Have you ever wondered where to begin your investment portfolio? In my blog Precious Metal: When & Why, I provided my thesis as to where I am investing and why? My sincerest wish was that my narrative was compelling enough to have you examine your portfolio and begin an allocation towards Precious Metals. I recognize that one will not change their paradigm to investing because of a blog from a stranger (actually, that was my intent :). I love empirical evidence and love the virtues of contrarian investing through cycles investing. The results I have experienced from doing so have been a blessing.
An allocation of Precious Metals in your Portfolio is paramount. As Rick Rule points out in my blog http://sofee.liberty.me/rakim-would-say-follow-the-leader-4er/, the 4% have a position usually consisting of a 10% or higher allocation towards Gold and Silver. Why? Because 4% understand the difference between money and currency. Now is your time to become a generational steward and become a part of this elite group of 4%’ers!
In the following link, Rick Rule discusses his ‘Portfolio Pyramid’ thesis:http://sprottglobal.com/natural-resource-investing/investment-university/mining-investment-college-video-1/. The video illustrates a solid portfolio should consist of Insurance, Core, Growth, and Speculation. Today we will focus on the base of the ‘Portfolio Pyramid’, which is Insurance.
Insurance should consist of liquid instruments. Liquid, meaning the ability to convert into cash fast. The goal is not to seek a high return. For example, stocks are more liquid than buying or selling a house. Juxtapose to real estate where it may take months to convey a deed. Insurance should consist of bullion, bullion proxies, cash, and life insurance.
I am always asked which Metal should I purchase and what form? So let’s discuss the proper way to go about the procurement of our bullion. I would recommend that you begin with the Precious Metal that is least expensive, notice I didn’t say the cheapest, remember, cheap means low quality and low cost. Silver is currently discounted 68% from its 1980 high. What can you purchase today that is 68% lower than what it would have cost in 1980?
Before 1965, a Middle-Class daily working wage was roughly $1.00 per day. Keep in mind before 1965 U.S. coinage contained 90% Silver. Bear in mind, this is a historical context. How much bullion should you buy? I will leave that to your discretion. Yet, I will use some historical references to make this practical for you.
- 95% of the U.S. population earns less than 50k per year per individual
- Most people don’t have more than 3 months of savings (in currency)
- Using the Silver Cheat Sheet http://www.provenprobable.com/blog/silver-cheat-sheet/ $1.00 (Face Value) of Junk Silver = 71.5% of an ounce.
- Therefore, if you owned $1,000 (Face Value) of Junk Silver you would own 715 Oz. of Silver.
- If you owned $500 (Face Value) of Junk Silver you would own 357.5 Oz. of Silver
- So if you owned 357.5 Oz. of Silver you would have the historical annual average Middle-Class salary saved juxtaposed to 3 months.
- As of this writing Silver is at $16.80 * 357.5 Oz. = $6,006. Not a bad value proposition!
- When I consider the alternative which is Cash, Bonds, CD’s, Money Market Accounts, Bullion Wins
To Clarify any confusion, we are discussing the Core Position in your Insurance. And that Bullion/Precious Metals rise because the currency is failing, in times of uncertainty. This is not designed to be a “get-rich-quick” strategy. I am attempting to demonstrate the value proposition of Silver in a historical context.
Although I used Junk Silver to determine the amount of Bullion in my Insurance. I wholeheartedly endorse owning all forms of bullion. 100 Oz., 1 Kilo (32 Oz.), 10 Oz. 5 Oz., 1 Oz., and fractional form. The shape is irrelevant. I endorse ingots (rectangular), rounds (coin form), or Eagles (U.S. $1 Silver Eagle). *Eagles have the repute as being the most recognized, therefore, usually carry a higher premium.
I love Silver dimes. Why? Because they are the most divisible. Historically, a silver dime will buy a loaf of bread. I view Junk Silver great for making daily purchases because of their divisibility. I regard anything greater than 1 oz. great for making larger purchases such as auto, home, insurance, and for utility bills. So, there is a practical reason for holding each form of Silver in your Insurance.
Now that you have satisfied the Core Position of your Insurance with bullion. I would encourage you to add a surplus to your bullion holdings for speculation opportunities. Mr. Market likes to make bullion fluctuate. When Mr. Market is behaving irrational, you can become the beneficiary of some profits. Keep in mind that you do not touch the Core Position of your Insurance on speculative opportunities.
I am long on Gold, however, for my thesis for accumulating Gold I will go more in depth in my next blog ‘Portfolio Pyramid – Core’.
I highly advocate Platinum and Palladium bullion to be included into the Core Position of your Insurance in the place of Gold. The challenge regarding Platinum and Palladium will be your ability to procure these metals in bullion. But, here is where you can utilize the proxies to the bullion. To satisfy this requirement, I need assurance that my proxy is:
- Allocated to me.
- That I am being charged commensurate to the spot price when purchasing and selling
- That I will be taxed at the capital gains rate
- That it is stored outside of the U.S.
- That it allows me to purchase more Palladium than Platinum, because Palladium industrial demand is increasing as it has demonstrated the same application use as Platinum, but it is less expensive
- Must be publicly traded
- Last, if I own a large enough position I can request to have my bullion delivered to me
The only name I trust and endorse to facilitate my proxy demands is ‘Sprott’ via http://sprottphysicalbullion.com/ .
*NOTE: IF I COULD NOT PURCHASE AN OUNCE OF BULLION I WOULD HAVE FULL CONFIDENCE IN THE ‘SPROTT TRUSTS’ AS A PROXY FOR MY CORE POSITION IN INSURANCE.
It should be inferred that ‘Sprott’ stores your bullion for you. So you if you don’t want to store your own bullion then the ‘SprottTrusts’ will be the most viable solution for your bullion purchase.
Cash should be a part of your Insurance. But I don’t regard it as much as bullion. Why? If I have to use my Insurance, chances are that my currency won’t keep its value much longer. I can’t stress enough the importance of having a cash position in your Insurance. There will be brief opportunities to buy items when only cash will suffice. Remember, the masses aren’t as prepared as you. They will not know the value proposition of Precious Metals. When the masses should only accept Precious Metals they will want cash. Give them what they want :).
Now let’s discuss life insurance. I recommend Universal Life over Whole Life. The reasoning for this is several. But I will get into much greater content in a future blog. The short answer, interest earned on Whole Life is usually the same for the current and guaranteed rates for the life of the policy. Whereas, the Universal Life the current rate can exceed the guaranteed rate. As of this writing most Universal Products offer a current rate that is equal to the guaranteed rate, but is subject to change if rates ever return to real Market Rates (Don’t hold your breath).
I omitted Bonds and CD’s. I do not advocate a position in such vehicles. I don’t trust banks, and I don’t trust sovereign bonds. I have never purchased corporate bonds. So, I will not advocate you practice something I do not practice. But this is not to say that all corporate bonds are bad, I just don’t invest in them. I would prefer to invest in Tax Liens certificates.
In conclusion, I would recommend you begin your portfolio with a solid foundation. Nothing is more solid than Precious Metals. They will serve as the perfect instruments as your Core Position in Insurance. Precious Metals have never gone to a value of zero. They are rare, currently sold below the production costs, unloved, and unappreciated. Can you think of better value proposition? As a generational steward you must discern that now is the time, now is your time, to protect your future with insurance.
Proven & Probable
The featured image was by: Mark Herpel