Poway,
thanks for the suggestion. With your being afraid of buying gold and commodities, I totally understand. But you have to strike a balance. Your balance is 5% gold. Better than 0%. How about other commodities doing well in a recession? You could put say 3% in agriculture, 3% in food, 2% in silver, 5% in oil. Those things did well in the 70s which was also a recession (inflationary albeit). Of course you can put it in companies including international ones that are involved in these sectors and also paying dividends like Peter Schiff suggests. I was always curious how it is to have an account with him, but he says the right things: That getting dividends in foreign currencies compounds and makes it easy on taxes if you keep the stocks long.
By not putting 95% in gold (or even buying short funds) you are definitely saying that you have more confidence in the dollar being preserved than gold. But I would just look at the evidence as currently presented: You get 5% on your dollar which is maybe 4% after tax. At the same time money supply numbers, price increases, future obligations, war spending, it all points to a total of 7-10% loss annually. So you are losing 3-6% almost garanteed, and it could be more and rising. Other certain assets might in theory only lose 0%, provided they didn’t have a big runup. Would you put 95% of your money in something losing 5%, and only 5% in something you are afraid of losing what? 10, 20, 50%? Who knows. Maybe they gain 30% annually like they did in the 70s. So the chance looks more like centered around 0% than around -5%.
I guess you could have more confidence in foreign currencies and try and get interest there. But again you have to look at the present facts and their governments. If they pay 6% interest and have money supply numbers of 5%, that sounds better, but it still doesn’t make you any money. It could also lose you money if that government decides to join the dollar devaluation, say the Europeans like the Euro at $1.20 better than at $1.33. What are they gonna do? They won’t force the US to take 10% of dollars out of circulation. They will just print 10% more Euros themselves. But some foreign currencies would be still reasonable diversification.
It’s all conjecture on my part, but look at the evidence. Is the government honest in their spending? Are they giving accurate numbers? Is your interest rate outpacing your price increases?
