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What's Your Gold Plan for Getting Punched in the Mouth?

Commodities / Gold and Silver 2013 Oct 23, 2013 - 10:12 AM GMT

By: Adrian_Ash

Commodities

Miguel Perez-Santalla writes: Planning to win is where you should start. But what if your opponent hits back...?

MIKE TYSON may be launching his autobiography, but he isn't famed for his eloquence.

Still, while he's no Mohammed Ali perhaps, Iron Mike's best boxing tip – that "Everyone has a plan until they get punched in the mouth" – is much deeper a comment than the former world heavyweight champion may have intended.


Remember when everyone you spoke to was heavily invested in the stock market? What about housing? A decade ago I thought that my friends should consider putting a percentage in cash, or perhaps buying some gold. Because the equity and real estate markets just seemed over heated to me.

It was just a general observation of course, and one that many other people made at the same time. But the old axiom that what goes up, must come down kept coming to my mind. My friends and acquaintances ignored me though. Their investing was brilliant and they knew better. Who needed to worry about buying gold when stocks and housing kept going up?

During the 2008 market meltdown, I remember speaking to one friend who had been convinced of his golden touch in stocks. He admitted that he was so full of himself and his success that he was not prepared for what happened. He took a big hit. Essentially he got punched in the mouth.

Yes, my friend had a plan (buy stocks) but it was one without any precautions (buy some insurance, too).  He only saw one future and did not prepare for other outcomes. Or as Iron Mike might put it, he thought he could box, but he didn't even wear a mouthguard.

Even the biggest, heaviest-hitting investors are diversified. They own companies outright, plus other assets away from the stock market as well. Failing to diversify is the same as taking your car on a long road trip without having prepared. What are the preparations you must make for a long trip, whether by road or investing?

  • Have a mechanic look at your car and make sure that it is running in good condition. In other words, seek outside expertise;
  • Change the oil, fluids and check the tires. Meaning clean out your portfolio of weak assets and add stronger ones;
  • Make sure the spare tire is ready and you have the equipment to repair a flat tire. Savers should be diversified with non-correlated assets to protect you from a possible blowout.

Now, there are several ways to protect oneself from a punch in the mouth in the financial markets. But one must consider the flexibility of any non-correlated asset – meaning an asset which is unlikely to move in the same direction as the rest of your portfolio if things turn bad.
And it has been commonly held by many professional investment advisors that a five to 10% investment in gold should be part of the long term investor's strategy.  In times of greater insecurity and confidence that number is often raised to higher levels.
 
In a recent radio interview on New York Markets Live, I asked Mickey Fulp, the Mercenary Geologist and an expert in the mining industry, about his thoughts on the gold market. His comment?

"I maintain a minimum of 10% in gold at all times…I view gold as my insurance against financial calamity."

Insurance is good word when it comes to gold. The only difference is that once you've buy it, your gold never becomes worthless or expires. No, you don't plan on needing it. But you don't want to get punched in the mouth without.

Miguel Perez-Santalla
BullionVault

Miguel Perez-Santalla is vice president of business development for BullionVault, the physical gold and silver exchange founded a decade ago and now the world's #1 provider of physical bullion ownership online. A fierce advocate for retail investors, and a regular speaker at industry and media events, Miguel has over 30 years' experience in the precious metals business, previously working at the United States' top coin dealerships, as well as international refining group Heraeus.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

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