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Tuesday, April 28, 2009

Financial Planners Can't Sell Gold

On the subway, I overheard two men talking about investments. They were discussing stocks and mutual funds. I decided to be helpful, so I interjected "Buy gold and silver!"

The man said "I asked my financial planner about buying gold. He told me that gold was a stupid investment for fools only." He wasn't willing to question the wisdom of his financial planner, so I couldn't help him. I didn't press the issue.

There is a lot of mainstream media bias against gold. For example, "Stocks are preferable to gold. Stocks pay a dividend and gold does not." However, with stock, you can't prevent insiders from giving themselves huge salaries and option/equity grants. You can't prevent insiders from wasting the corporation's assets, either hiring their buddies or wasting money. With bonds, you're likely to keep the nominal value of your investment, but you're guaranteed to lose out to true inflation. With gold, your inflation-adjusted return should be 0%, but the depressing news is that's the best investment out there!

Also, people are brainwashed "I need a financial planner to manage my investments." On purpose, the financial industry promotes a huge array of investment products, all of which underperform true inflation. As usual, the simplest option "Buy gold and silver!" is also the best.

Most financial planners work for a larger corporation. If the financial planners' boss says "Sell subprime bonds!", then his customers will be advised to invest in mutual funds that hold subprime bonds. The actual merit of the investment is irrelevant. If there's a loss, then the customer bears the loss. If there's a gain, then the financial planner can brag about how clever he was. The usual Agent-Principal problem that applies whenever someone controls money they don't own. In this example, the financial planner controls his customer's investments, but he doesn't own them.

Most financial planners are paid based on commissions. You can't earn huge commissions if you advise people to invest in physical gold and silver!

Suppose a mutual fund has an "expense ratio" of 1%. In that case, 1% of the fund's assets each year are collected as expenses. For such a fund, there is a sales commission of approximately 0.50% per year. If you have $10,000 invested in such a fund, then the salesman makes a commission of $50 for each year you hold the investment! The financial planner has an incentive to pick investments that pay the best commission, rather than the best investment. If commissions of 0.5% are "industry standard", then the financial planner is not committing a crime. He is protected by sovereign immunity. Even if there is a problem, the corporate employer will be sued and not the individual financial planner.

There is massive State brainwashing of "You need a financial planner to manage your investments!" and "Only fools buy physical gold and silver!" Most people must be kept ignorant about money and economics, lest they become aware of the nature of the scam.

Financial planners don't advise people to buy physical silver and gold because they can't earn commissions advising people to invest wisely.


Anonymous said...

Keep interjecting in public. The responses are really insightful.

George Donnelly said...

I ran into a guy like that. But then he also thought that inflation benefited him. Here's his rationale:

If he spends $50K a year to live and has $300K in the bank, 10% inflation makes him come out ahead because while his living costs only go up $5K/yr, his $300K in the bank turns into $330K.

When I tried to talk to him about purchasing power, he claimed that since prices were going down (housing prices specifically) that somehow it all worked out.

Anonymous said...

Although monetary return on gold should equal inflation, the supply/demand characteristics alter the real return.

The return on real estate should be 0 as well assuming a stable population. When the government floods the markets with credit providing builders and idiots alike with the incentive to buy real estate for no reason at all, the return will go up. (of course when they can't pay the bills and lose the house, most of these fools will sell at a loss)...

Any generational changes in demand (due to population growth, stock markets falling, china loading up or the dollar collapsing) will sharply change the value of gold to the upside well outside the norm of inflation.

In fact, a bubble in gold will form (ringing in hyperinflation of the dollar, even when priced in other currencies and goods). This is pretty much a certainty before this downcycle ends around 2020.

Josh said...

I'm sympathetic to those who actually worry about confiscation of gold. But it's laughable that people think gold is foolish without thinking houses, cars and inflation taxes are too.

ahnn said...

The confiscation has been a worry to many people. Hopefully it will be all okey.

sell gold

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