Tuesday, June 9, 2009

How Much Gold You Should Own

Ben Bernanke recently warned congress of the consequences of overspending which could include inflation. If you think inflation will accelerate in the future, it may be a good idea to consider gold to offset the affect of inflation on your investments. For more on this, read the following article by Dr. Steve Sjuggerud from Daily Wealth.

You often hear "You need to own gold!" But how much is the right amount?

You don't want to own too little gold and have the purchasing power of all your savings shrink dramatically. You can't afford that. But you don't want to be an end-of-the-world nutcase either.

Well, one of the world's shrewdest investors – Jean-Marie Eveillard – has 10% to 12% of his extremely successful investment fund allocated to gold and gold plays...

Jean-Marie Eveillard's First Eagle Global Fund beat the stock market every year this decade. What's more, he's done it conservatively... He doesn't take big risks. Over 30 years, he's proven to be one of the most successful mutual fund managers ever.

So what's Jean-Marie Eveillard recommend buying today?

"After equity markets have gone up 35%-40% or more over the past three months, ideas that are immediately appealing are few," he told Bloomberg news today. But he did have one big idea... gold.

Right now, his fund is about 10% invested "in gold and gold mining securities," he said.

His explanation is simple: "It's insurance to protect against the fact that current policies by the American government and the Fed are potentially wildly inflationary."

Jean-Marie likes gold because he expects the Fed will leave interest rates near zero for a very long time.

The Fed will "stay pat until the politicians give them the green light to raise rates, which will take quite a while. As long as unemployment is very high, politicians will be reluctant to push up short-term rates."

When I got into investing nearly 20 years ago, Jean-Marie was already a legend. After doing my homework, his First Eagle Global Fund was one of the very first investments I ever bought. (Back then, it was called the SoGen fund... it still uses its old symbol, SGENX.)

Jean-Marie started managing the fund in 1979. If you had invested $10,000 in the fund back then, it would be worth roughly $500,000 today. (Heck, I should have kept my money in there!)

His "big idea" now is very simple. Gold pays no interest. And money in the bank pays nearly no interest. You can print money. But you can't print gold. If the Fed keeps interest rates near zero for the foreseeable future, the obvious outcome is that it will take more slips of paper (dollar bills) to buy an ounce of gold.

He believes his clients' money should be about 10% or so allocated to gold and gold investments. What's right for your situation? That's up to you. But if you're substantially under or over the legendary investor's gold allocation, then you ought to consider getting more in line with him...

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