Enjoy the trend, don’t rely on it

Rugged individualism is an American trait. It is mostly a good thing, but it can be a bad thing when it turns into the “I don’t need no stinkin’ government” retirement planning.

Gold is currently hot. Coins are having a good run. House prices generally are flat or declining depending on where you live. The stock market is in a slow-motion panic. Inflation is rising. And the usual punching bag, Social Security, continues to play its role.

Rather than interpret current conditions as an indictment of all things that are not currently strong, prudent retirement planning needs to continue to focus on diversification. Owners of gold have done quite well since 2001. However, they waited more than 20 years for the present good times to get going.

In 1980, if you had been ready to retire and had been convinced by the “I don’t need no stinkin’ government” advisors of the time, you would have had a large chunk in an asset that then proceeded to drop by more than two-thirds from its $850 peak. It would have been nice to have had some Morgan dollars during the 1980s bull market to buck that trend. It would have been nice to have some money in the stock market. It would have been nice to have a piece of real estate. It was nice to draw on inflation-indexed Social Security. It all adds up. Being dependent on any one thing can be a recipe for eating dog food at the end of the month.

There are some gold buyers from 1980 who are only now cashing out, 28 years later and a whole lot grayer. The last seven years have been great, they recognize, but waiting 28 years to break even is strong evidence that diversification is important. It is too bad that their voices are not generally heard over the gold-advocacy din.

I’m not knocking gold. It could go to $1,500 or $2,000 an ounce. Buy some. Enjoy some. Give your wife a nice gold coin necklace, but don’t put your whole future on the line with it.

Coin collectors, of course, should keep doing what they are doing. The general give and take and active engagement in the market is not only fun, but it is good training in the art of diversification of assets. You don’t want to be all in BU 1950-D nickel rolls at $1,000 in 1964 or MS-65 1881-S silver dollars at the same price in the late 1980s. Being a collector forces diversification and we are all the wiser for it.