash... but only an emergency store. You should have 6 months of food. You should have water. You should have guns. A good garden... or better still, a working farm is the best bet.

Gold alone isn't gonna save your butt. You have to do that yourself. But the infuriating thing about these types of debates, is that no one is claiming that it will. We're saying, it's an important part of the equation, but not the whole equation.

The self-reliant are the ones who do well in hard times. You're best investment, and best protection, is learning to be that.

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