How Monthly Gold Coin Purchases Can Turn into a Million Dollar Portfolio
We have a young female customer in her mid-20s who has a long-term gold investment goal of acquiring one to two 1 oz gold coins a month until she retires. We didn’t think much of it at the time other than commenting that she has a good head on her shoulders.
What we didn’t realize is that her efforts will place her in a tremendous financial position by her early 60s and in fact, will allow her to retire a millionaire!
This assumes the price of gold will merely rise with the price of inflation.
We suspect that gold will outperform inflation in the years to come, possibly by a large margin, for reasons that we’ll provide below. The reality is, she may be able to retire in style as a multi-millionaire if the price of gold performs as we believe it will.
Retirement sounds nice but retiring as a millionaire sounds even nicer. In this piece, we discuss how large of a monthly financial commitment she, or you for that matter, may need to reach this attainable goal. We’ll then discuss some factors that will likely lead to higher-than-expected gold prices in the future and how following a simple but brilliant financial plan can put you in a comfortable financial position during your “golden” years.
The Gold Coin Plan
As we mentioned earlier, our customer has a clear and concise goal of buying one to two 1 oz gold coins each month. Her preference tends to be for American gold eagles, American gold buffaloes or Canadian gold maple leaf coins, but really any coin will do.
So as to not stretch her budget too far, let’s assume that on average, she’ll acquire 1.5 coins a month or 18 per year.
It’s important to keep in mind that premiums apply any time you purchase gold coins, so we’re going to use $100 as the premium, or the price above the spot price of gold at which the coins can be purchased. At the time of this writing, the spot price of gold is roughly $1,700 per ounce.
With these assumptions in mind, this individual will make a monthly investment of $2,700 per month ($1,800 x 1.5) on average. While this is nothing to sneeze at, it’s attainable for many people. The key is to limit your discretionary expenses and to live below your means. If this happens to be too much of a stretch for you personally, then we suggest pairing your investment down to one coin per month or a monthly investment of closer to $1,800.
As we mentioned above, the plan is brilliant in its simplicity. It merely involves contacting us to schedule an appointment, purchasing the coin, storing it away, and waiting until the following month rolls around to make another purchase. It really doesn’t get much easier once you’ve committed to your strategy.
Dollar Cost Averaging
We know financial experts talk about the principle of dollar cost averaging when investing. In doing so, this allows you to purchase more of something when prices are down and forces you to limit your purchases when prices are up, especially if you’re dealing with a fixed monthly investment.
The idea of purchasing one and a half gold coins per month, on average, is in a sense no different. While your total investment outlay will vary each month, purchasing on a monthly basis will allow you to establish a decent basis for your investment. For example, if the price of gold goes up by $100 next month, your investment amount will be closer to $2,850 ($1,900 x 1.5).
Inevitably, gold prices will also pull back from time to time. The following month you may see prices down by $200 from their recent high of $1,800. At a spot price of $1,600, this allows you to purchase 1.5 coins for $2,550. Keep in mind that we’re also adding a $100 premium per 1 oz coin for each of our examples.
When averaging these two purchases together, your monthly basis is $2,700. While it’s not always going to work exactly as we highlighted above, this is an example of how regular monthly purchases can reduce your basis.
Of course, the challenge with investing in physical gold coins is that the price fluctuates daily, so you’re not going to be investing a fixed amount on a monthly basis, such as you would do in a traditional investment plan, such as a 401k.
This means that you will need to have a bit of flexibility with respect to your monthly budget so that you’ll have the resources available to purchase gold coins when they’re slightly more expensive.
The Price of Gold & Gold Coins
As mentioned above, at the time of this writing, the spot price of gold is roughly $1,700. This is a bit lower than we’ve seen in recent months and over the past couple of years. In fact, when we look at a price chart, we see that the price of gold topped out at $2,075 in March of 2022 in response to the Russia-Ukraine conflict.
In fact, at the time of this writing, gold prices are nearly at a three-year low.
The fluctuating price of gold provides additional investment opportunities and doesn’t necessarily mean that you need to purchase the same exact amount of gold each and every month regardless of price.
The key is that you continue to accumulate precious metals and that you meet your longer-term goal of 12 – 18 coins per year.
In fact, at current prices, we are receiving calls from customers that we haven’t heard from in a couple of years. These are smart investors and realize that the price of gold may be close to a low. They are optimistic that the price of gold will go substantially higher in part for reasons that we’ll explore in just a moment.
When the price of gold is “on sale,” this creates amazing investment opportunities. You may be able to free up some funds by selling unused “toys,” by liquidating and taking profits on another investment, using funds that are gifted to you by relatives, or if you’re fortunate enough to receive quarterly or annual bonuses, using part, if not most of these funds to buy more gold coins at a discount.
However, a word of warning…
A spike in gold prices may cause you to pause and put your investment strategy on hold. While scaling back your gold coin purchases during months when gold prices are substantially higher is to be expected, it’s not wise to abandon your investment strategy altogether. This is because inevitably the underlying factors that have caused gold prices to moderate will change, leading to higher sustained prices and new all-time highs.
Why Gold Prices Will Rise
If gold prices merely keep up with the rate of inflation, a monthly investment plan will leave you with a nice nest egg by the time you’re ready for retirement. This of course assumes that you start at an early age and maintain a disciplined investment plan.
However, if prices rise above the rate of inflation, you could potentially reach multi-millionaire status. We believe that the likelihood of gold outpacing inflation over the next couple of decades is likely, although, not certain. Below are a few reasons why we believe this to be the case.
- At the time of this writing, the Consumer Price Index (CPI), more commonly referred to as the inflation rate, is 8.3%. While down from the peak inflation rate of 9.1% in June of 2022, it’s still nearly at a 40-year high and is having a significant impact on the budgets of most Americans.
- Not only is inflation at “inflated rates,” but the balance sheet of the Federal Reserve is at nearly $9 trillion, which is at an all-time high. In fact, it doubled during the Covid crisis. Additionally, our national debt is at $31 trillion and annual deficits are in excess of $1 trillion, with projected annual deficits as far as the eye can see.
- Thus far, the strength of the dollar (as compared to other currencies) is one of the primary reasons we haven’t seen higher gold prices. However, it looks like the dollar index may have peaked recently at 115, which means that there’s substantial downside risk in the dollar and upside potential in the price of gold. Furthermore, the investment community believes that the Fed will be successful in its fight against inflation, which is not likely.
- While our current monetary and fiscal issues are overall bad for the economy and the well-being of Americans, it’s positive for the price of gold. Gold tends to perform well in high inflationary environments, when the value of the dollar drops, during times of economic uncertainty, in response to shaky financial markets and during times of elevated geopolitical issues and threat of war, all of which seem likely and/or certain.
For those readers who are interested in learning more about the factors that affect the price of gold (and silver), we recommend reading this article.
So, how much will gold increase relative to inflation?
We wish we had a crystal ball, but unfortunately, we don’t. An estimate of twice the rate of inflation seems very reasonable, but we’ll take a more conservative position, and use 1.5 times the rate of inflation as our benchmark.
This outperformance is likely to come in fits and starts, so it’s possible that you’ll see periods of double-digit increases followed by periods of flat or even slight underperformance.
The Nest Egg
Circling back around to our original discussion, if you were to start at the age of 25 by acquiring on average 1.5 ounces of gold per month, you would have 18 ounces by the end of the year. If you’re like most folks and have a targeted retirement age of 65, you will have accumulated 720 ounces of gold, all assuming you begin your journey at the age of 25.
Considering that the average American retires with approximately $141,000 in savings, this puts you light years ahead of the typical retiree. Presumably, some of these individuals are relying on pension funds or possibly social security benefits to bridge the gap.
Many financial advisors still recommend a 4% annual drawdown (think of this as the amount you could withdraw each year as your “salary”) from your retirement savings to last you during your retirement years.
With a portfolio that includes approximately 720 ounces of gold, that would equate to being able to withdraw around $50,000 per year, which would sustain most folks during their twilight years.
However, let’s assume that gold outpaces inflation at a rate of 1.5 times during your investment years. This would increase your total nest egg from $1,224,000 to $1,836,000!
Going back to our 4% drawdown rate, this would leave you with annual proceeds that you could withdraw of $73,440, which when paired with social security benefits would give you a very comfortable retirement.
Let’s take this one step further.
If we assume the price of gold outpaces inflation by two times, this would give you $2,448,000 by age 65. Using the same drawdown rate, you’re looking at annual proceeds of roughly $98,000 just from your gold proceeds!
Needless to say, you’d have plenty of discretionary income to enjoy your retirement years with very little risk of outliving your savings.
In summary, we shared with you the wise investment strategy that our customer is following and how she is setting herself up well for her golden years. Chipping away at monthly purchases over decades will translate into hundreds of ounces of gold; but only if you maintain a disciplined approach to investing. Of course, gold is more attractive at lower prices, so when gold is “on sale,” it might be wise to free up funds from other sources and buy more.
We also shared with you our nation’s current fiscal and monetary situation. Needless to say, it leaves a lot to be desired. We have enormous issues which are likely to come home to roost at some point in the future. Plus, these issues don’t bode well for our economy and the standard of living for most Americans but are bullish for precious metals, especially gold.
Even if gold merely keeps pace with the rate of inflation, an early and consistent investment strategy will net you a cool million dollars at retirement.
The outperformance of gold relative to inflation, which is the far more likely scenario, will make you a multi-millionaire when you’re ready to transition into your retirement years.
Atlanta Gold & Coin Buyers has been helping our customers meet their financial goals for years. We deal in all types of gold coins, including bullion and numismatic, and can recommend options specific to your needs.
Give us a call at 404-236-9744 to begin your gold coin investment strategy today!
Happy Treasure Hunting!