Expert: Steve Hach - 11/30/2009

Question
I was thinking of doing some smalltime investing. About $100-150 a month.
Would silver or gold be a good way to go or can you reccomend a better strategy
Thank you in advance,
Cato.


Answer
Hi Cato,

silver and gold are very risky and for gold you face the disadvantage of buying in at historic highs--in dollar terms.  They are inherently risky because they are commodities and can fluctuate radically based on the whims of panicked investors.

You may rest assured that all that marketing you hear on TV and radio is designed to take advantage of scared people due to the market declines in other investments.

Still, I get this question a lot.

The last time I got it--you might want to search the archives--I think Gold was trading around 900$.

Now Gold is around 1100$ or so.  This is a gain of @25%.  However, the stock market is up @50% since March of this year.  You would have been better off in an index fund of the SP500 or Nasdaq than gold since then.

Gold works if there is runaway inflation but as of now economists are still trying to figure out if we have deflation--and this is why social security recipients did NOT get cost of living increases this year.

In any case, it is always risky to put all eggs in one basket, if you have all your cash in precious metals and they go down you will lose big.

I would suggest saving your money, learning about investing, and then when you have a few thousand dollars putting it into a diversified portfolio that has exposure to stocks, bonds, cash, and gold--if you wish.  

Something like an IRA pays real tax advantages even if you just put the money into a safe CD.  Then, when you have more capital, you can spread it around as you see fit within the IRA and keep the tax savings but gain better returns.

I hope this advice helps.

Best,

Steve