What if your client is a gold bug? (Part 1)

Maybe my favorite line all-time from a movie is the exchange in Goldfinger, when the eponymously named villain has James Bond strapped down to a table and has a laser pointed at the secret agent’s nether regions. The always super cool 007 says: “Do you expect me to talk, Goldfinger?” To which the precious metal-obsessed baddie responds: “No, Mr. Bond… I expect you to die.”

I’ve had gold on the mind in recent weeks as we’ve been researching alternative investments and as a part of that we threw a question out to industry experts and advisors to get their take on how they would advise a client who asked them to put some of their investments in gold. Little did we know the deluge of responses we would receive, forcing us to split this article into multiple parts. The following are the first responses. Look for part 2 of this series next week.

As part of the Paychecks and Playchecks philosophy, we believe that after a client covers their basic expenses with guaranteed income, they then need to OPTIMIZE the portfolio. I go a step further and say optimize with a special eye on inflation. Why? Because if you cover basic expenses with guaranteed lifetime income, you take so many risks off the table — longevity risk, market risk, deflation risk, order of return risk and withdrawal rate risk.

What risks remain? Long-term care and death are risks that can be handled by LTCi and life insurance. The remaining investment risk is inflation. Therefore, the rest of the portfolio needs to be invested where the risk of inflation can be taken off the table or hedged. So, I would believe that gold and silver, gas, oil, ag commodities, real estate, etc. can indeed play a key role in a client’s portfolio to help them hedge this inflation risk. Now the real question is, does gold really do that?

My research indicates that gold is good in the years leading up to inflation.  However, when inflation actually hits, the data is unclear.  I would argue that real estate has been a very good hedge against actual inflation. There is evidence that ag commodities could do well in the future as well since the population is growing and ag land is decreasing. –Tom Hegna, CLU, ChFC, CASL, president, Paychecks and Playchecks

Less than 30 percent of our guys are securities licensed so we stay focused on safety. I believe most of our agents would inform the client it’s not 100 percent safe so they don’t recommend it. –Sam Kavitsky, president, The Revolution

Gold is definitely something right now that is a buzz word. It’s gone up so much in the recent past that many people are looking to incorporate it into their portfolio. I tell people, “yeah, if you want to include that as a portion of diversification, go ahead.” However, I encourage them to heed caution, as gold is like any other non-guaranteed investment vehicle: it’s not 100 percent safe. –Chuck Layman, Growsecure

I’m not a “gold bug.” I have never invested in it and, personally, I would not advise a client on it. However, I would encourage anyone thinking of this to do their homework first and foremost. Find a professional who has years of experience investing in gold, not just investing (there is a difference). These pros are in it every day and can offer sage advice on when and when not to enter a position.  –Al Atha, Distribution Options, LLC