Why Your Financial Advisor May be Coming Around to Gold & Silver Coins
According to inventor and author R. Buckminster Fuller, “You can’t change the way people think, all you can do is give them a tool, the use of which will change their thinking.” Regular readers of our blog may have read through a previous article titled “4 Reasons Why Your Financial Advisor Won’t Recommend Gold & Silver Coins.” While we listed four separate reasons, ultimately, an investment in physical gold and silver reduces a financial advisor’s assets under management and in turn lowers their income. It’s funny how things can change in a short period of time, as we’ve been seeing a few “green shoots” recently as it relates to financial advisors.
In fact, we highlight some of the recent conversations and meetings we’ve had with our customers, including one such situation where our customer even brought her financial advisor to the appointment to hear firsthand why she’s diversifying into gold and silver coins! We also provide some brief thoughts as to why we highly recommend that everyone have a portion of their holdings invested in one of the only investments that is free from counterparty risk.
Our first example involves a lady who was referred to us within the past year by a long-term customer of ours. Considering this was her first introduction to precious metals, we discussed the performance and volatility of gold and silver, why she should consider an investment in these metals and inquired as to what she was trying to accomplish so that we could recommend the best options for her.
During our first meeting, she shared that her financial advisor was adamantly opposed to investing in precious metals and recommended that she remain fully invested in the stock market. She decided to go against his advice, at least on a small scale, and began to invest in both gold and silver coins. Unfortunately, her stock portfolio continued to lose value, and at the time of this writing, is in bear market territory. Bear market simply refers to the performance of a stock index or portfolio, and typically is associated with a decline of 20% or more.
Fortunately, her investment in precious metals has held its value, which has helped to partially offset the decline in her stock holdings.
After continuing to battle with her financial advisor, she recently informed us that she pulled most, if not all, her money from the stock market and closed her account with the firm. That same financial advisor was recommended to her by close friends, who she has since convinced to move their investments into precious metals as well.
As a result, they have all closed their accounts with this advisor. Unfortunately, the loss of all these accounts resulted in the company letting the financial advisor go, as he lost a large book of business.
We’ve been told that he has since started his own financial advisory company. Chances are he’ll be more receptive to clients who are interested in diversifying their portfolio by investing in precious metals. As we highlighted from our previous article, gold and silver have a low, if not negative correlation to many other asset classes, which helps to reduce volatility and increase investment returns.
Our most recent example is one of the more shocking conversations we’ve had with a customer, at least as it relates to advice from a financial advisor. In this case, our customer’s advisor recommended that she liquidate her stock portfolio and invest in gold coins. We don’t know for certain what percentage of her portfolio he recommended she allocate to gold as opposed to cash, but we can only assume that it was quite significant.
His specific recommendation was to invest in 1 oz American gold buffaloes. This is presumably because gold buffaloes are U.S. issued and are composed of 24k gold. However, the reality is that any well-known and recognized 1 oz gold coin will do.
As we’ve discussed in previous articles, in addition to gold buffaloes, American gold eagles, South African gold krugerrands, Austrian gold philharmonics, Canadian gold maples and pre-1933 U.S. gold coins are some of the most recognized and marketable coins in the industry.
We were told by our customer that their financial advisor believes we will see a recession and major stock market decline in the coming year and wanted to protect her assets. We tend to agree with his economic predications, but this is surprising advice considering that this recommendation will negatively affect his income. That being said, if he’s right, which again, we believe will prove to be the case, he’ll likely have a customer for life. Furthermore, this individual will likely share her experience with others, which will result in referral business and ultimately more assets under management. Talk about focusing on the short-term sacrifice for potential long-term gain in putting his client’s needs first!
Keep in mind, gold coins are just one way to hedge against a financial crisis. Silver coins also provide protection against inflation and a currency crisis as well. Both metals tend to perform well during periods of inflation, but gold does slightly better, or at least more consistently performs well in a deflationary environment. Silver, at times, also does well during deflation, but considering that it’s also used heavily for industrial purposes, it doesn’t always perform as well as gold. Of course, we’ve only had a few years of deflation since the Great Depression, so the likelihood of a prolonged period of deflation appears to be of little risk.
In our third recent example, a customer actually brought her financial advisor with her to the appointment, as she wanted him to hear firsthand why she was investing in gold and silver coins. She asked us to summarize our previous conversation with her so that he fully understood her rationale. Of course, not everyone has the influence to convince their financial advisor to accompany them on an appointment, but to the extent you’re able to do so, we believe it’s helpful. While financial advisors understand the stock and bond markets fairly well, few of them are well versed in gold and silver.
In this particular situation, the advisor didn’t have a strong opinion one way or the other on gold and silver. We discussed some of the alternative ways to invest in gold and silver, such as mutual funds, ETFs, gold mining stocks, etc., but at the end of the day, he agreed that these investment options have counterparty risk and don’t have the same security as an investment in physical gold and silver.
Furthermore, many of the digital investment options are highly leveraged, which means that the downside risk is substantially higher than investing in physical gold and silver. Afterall, companies will cease mining operations if the price of gold and silver fall below their all-in mining costs, which are steadily increasing due to a 40 year high in the inflation rate. This essentially puts a floor in the price of physical gold and silver.
At the end of the day, we convinced this financial advisor that physical gold and silver coins made a lot of sense for his customer, and likely, for the rest of his clients. He also acknowledged that there’s an inherent conflict of interest in the wealth management industry and that ultimately changes will need to be made to best serve their clients. While he’s yet to refer any of his other clients to us, we believe that he’ll likely do so at some point as the economy continues to worsen, the stock market sells off and the fundamentals for gold and silver continue to improve.
As we’ve shared with our readers before, even a 5% – 10% allocation in precious metals reduces overall risk and increases portfolio returns. This is due to the low correlation it has with traditional investment options, such as stocks, bonds and real estate. The idea of assembling a portfolio to maximize returns with an acceptable level of risk is commonly referred to as Modern Portfolio Theory (MPT) and is the approach that many financial advisors or investment firms have taken for decades. This shouldn’t be confused with Modern Monetary Theory or MMT, which states that government spending shouldn’t be limited by tax revenues, as central banks can provide an endless supply of money if and/or when necessary.
Overall, we’re encouraged by some of the progress we’re seeing from the financial investment community. Those individuals that refuse to listen to their customers, especially when the customer is insistent and the advisor’s “stay the course” recommendations result in substantial losses, will find themselves losing customers, and in some cases, possibly having to start over.
While we’re of the opinion that you should never put all your eggs in one basket, we respect the financial advisor who recommended that his client pull out of the stock market and invest in gold coins. He clearly feels confident that a stock market decline or crash is imminent and that the best way to protect his client’s assets is by investing in the ultimate safe haven investment, gold and silver.
Knowledge is power, and as we highlighted above, many investment advisors are unfamiliar with the diversification benefits that gold and silver provide. The more that investment advisors are exposed to precious metals and the more they learn, the greater the likelihood that they’ll recommend an allocation in your investment portfolio.
While we’re not financial advisors, the coin and bullion experts at Atlanta Gold & Coin Buyers closely follow the economy and have a thorough understanding of the factors that affect the precious metals market. There’s no better time than now to begin an investment in gold and silver coins. Contact us today at 404-236-9744 to see why we’re the leading coin and bullion dealer in metro Atlanta and beyond.