In the news

Understanding Your Investment Costs

By admin  |  2010/02/22 19:05 Posted in In the news  |  Comments (0)

Senior Spectrum – August 11, 2009

In this low interest rate environment and with the stock market having tanked, saving a dollar can be easier than making one. Depending upon the size of your portfolio, cutting your investment costs could save you a bundle.

One client recently said, “What investment cost? I don’t pay any costs.” What he meant was that he did not know he was paying the costs. Most people do not know about the fees often associated with investments and their impact, so lets review.

Commissions are paid when many investments are purchased, and they can apply to individual stocks, limited partnerships and many mutual funds. Individual bonds usually have a markup that the client never sees.

When investors purchase mutual funds, many do not know that there are two primary types: those that pay commissions to the salesperson and those that do not, known as “no load.”

There are at least three different classes of commissionable shares. “A” class shares have commissions as high as 5 1/2 percent. “B” class shares do not have a commission upfront, but they have a backload that is deducted if you liquidate the fund in the first several years. They also have a higher annual cost than the “A” class shares. “C” class shares have no front-end commission and a limited one-year backend load (should you leave early), but they have higher annual expenses than the other two classes.

A “no load” fund will always provide a higher return than those paying commission (all else being equal) and should be considered the best type of choice.

Many mutual funds also have annual marketing or distribution fees and are considered an operational expense, which can be as high as 1 percent.

Keep in mind that every time a sale occurs when commissions are involved, there is a conflict of interest between what is best for the client and what is best for the salesman and the company. To avoid this situation, clients would be well-served to work with financial advisers who do not sell product.

Other fees that are often charged can include account fees, statement fees, wiring fees, distribution fees, redemption fees and account closure fees or management fees.

In this current financial environment, now is a great time to learn about what fees you pay and to trim your investment costs, thereby keeping more dollars in your pocket. Money magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek and AARP recommend readers go to www.garrettplanningnetwork.com or www.napfa.org for a list of “fee only” advisors in your area who can recommend investments that do not pay commissions.

Michael Chamberlain is a Calif. Registered Investment Advisor. Send your questions to him at mike@chamberlainfp.com or call (800) 347-1340.

Senior Spectrum – September 29, 2009

By admin  |  2010/02/22 19:05 Posted in In the news  |  Comments (0)

Issues to Consider Before You Get Married

A fair number of us over the age of 55 are single, and if we are lucky, there is a chance that we may fall in love. The question is: “Does getting married make sense at this point in our lives?”

Years ago, I was working with a couple, and the husband had a terminal disease. Several years after he passed away, I made the comment to “Mary” that should she ever meet a special someone, there are some issues to consider before getting married.

Six years later, Mary called all excited that “Ed”, a long-time friend, had proposed to her the night before. She went on to tell me that she told Ed she couldn’t give him an answer until she talked with me. We scheduled an appointment to discuss the issues that should be considered prior to saying yes.

Here are some financial issues you may wish to consider prior to getting married:

• There needs to be full disclosure by both parties about their assets, liabilities, current or potential lawsuits and income and outgo. Having $30,000 worth of undisclosed credit card debt is a great way to destroy trust in a relationship.

• How will the monthly bills the paid? Is there a joint checking account from which bills will be paid? Does one person take care of certain bills, and the other the rest? What happens when one party runs short of cash?

• Where will you live … his house or her house, a new house or apartment? Who pays for the upkeep, taxes, utilities? What happens if the owner dies prematurely? Will the remaining spouse continue to live there rent-free, with rent or have to move out?

• Social Security benefits and pensions potentially could be affected with a marriage, and checking with the Social Security office and pension administrator would be prudent.

• Some individuals have health care benefits provided by a previous employer. Getting married might provide additional health care benefits for the new spouse. Check with the past employer about these options.

• If you get married, who should be the agents named in your powers-of-attorney, (individuals to make health care decisions and take care of our finances if incapacitated). It could make sense that your new spouse serve as power-of-attorney, or it may be better to have your children do the job. Always discuss this with your estate-planning attorney.

• Would you wish to change your will or living trust and leave something to the new spouse, everything to the new spouse or nothing to the new spouse? Everyone should have at least a will and many times a living trust to make sure their wishes are carried out. Talk to your estate-planning attorney if you do not have the proper documents, and certainly do so if you are considering getting married.

• For your retirement plans, do you want the new spouse to receive what’s in your retirement plan when you die, or do you prefer it goes to your children or other heirs? If you name your new spouse as the beneficiary and you die, the retirement plan becomes that of your spouse. If then the spouse dies, your retirement funds could go to your new spouse’s heirs. Be very careful when listing retirement plan beneficiaries. Consult with your financial advisor or estate-planning attorney before making such changes.

• Long-term care is perhaps the biggest issue when considering getting married. If you are married, your income and assets could be at risk if your new spouse required long-term care. The rules for Medi-Cal eligibility continue to change, and it would be a shame that your assets go to pay for your new spouse’s long-term care costs.

• Consult your tax preparer on potential income tax changes by getting married.

• Should you decide to get married, consult with your car and home insurance agent to make sure that your spouse is adequately protected should a claim occur.

• In many cases, a prenuptial agreement is a good idea to make sure everybody understands the intentions and desires of both parties should the marriage not workout as well as the intentions when spouses die. While these agreements are said to create stress in the relationship, I think the opposite is true. It provides peace of mind and decreases stress between the new spouses and provides clarity for both families.

As it turned out, Mary and Ed decided that they didn’t need to be married in order to have a loving, happy and fulfilled life together. However, if you find yourself in that situation, a trip down the aisle might be the best option for you. Just be sure you know how you are impacted in all these areas before you make that trip.

Send your questions to mike@chamberlainfp.com or call (800) 347-1340.

Michael Chamberlain is a Calif. Registered Investment Advisor. Send your questions to him at mike@chamberlainfp.com or call (800) 347-1340.

Senior Spectrum – September 15, 2009

By admin  |  2010/02/22 19:04 Posted in In the news  |  Comments (0)

Financial Planning at My Age?

Many people do not fully understand what Financial Planning is all about in the first place so they cannot really know if they would benefit from a plan.

In a nutshell, Financial Planning is a method of achieving the type of life that you plan for. Unfortunately many people do not plan and they end up not getting what they wanted.

Everyone’s financial plan is based on his or her own unique situation. But most plans address the following elements:

Current Financial Situation – Both you and the planner need to know where you are at financially which includes a net worth statement ( list of assets and liabilities) as well as a cash flow determination (income and outgo). This is important to identify areas of potential savings and have an ability of judging progress over time.

Investment Risk Tolerance and Capacity – It is crucial to understand these areas before attempting to determine whether your current investments are appropriate for your situation.

Investment Analysis and Recommendations- It’s important to know what investments you have currently prior to determining whether they are appropriate for your situation (based on risk tolerance, risk capacity and goals). Only than can alternative recommendations be appropriate.

Investment Policy Statement- Many people get off track in their investments because they don’t have a clear game plan. An Investment Policy Statement clearly outlines the objectives of your investments, expected returns, possible gains and losses based on historical data, and provides guidance for managing your investments going forward.

Retirement Planning – This element identifies the goals that you have now and in the future, takes into account current and future income and assets and then determines the likelihood that you do not run out of money before the end of the line.

Estate Planning- This is about having the proper documentation so that you are cared for the way you want should you become incapacitated as well as passing on your assets when you are gone in the best possible way.

Risk Mitigation-Bad or unexpected things can occur if life and there should be a plan to deal with them as they occur. How would you; handle a 3 million dollar health problem, are sued for 2 million due to a car accident, die prematurely, need long term care. Risk mitigation planning is avoiding some risks, transferring some risk with insurance and retaining the risk in some areas. If insurance is part of the plan you want to make such you have the right type in the right amount and at a good price.

Debt management – While this does not apply to everyone, some people need help in recognizing good and bad debt and having a plan to decrease both in the best manner.

Tax planning – The less you pay in taxes, the more that’s left in your pocket. Identifying ways of decreasing taxes can be to your benefit. This planning often involves your accountant, CPA or enrolled agent.

Regardless of your age, financial planning can help you live the life you want through the proper management of your finances and risks.

Based on their education, experience and ethics, those advisors who are Certified Financial Planners ® would be a good choice to analysis your situation and craft a written financial plan to address the above topics

Michael Chamberlain CFP®

CC Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advises.

Senior Spectrum – October 6, 2009

By admin  |  2010/02/22 19:04 Posted in In the news  |  Comments (0)

Debt Collection – Know your Rights

It can happen to anyone, at any time. A loss of the job, sudden catastrophic illness or some other unplanned emergency arises and even good people can fall behind in debts.

You may have received some written notices from, a credit card company, hospital or whoever else if you do not respond the phone calls start from the collection companies.

All companies are different but at some point when the bill has not been paid, most turn bad debts over to “debt collectors”. These debt collection companies get paid a percentage of what they collect and can be as high as 50%. If these debt collection companies don’t collect anything, they don’t get paid which can lead to some vicious collection techniques.

The Federal Trade Commission enforces the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive unfair or deceptive practices to collect from you which can be personal, family or household debt including personal credit card, auto loan, medical bill or your mortgage.

Perhaps the best approach is to tell the company why you are behind and explain what you can do to take care of the outstanding debt. Do not promise something you cannot do. Preventing the bill going to collections would be easier for you if you can work with the original company.

Once a debt goes to “collections company” the FDCPA does have some protections for the consumer that prevents a debt collector from contacting you at inconvenient times or places, such as early in the morning or late at night unless you have agreed to it. They may not contact you at work if you are not allowed to get calls while at work.

You have a right, to tell the collector in writing to stop contacting you. This does not stop the debt but should stop the future contact. In doing this, it may force the debtor or the debt collector to sue you to collect the debt.

Debt collectors may not harass, or abuse you or any third party that contact nor may they use the threat of violence, use profane language, or threaten to publish a list of names of people who refuse to pay their debts nor may they lie to you when trying to collect debt. They may not tell you that you will be arrested if you don’t pay your debt.

If you don’t pay a debt a creditor or its debt collector can sue you to collect the amount owed. If they win, a judgment will be entered against you. This judgment would allow the collector to obtain a garnish order directing a third-party like your bank to turnover funds from your account and pay the debt. Wages can be garnished only as a result of a court order.

Social Security payments, veteran’s benefits, civil service and federal retirement benefits, military annuities and survivor benefits, railroad and retirement benefits and others are exempt from garnishment.

It’s always best not to get behind in your bills but when you do, you do have certain rights. For more information go to the Federal Trade Commission website at www.ftc.gov

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Senior Spectrum – October 27, 2009

By admin  |  2010/02/22 19:02 Posted in In the news  |  Comments (0)

Beware of Bogus E-mail to Obtain Personal Data

The use of e-mail is increasing by all groups, including retirees. Unfortunately criminals are also increasingly turning to e-mail as a means to defraud individuals.

I recently returned to the office after being out of town for three days and checked my e-mail. I found three e-mails that were apparently from Bank of America, Citibank and PayPal, all indicating that there was suspected activity on my accounts and to immediately click on the link within each e-mail to confirm important information about my account.

I did call each company, and none had, in fact, sent me an e-mail.

I had been an intended victim of “phishing,” which involves an official looking e-mail from a large bank or other online services vendor. These e-mails report a potential problem with your account and tell you that you are required to confirm private information or details immediately. This confirmation asks for you to enter credit card data, Social Security numbers, account numbers and/or passwords.

These e-mails are not from the companies, but rather unscrupulous individuals with the sole purpose of ID theft and causing you economic distress.

According to Scamdex, a company that is an “Internet Scam Resource,” there are six typical Internet e-mail scams:

(1) Advance Fee Fraud: Payment is required to “‘release” some much larger amount, which is held by a third party.

(2) Lottery Scams: Payment is required to get your huge unsolicited lottery winnings transferred into your country and bank account.

(3) Phishing: Official-looking e-mails from large Internet banking and online services (PayPal, eBay, South Trust, US Bank, etc.), which ask you to confirm some details.

(4) Auction Scams: Simple scams using eBay or Craigslist to take your money, your property or both.

(5) Employment Scams: Employment is offered processing international payments. A certified check is paid into your bank account; then you deduct your “commission” and send on the rest.
(6) Financial/Investment Scams: Including High Yield Investment Plans, Ponzi schemes, fake “affiliate” schemes and Multi-Level Marketing scams – these are offers of huge unrealistic returns on investments, which turn out to be fraudulent, illegal or nonexistent.

Tips to protect yourself from e-mail fraud include:

(1) If the e-mail is in your “spam-catcher,” it has been sent to many others and is not an individual e-mail directed only to you. Good chance it is bogus.

(2) Be suspicious of any e-mail with urgent requests for personal financial information.

(3) Don’t EVER use the links in an e-mail to get to any Web page if you suspect the message might not be authentic.

(4) Call the company on the telephone, or log onto the Web site directly by typing the Web address in your browser or using your own bookmarked link.

(5) Avoid filling out forms in e-mail messages that ask for personal financial information.

(6) Always ensure that you’re using a secure Web site when submitting credit card or other sensitive information via your Web browser or provide it over the phone.

(7) If you have the slightest uncertainty about an e-mail — stop, ask for a second opinion by talking to family or knowledgeable friends.

(8) Check out reported scams on Spamdex.org.

If it sounds too good to be true, it probably is. Identity theft, credit card fraud and other schemes are more common than ever. Make sure you do not become a victim.

Senior Spectrum – October 20, 2009

By admin  |  2010/02/22 19:02 Posted in In the news  |  Comments (0)

Social Security Beneficiaries May Get Double Whammy

Social Security beneficiaries usually see their monthly benefits increase once a year, based on the cost of living escalators. These have usually been in the range of 1-4% per year. That could change in the next 3 years.

With the current state of the economy, the Congressional Budget Office projects an actual decline in consumer price indexes and expects no inflation for the next few years. The office has stated that there may not be any cost-of-living increase in Social Security benefits until possibly 2013.

The vast majority of Social Security beneficiaries have their premium for Medicare Part B and to a lesser extent, Part D, deducted from their monthly Social Security benefits. These premiums are projected to continue to go up.

The net result is that it is quite possible that Social Security checks will actually be smaller starting in 2010 as compared to 2009. This projected decrease will impact about one quarter of the retirees, including those recently signed up for Medicare as well as higher income beneficiaries.

The other three quarters of the Social Security beneficiaries are protected by a “hold harmless provision”, which prevents Medicare Part B premiums from increasing in any year by more than that specific years cost-of-living increase. If there is no bump in Social Security benefits, the Medicare Part B premiums will stay the same. There is no such protection with Part D premiums.

Currently Medicare Part B premiums are $96.40 a month. The Congressional Budget Office predicts the premiums to be $119 in 2010, $123 in 2011, and $1028 in 2012. There is no premium for Medicare Part A.

None of the insurance carriers that provide Medicare Part D prescription drug coverage have indicated premium increases in 2010. However if it’s anything like past years are an indication we can continue to expect higher Part D premiums.

If you currently have in Medicare Part D plan it is critical that you reevaluate which Part D program is best for you between November 15th and December 31st each year. Premiums for the various plans change as well as deductibles and co-pays. Your prescription medicines might be different this year versus last year and the various different programs change the cost-effective drugs.

The long and the short of it is that if you are on Social Security, between deflation, Medicare Part B and D premiums, don’t be looking for your Social Security check going up in the next year or two.

Senior Spectrum – November 3, 2009

By admin  |  2010/02/22 19:01 Posted in In the news  |  Comments (0)

Words of Wisdom Still Apply

John F. Kennedy asked of his fellow Americans in his inaugural speech: Ask not what your country can do for you – ask what you can do for your country. This is perhaps more appropriate now then it was when he said it almost 50 years ago.

Currently this country is in a sad state of affairs. Housing prices have tanked and 25% of those holding mortgages have zero equity. The stock market has declined substantially and many people have seen their investments go down 20, 30, 40 even 50% in value. Unemployment is higher than it has been in decades further amplifying housing foreclosure issues. The federal deficit is out of control and both the Congress and the president cannot seem to understand the magnitude of the problem.

Now more than ever, we as Americans, have to assume responsibility for ourselves, our families, and our communities because our government cannot afford to provide for everyone in every way.

Personal responsibility. Do what it takes to get healthy and maintain your health. Increase the amount of exercise. Losing weight could allow you to decrease or eliminate some medications as well as making you feel better and more energetic. Don’t place value on what you own, rather on whom and what you can love. Time is all we really have, use it wisely and do not waste it.

Fiscal responsibility. Live within your means. Understand the difference between needs and wants. Borrow only for essential items and make sure you can repay that debt without impacting the quality of your life. Take care of what you already own. Realize the current system of entitlements is unsustainable so do not be over reliant on them.

Volunteer. Find something that inspires your passion. Non-profits are overwhelmed by those in need and not only lack money but volunteers. Even a few hours a month is appreciated. With the school funding cuts, volunteer at your local school to help our young people.

Donate. Are there clothes hanging in a closet you don’t wear that others could? Donate food to a local food bank. Money is always welcomed by charities.

Participate at a local school. An educated workforce is the core of economic growth and stability. Start by working with your own children or grandchildren, helping them with homework and instilling excitement about learning.

Go green. Reduce your consumption, reuse what you can, and recycle as much as you can. Practice conservation in your home and at work. Ask others to support going green. It is the right thing to do and saves money.

Take part in local government. Be aware and active. Contribute constructively and do not just gripe. Citizenship requires participation.

Teach. Help others to expand their ability to earn a living or improve life skills. Teach at a church, library or adult education program. Share what you know so others can grow.

Buy Local. When you can, support your local merchant, farmer or small company rather than the corporate giants. Keep the dollars circulating in our local area rather than some other State or Country.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Senior Spectrum – November 24, 2009

By admin  |  2010/02/22 19:00 Posted in In the news  |  Comments (0)

NAPFA Presentations are Free and Worthwhile

There is a free offer that everyone should know about. The National Association of Personal Financial Advisors is providing free monthly educational presentations about personal finance to the public.

“The Basics of Investments” is the next presentation and will be on December 4th from 10 to 11 am. Most people have read about stocks and bonds or have heard people talk about them but this is the opportunity to get the basics about what they are, how they operate, risks associated with each and what might be appropriate for you.

Future topics include:

  • Advanced investment concepts – January 8, 2010
  • Managing your 401(k) – February 5, 2010
  • Leaving a legacy – March 5, 2010
  • Women and money – April 2, 2010
  • Financial planning and small business owners – May 6, 2010
  • Your retirement- June 4, 2010
  • Financial windfalls – July 1, 2010

The presentations are in the “webinar” form. This involves watching a presentation on the computer while listening to the presentation on the telephone. Each monthly session is one hour in length and contains a formal 40-minute presentation and 20-minute Q&A opportunity. To register for the meeting log on to the NAPFA web site at http://www.napfa.org/ then click on the “Consumer Webinar” logo on the right. It is as easy as that.

The Consumer Webinar Series is designed to help consumers across the country better understand personal financial matters. Each session will be led by a NAPFA-Registered Financial Advisor who commits to the highest of standards in the financial planning industry. Many of the instructors are authors, educators and leaders in the industry. The advisers will bring their knowledge and experience to the seminars.

The Consumer Webinar Series sessions are FREE and held monthly. Each is web-based to make “attending” easy no matter if you live in Boston or Los Angeles. Each session is held live but are also recorded and available in the Archived Sessions section on the NAPFA website. The public is encouraged to register for the live sessions as there is an opportunity to ask any related financial questions you may have.

NAPFA is an organization of 1000 financial planners from around the country that work with clients to improve their financial lives by making better decisions and without selling investments or insurance.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Senior Spectrum – November 10, 2009

By admin  |  2010/02/22 18:55 Posted in In the news  |  Comments (0)

Tis the Season to Shop Medicare Drug Plans

The most important shopping you will do this holiday season is for your Medicare drug plan for next year. November 15 through December 31 is your only opportunity to sign up for the best plan for next year.

The Medicare part D program provides beneficiaries with assistance paying for prescription drugs. Unlike hospital and doctor coverage, which is provided within traditional Medicare or through Medicare advantage plans, the drug coverage requires beneficiaries to enroll in one of the dozens of different programs offered by private companies.

The difficulty for beneficiaries is that no two private company drug plans are the same and every year the plans change their deductibles, coverage limits, annual out-of-pocket thresholds, as well as which drugs are covered and to what extent. Another change is the prescriptions needed are often different one year to the next. FOR THESE REASONS, IT IS ESSENTIAL TO SHOP YOUR DRUG PLAN EVERY YEAR. You could save hundreds of dollars by making sure you have the best plan for you.

As an example, “Ruth” had a plan from “company X”. The coming year, company X raised the premium on her plan 27%, it changed which drugs were treated more favorably as well as changed the deductibles. Ruth had a change in her health and her doctor changed some of her medications.The result is if Ruth keeps her current plan she will spend a total of $2,584 next year according to the Medicare website but if she changes plans she would save $852 the coming year with a different plan.

While not everyone will save by changing plans, it is my observation that the majority will save. As a result everyone must take the time to find out which plan is best every year.

The only way to know if you have the best drug plan is to check the Medicare database after November 15th of every year. The first step is to have a list of all the medications you take including the dosage and the number of pills each month as well as your Medicare number and date of birth. The next step is to access the Medicare database. Here are your options:

1) Go on line and enter your information into the Medicare database.http://www.medicare.gov/MPDPF/Public/Include/DataSection/Questions/SearchOptions.aspThe result is a ranking of all plans in your area. The top one will be the least costly and the last one the most expensive over all. There can be differences of over 100%!

2) If you do not have computer access, call HICAP at 916-376-8915. The volunteers can enter your data and determine your best choices. You will need to set an appointment and there are limited number helpers so call earlier than later.

3) Call Medicare at 800-633-4277 and the Medicare representative will enter the information for you. Unfortunately, there are limited representatives and the wait time can be very long. The representative will tell you the three least costly plans and it is up to you to decide on one. The representative can help you sign up for a plan. You can ask that they send it to you in writing before you decide.

Unfortunately, there are people who would like to give you information but it may well not be the best for you. Here are some tips

1) Do not ask what your pharmacist recommends. Some plans pay the pharmacy more than others.

2) Do not automatically get the same drug plan as your Medicare Supplemental. Seldom is the best drug plan for you the same as the best Part A and B plan.

3) Do not take the same plan simply because your spouse or friends have it.

4) Do not sign up for a plan that a salesman is recommending unless the representative has a complete list of all your drugs and can show you the Medicare printout displaying the best plans for you.

It is recommended that you start the process of finding the best drug plan November 15th and complete the process by December first. When calling Medicare or the private companies, sometimes early in the day is better than mid or late day.

So in this holiday season if you are over 65 and not on an employer group health plan that pays for drugs, be sure to check the best Medicare part D plan for you and do so every year. While this may not be your favorite holiday shopping it could be the most important.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice

Senior Spectrum – January 5, 2010

By admin  |  2010/02/22 18:54 Posted in In the news  |  Comments (0)

Tech Stock, Housing Boom and Bust – Is Gold Next?

Most everyone remembers the run up of the price of tech stocks about ten years ago. It was commonly referred to as the dot com bubble. The technology laden NASDAQ composite index went from roughly 800 to 5000 in six years, only to have it come tumbling down. In reality, the value was just not there.

More recently we’ve had the housing bubble when home prices were going up 20 to 30% a year. In some cases the price of a house doubled in less than 4 years, only to have the bubble break and prices dramatically fall. What went up in value has come crashing down.

In the last five years, the price of an ounce of gold has gone from $450 to over $1100. Its rapid increase in price looks very similar to what happened to the price of tech stocks in the 90s and housing prices this decade.

Gold prices, years ago was set by the government. Since the dollar was backed by gold, there were small increases over time but no wide variation in price. In the early 1970’s the United States went off the gold standard and now the price fluctuates based on demand.

Gold is a very unusual investment. It has no interest paid from owning it, there is no dividend stream and there is no cash flow generated from it in order to establish a value. There is no value derived from owning it as there is with owning a home. The value is now decided by supply and demand.

There seems to be three reasons for the increased demand: the fear of inflation (due to this country’s large amount of deficit spending), the media needing something to talk about and a lot of companies involved in selling gold doing a lot of advertising.

A fourth component to the increased demand could possibly also be what is called the “herd mentality”. If as an investor, you are hearing from your friends and neighbors on how their recent investment in gold has been up 100% and they plan on buying more and you would want similar returns so consider buying gold as well. This is exactly what happened with both the tech boom and the housing boom. What generally happens when you follow the herd is that you usually end up stepping in what the herd has left behind.

There are also definite problems in owning gold. In many cases, there are very high commissions built into the price of your purchase. When you need to sell the gold you never get the current market rate because of the transaction costs.

As far as an inflation hedge, you can’t hold enough gold to hedge your other investments because there’s just not enough of it. Once this is better understood the demand for gold may follow the same “ bust” as occurred with tech stocks and house prices.

Then there is the issue of storage. Are you going to keep it in your closet where it would be subject to theft? Putting it in a safe deposit box is not practical because it is so heavy. Do you pay to have it in a secure storage facility?

While the drop in gold prices have not occurred yet, the upward climb in price as a scary similarity to the tech stock and house price boom and then bust.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.