Ask Money

Gold and catastrophe

Chris Farrell Jan 15, 2009

Question: My husband is a huge conspiracy theory fanatic. He is certain that the new presidential administration will enact martial law and believes that our financial markets will crash and the dollar will be worth nothing. He wants to put his IRA into a gold ira where there is the actual metal in it. He is certain this will keep our money safe and if gold goes up more we’ll make some money. I am very scared to do this. I am torn because I work for an investment advisor and a firm that believes that the market will turn around and to keep our current conservative mutual funds. Can you give us some detailed advice on if it is a wise move to sell our mutual funds and move this money into gold? We have already lost about how much the market is down. What gold investment company might be safe to look at? I hope you can help me. I don’t know where to turn. Thanks. Marita, spring hill, KS

Answer: We are living in an era when many “once-unthinkables” have actually happened. The end of the Wall Street investment bank. The U.S. government buying investment stakes in banks. The taxpayer bailout of GM and Chrysler. And that’s just a partial list.

The risk that the current recession turns into a depression is real. That’s why the Federal Reserve is taking extraordinary actions to shore up the financial system and the new Administration is planning a more than $800 billion stimulus package to resuscitate the economy. I think the government actions will prevent a depression. My best bet is that all this activity will stave off collapse, and that the economy will revive.

I don’t know if your husband likes to read, but An Empire of Wealth by historian John Steele Gordon is a well told tale about the hair-raising economic and political crisis the nation has faced before–and how we weathered those trials.

It’s no surprise, but I’d stick a well diversified portfolio. Here’s one approach: If your husband wants to go more into gold maybe you should keep your retirement funds in stocks, bonds, and similar investments. That way, as a family you will own a very “European” portfolio with gold as a hedge against bad times, yet still exposed to stocks and bonds for good times.

As for owning gold, the most efficient way to do it through an exchange traded fund or a mutual fund. There are a number of well known gold and precious metal ETFs and mutual funds. If he wants to own the gold itself, he’ll pay commissions, a premium for the gold, storage fees, insurance and the like. There are many scamsters in the gold market, so if he buys bullion or coins I’d research the dealers very carefully. By the way, the U.S. mint has a list of authorized dealers for its gold coin, the American Eagle.

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