Category: gold

gold^property^annuity : long-horizon

Posted on by tiger40490

This blogpost is mostly long term considerations and focused on (51%) gold, as a long term preservation and diversification. Beware gold is NOT a growth asset

I have done enough (too much?) thinking and discussing on insurance products. This analysis builds on that.

— Different holding periods to realize the partial capital protection
Both gold and insurance are non-growth assets providing reasonable long-term “capital protection”. This partial protection have multiple limitations beyond inflation.

In the “standard” scenario, both require holding power for potentially long period. In special scenarios both can show quick return.

  • Insurance , not gold, delivers non-negative return as soon as you die (or TPD).
  • Gold , not insurance, can show a positive return depending on market

— current income … (long-horizon consideration?)
gold is hopeless. In fact it has negative yield.

Reliability and credit rating is higher with CPF-life than my other non-work income sources. However, rental income tend to grow.

— windfall appreciation:
annuity is hopeless

In normal to good times, properties are promising. In the long run, U.S. properties outside a few special cities, do NOT show strong appreciation.

In very bad times, gold can appreciate hugely.

— long-horizon inflation risk:
Annuity provides a fixed payout that fears inflation.

Globally, annuity returns usually derive from bonds. As global life expectancy grows, there might be increasing allocation to bonds on the global level. Long bonds fear inflation.

I feel rental and dividend assets are an inflation-hedge but increase credit risk (+market risk)..

Gold is the strongest currency over long horizons.

— long-term wealth preservation esp. through black swan crashes
No “asset” is 100% safe, fire-proof, war-proof, everything-proof. Among them, Gold might be the best, if you find a way to store it safely in the local city, and if liquidity remains high.

In war, cultural revolution or famine, your gold (or any asset for the matter) will not buy you food, medicine or air-tickets !

Gold’s long-term appreciation doesn’t depend on local economy whereas property can fail if the local economy fails. Other investments also pose higher (market, credit, country…) risks over longer horizons.

I have very low (below 1%) allocation to stocks currently but when my allocation grows to 10%, gold hedging may become important.

— high maintenance?
annuity is best; property is worst.
Physical gold requires storage. Perhaps some paper gold can be considered.

— liquidate when you must, in X years?
Insurance is the right asset to liquidate when you have an “acceptable” reason to liquidate such as TPD. You are not subject to the market condition in X years.

If you need to liquidate for some other reason, then all three liquidations can be …. unprofitable, poorly-timed, depending on the X. In this scenario, gold has a better chance of being profitable.

— logistics of liquidating:
gold is way better, but still has limits. Consider war time. Your physical gold (and properties) would be hard to liquidate if you happen to be in the war zone.

— difficulty of holding long term. Nothing new here. See items above

— legacy:
legacy depend on many of the factors above.

Gold is the easiest to inherit, or to manage, by inexperienced family members including my wife.

annuity has a bequest amount, which shrinks as I live longer.

 

gold: action plan #hold for 20Y

Posted on by tiger40490

See gold≠growth asset,but something else

  • Sugg 1: buy 100g at a good mark-up, perhaps from UOB. Hold and endure the carry cost, until an upheaval or appreciation, perhaps beyond my lifetime.
  • Sugg 2: as I grow older, increase gold allocation towards 1 kilo, but in small pieces for increased liquidity.
    • Consider liquidating other assets.
    • Bigger position justifies custody cost.

Warning: I suspect gold price chart is unduly influenced by small investors, while many big gold holders hold it for generations and dont’ sell.

So the main attraction of gold is 1) flight-to-safety 2) long term appreciation against all currencies. On the other hand, main problem is the long wait. If you can afford to wait beyond your lifetime (legacy) then

  • your family is likely to be rewarded for your patience
  • gold may under-perform property or U.S. stocks, but unlikely to under-perform any currency in the world.

Pr (upheaval in 20Y) > 50%
Pr (gold appreciation above 50% | upheaval) = 50%

— quantum

How about gold coins? If mark up is good then yes.

 

We all see gold’s long-term growth but take!!action

Posted on by tiger40490

Paradox: We all see the real evidence that all currencies including the strongest currencies lose value against gold over the decades, but very small percentage of the population hold gold.

I guess SP500 beats gold in the last 100 years, but gold has a much longer trec against currencies.

— reason: trough i.e. buying at the peak
Trough can be 20Y. Investors need holding power.

— reason: negative yield. carry cost — paying rent to wait for appreciation.
Many other investments generate current income.

— reason: gold ≠ a growth asset, less spectacular than stocks and properties.

##assets2designate as legacy @65

Posted on by tiger40490

At 65, when I set aside ERS for cpf-life, I would confront an essential question:

Q: as I grow more fragile and risk-averse, which assets are best suitable as legacy for my children, knowing that they may need to liquidate or manage these assets?

Will the heirs be too young to manage some assets (either too liquid or too complicated)? When I pass on my kids would be mature enough.

— inflation .. Even though SGD inflation has been well managed, legacy planning needs more caution against long-term inflation. My kids may live in another country. Even SGD inflation may worsen in 50Y.
— commercial_annuity .. inflation sensitive 🙁
🙂 payout is reliable
🙂 surrender value grows
— cash is the easiest but inflation-sensitive
— stocks — relatively easy to manage
— gold: physical coins or bars
My kids need to know how to store them. Perhaps use a gold vault.

Long-term appreciation is more proven.
— gold: structured products backed by some companies
— HDB unit
I trust the Singapore system. However, make sure the remaining lease is adequate unless location is excellent.

If remaining lease is, say, 30Y when I pass on at age 96, I think my kids (in their 50’s) can still liquidate it or rent it out for decades.
— U.S. properties
The U.S. system is also fairly mature and efficient.
— SEA properties — hopefully my kids will be old enough to manage them through/despite the imperfect local “systems”.

gold^bccy^U.S.eq^rEstate: long-term strength #w1r4

Posted on by tiger40490

For the purpose of legacy planning (including inflation hedge), this blogpost is 51% about gold, 30% about stocks.

  • I see the strength in gold over a 200Y horizon. It has proven its strength over 2000Y. CB (Central banks) slowly build up and carefully transport gold reserve precisely because gold provides time-honored, enduring, strength to the respective currencies.
  • I see the strength in properties over a 70Y horizon, but this strength is location-specific. Discussed below.
  • I see the strength in U.S. stocks over a 30Y horizon, considering numerous regime changes.

— large holders of gold tend to be central banks. In comparison, here are the largest holders of other asset classes:

  • gov bonds — similiarly held by governments, banks, insurers, corporations. gov bonds provide strength and stabilization.
  • Commercial and large rental buildings — held usually by corporations and governments .
  • individual residential properties — held by individuals + corporations.
  • stocks — bought and sold by individual investors, buy-side institutions

Boom-n-bust … describes stock and residential property bubbles, not gold. However, gold can become overvalued.
— typical holding period

  • stocks — months, up to 5Y for retail investors
  • residential properties and long bonds — decades
  • gold — generations. I believe most large holders of gold don’t sell often. Say price is now $2k/oz. If a CB decides to sell 1% of its holdings, it would probably impact the market right away. Therefore, I suspect the large movement is due to small investors.

— Since the invention of money, gold has held its strength, so what could derail gold’s strength?
Disruptive technologies threaten to destroy the special position of petrol, but is there a disruptive technology against gold? I don’t see any sign.

gold offers inflation hedge only over the long term. https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-history-suggests-otherwise.html “If you look at the very long term, gold should hold its value against inflation. But in any shorter period, it may or may not be a good hedge”

==== other inflation hedges
Actually, I don’t worry too much about SG inflation.
— bccy

How about bccy as a long-term inflation hedge? Any proven inflation hedge must be stable. Gold is much more stable than BTC.

https://www.channelnewsasia.com/commentary/crypto-ftx-sbf-bankrupt-crash-binance-3068201 says
The value proposition of crypto was supposed to be a hedge to the dollar or more conventional parts of the market.

Or that it would hold up in value if everything else fell. But an asset that offers that kind of hedge is rare; most assets are somewhat correlated, especially when the market drops. Rareness normally means an expensive asset that offers a lower return, possibly negative yield. You pay a big price for that kind of safety and it’s hard to find. The fact that crypto offered such high returns indicated it was never a good hedge.

— “real asset”.. Some investment salesmen (or economists?) use “real asset” to refer to precious metals + rEstate. They find something in common between those asset classes — anti-inflation, and not based on a paper document like stocks and bonds.

Actually, I think SP500 ETF is also anti-inflation, but for a different reason. The Achilles’ heel of stocks as long-term inflation hedge (bold claim) is the short history of stock market .. 50Y vs 2000Y for gold. Regime change is rather frequent.
* I feel the price chart before 1945 is largely irrelevant.
* Due to high inflation high interest,, the price chart before 1980 is also largely irrelevant.

— property market is extremely location specific.
Eg: Beijing/Shanghai growth has been exceptional and unreasonable.

If your location is not a tier 1 city or attractive to the property-loving Chinese investors, then long-term capital protection is questionable.

white elephants: gold^mansions

Posted on by tiger40490

— luxury homes: As discussed in other blogposts, most top school district homes have underwhelming rental yield, because you can’t subdivide them into smaller private units.

These homes are so expensive partly due to psf premium in a premium location, but a bigger reason is size.

They are white elephants due to taxes, maintenance costs etc. In contrast, commercial and prime-location residential properties are both prestigious and high-yield.

Compared to smaller units, these bigger houses are harder to lease out or sell (poor liquidity), as explained in Cambodia properties for China investors #XR and 2BR^1BR rental properties #BGC++

— Grand piano is another white elephant. I always prefer simple, functional alternatives.

— gold:

Jewelry is a white elephant. Poor liquidity, low inheritance value, but Gold is a less white elephant. A kilobar sounds prestigious but you have to pay some security firm to hold it for you.

One advantage of gold coin collection (not kilobar) is that you can buy or sell a small portion of it. Fairly liquid except the lousy bid/ask spread.

gold: current payout<0 i.e. rent #safebox

Posted on by tiger40490

Gold requires holding term. Long term can be 20Y. The negative yield might become unbearable.

Gold has negative yield i.e. carry costs like a rent. I hope this can be small.

  • physical safe at home — https://goldsilver.com/blog/how-to-store-gold-at-home/. Safewell has $139 boxes to fix on the wall
  • custody cost at commercial safe operators like CISCO