A woman looks on at a gold shop in Hong Kong Friday, May 12, 2006. (AP Photo/Kin Cheung)

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

It’s a great question and I’m asked this all the time. Gold or any metal is a tool just like everything else we use.  This tool can hedge inflation but it can also lose money, meaning it has risk. The question becomes what is it doing when you are in the draw down mode and need the money. If it’s losing value when you need the funds to live off of, then it will not work well for a client. My best thought on this tool (metals) is: You only invest what you are willing to possibly lose and the percentage would be a max of 10%. If you say, “Well, I can’t afford to lose anything,” then don’t do it. You also invest only what you don’t need to live on for any reason.  Yes, it could be an inflation hedge. While it has risen in value and could hedge against inflation, I choose to not lose money or have the chance of losing money. The No. 1 rule to keep up with inflation is, DON’T LOSE MONEY. It’s a conservative approach, but I choose not to invest in metals at this point because I choose not to have the potential to lose money. It’s the old tortoise-and-hare story. Slow and steady beats a fast run any day in the long run.

I have also told people that if this market and economy really does go off a cliff, then the odds are neither you nor I could possibly invest enough in any metal to make it last the rest of our life. A (little) investment for the average client will not possibly save us from that cliff.  That is why I use strong insurance products from strong companies. Those insurance companies have outlasted depressions, world wars, recessions, investment scandals, etc. As a whole, large/strong insurance companies own and control more assets than all of the banks and the oil companies in the world COMBINED. In my mind, these products are the most secure tool that we all have available to us. It’s setting the insurance products right that is the key to make it last the rest of your life. Mark Pruitt, CEO, president, founder, Strategic Estate Planning Services Inc.


My answer is, “Why are thinking of investing in gold? Have you invested in gold before? How much do you know about investing in gold?” Have a real conversation. Then, based on their responses, help them in way you can. I’m a great believer in having a team of experts (people I trust) to help me and my clients. –Lew Nason, Insurance Pro Shop 


For more from Daniel Williams, see:

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