Gold and Silver: Is it time to buy?

CPA and CFP(R) Bridget Sullivan Mermel talks with CFP John Scherer about what they tell clients who are interested in buying silver and gold. With silver at all time highs and gold holding strong, more people are interested in the topic than ever!

Also see Bridget's article on the topic here.

TRANSCRIPT

Gold and Silver: Is it Time to Buy?

John: Gold and silver have been up over 50% the last two years. Does that mean we should invest in that? That's going to be our topic today on Friends Talk Financial Planning.

Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.

So John, the numbers are pretty high for gold and silver. And so what we want to talk about today is: should we invest in that? And so I'm going to put up on the screen the latest with gold and silver.

John: That’s great.

Bridget: So here is what the latest is.

John: I know we've been getting some questions on this, and especially with the uncertain time. Like, what's going on? Hey, does this make sense? Gold and silver is tangible, right? So it feels real. And this is a great chart right here. This is why, right?

Bridget: Right. Exactly. So first of all, we want to look at the dates. The date here is March 23rd, which is really when the stock market was at the bottom, and then through the end of the year. So today we're filming. This goes through November 13th, so the end of last week. So when you see this, you can see, gee whiz, they all started here.

And then on the right side, it says the percentage that each type has gone up. And you can see we've got gold is up 25%. Gosh, silver is up over 75%. And the red is S&P, and the blue is the Dow Jones. You can just take those as one line. And I might even have those two mixed up. But the stocks are somewhere in the middle.

John: Bridget, where were you in July? That's my birthday. I knew I should have gone to silver back then. What the heck?

Bridget: Yeah, right. I know. Really! Who knew? Yeah. Let's go back to here.

So I've done some research on this. It's interesting because they're is some studies that say, gee whiz, gold, there's always something about gold that people come back to. So is that a really better investment than the stock market? And there's been some exhaustive studies. I'll put a link to it in our YouTube channel.

And the studies seem to indicate that there is some link. They try to link it back to things like, how much did bread cost in what were Roman soldiers’ salaries? So they try to link it back to things like that. Versus: Roman soldiers, roughly how much a police officer makes now. And how much does the associated bread cost? And is there some correlation? And there is some correlation.

But over the time when they try to correlate, is gold going up versus the stock market, and which is better? Things kind of fall apart. So gold definitely maintains some of its value. It's always kind of around, and people have liked it. So I can see why people like gold. But when you compare it to the stock market, there's no correlation. And it doesn't add value. It doesn't grow at any kind of the rate that stock market does over time.

John: That's the thing that really strikes me about investing in metals, right? Typically we think gold. But silver, that's a viable place to be. But it's a store of wealth, right?

Bridget: Right.

John: It doesn't do anything. And I'll tell you one of the things that I think about with gold: Warren Buffett in his annual letter to investors, this is maybe five or 7 years ago now. He had a really great analogy. And I'm going to get it exactly, the specifics wrong. But he said, “Listen, you could buy… If you took all the gold in the world, it would fit like inside a basketball stadium.” It’s kind of crazy when I think about how small all the gold in the world really is.

And he said you could choose to own all the gold in the world, or for that same amount of value you could choose to own, like, three Exon Mobiles and five General Electrics and some other… the entire company 3 – 4 – 5 times over, plus all the crop land in the United States and everything that all those companies would produce over the next 20 years.

And like, what do you want? You want this big cube of metal, very precious metal, but still a cube of metal versus all the production and innovation and growth and food and things that are going to come from those things.

And for me, when you put it in those terms, like, what does it do for you? Like golly, of course, all the companies and the crop land and all these things are going to produce a lot more. It's so much more reliable to quantify as opposed to the store of value.

Bridget: Right.

John: So that was really powerful for me. And then the other thing -- and I think we've got another slide on it here -- is that when you look long-term -- this is one time period. But over time, the value when you just make the comparison… and we don't invest like, listen, I don't know what's going to happen in the next year or 2 years or 3 years. But I’ve got a very high level of confidence that in 10 years, and in 20 years, and our investing lifetimes, that stocks are going to produce, companies are going to produce value as an investor. And this talks about that, right? The historical view on things?

Bridget: Right. Exactly. So historically, silver seemed to do really well in 2011. Gold has had certain times where it's done really well. And now, you can see, here it's doing well. But the stock market looks like it's up almost 1000% in the last 30 years. And silver, it's having a run right now. And so it looks like it's up 500% and gold’s at about 250.

So gold and silver definitely are keeping pace with inflation. That's good. But they're not something that people can add value to. There's no human ingenuity involved in gold or silver, except for ways to try to convince people to buy it. So I say, you don't invest in gold. You speculate on gold. But not that nobody ever makes money on speculation.

John: That’s right. I agree with you. That reminds me, Bridget, why I talk with folks. I like to go to the casino and play dice table. And of course, I give more money than I take out of there. But I win sometimes. It's not like I never win. If I never won, nobody would ever go back to the thing. You can do it. But of course, gambling is, the blackjack table or whatnot, is not a reliable way to make money.

Not that you can't make money doing these things. But when we talk about stuff, it's like, listen, what's the reliable, predictable, high-odds, things to do over time? And I like your point that there's some attractiveness or some historical… and listen, to have some money in gold, some small percentage because it feels good, nothing wrong with that. But the bulk of the money is invested in a diversified portfolio. That's where the smart money goes, right?

Bridget: Yeah. I lived in San Francisco for a time, and I've always been kind of interested in the prospectors. And so when you look at the prospectors, most of them didn't make money. But the people who reliably made money were the suppliers. And the place that is known for supplying the gold prospectors is Levi's. Levi's… We still wear Levi’s today.

John: Interesting.

Bridget: So that, to me, shows the difference between human innovation versus gold. So that's interesting. So all this being said, some people… we can't discount the emotional side of money and that we want… it's nice to have money contribute to your sense of well-being. So if taking 1 – 2% of your portfolio, converting it to gold, and putting it in a safe in your house makes you feel safer at night and secure, I'm not against that.

John: Yeah, exactly, that's not wrong. Right?

Bridget: Right. Exactly.

John: So this is the key to wealth or success, right?

Bridget: Exactly. Don't do it for investment purposes. Do it because it makes you feel better. But think it through. So small coins are going to be better, because we're thinking, we're going apocalyptic now, right?

John: Right.

Bridget: So small coins are going to be more… like, you don't want to take a gold… what are you going to do with a gold bar?

John: Slice of little slivers of gold, right?

Bridget: Right, exactly. And so small coins are going to be more portable. It's also, gold is heavy. So it's another argument for small coins. Because it's going to be more portable and easier to sew it into the lining of your coat if you're trying to head to the border.

John: Right.

Bridget: So again, I know that sounds crazy, but thinking it through will help again for that emotional… What you're trying to get out of it is emotional, so think it through.

John: That's a great advice, and you think about it, like a brick of gold. I think about that. And then what you connected to, and what I was going to say, like my takeaway, is to, when you hear about various things, and gold and silver are one, and like, “Oh, this is the time to do this.” It's, think about the practical. Like, think about the data.

I look at what we've got up on the screen here. I'm like, “Oh what is the actual data?” Yeah, it sounds good. But what's the context? And to make sure you have the information so you can match up the information with your with your feelings and emotions, right? I think those are both two important sides.

And then the other thing is the practical, what you just said, I mean, it sounds kind of funny really, what you can put in your pocket. But like, what's the gold going to do for you? If we go… Literally, how do you use that, right? Think to the next level. That's really great usable information for people that do want to have that be part of their portfolio.

Bridget: And so I think this is a good time to wrap it up.

John: Super.

Bridget: John and I are both members of ACP or the Alliance of Comprehensive Planners, which is a not-for-profit group of fee-only financial planners who all share the same philosophy of comprehensive financial planning. If you're interested in ACP, or the Alliance of Comprehensive Planners, check out ACP, what's that website, again?

John: It's acplanners.org.

Bridget: And if you're interested in helping us, hit that subscribe button, and subscribe.

John: That's right. The more subscribers we have, the higher up we go on the search rankings, and it helps other people come and find out this information. So thanks so much, and until next time, Bridget.

Bridget: Thanks, John.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.