Sunday, December 18, 2011

Q&A With The Doc: If I Buy Phyzz, Will My Investment Adviser Will Hate Me for Life?

Neal writes:

Thank you for your completely awesome blog! So many questions have been answered already and I appreciate the daily education and news that I just can't seem to get anywhere else.
Here's my question: Several months ago I moved my IRA funds into SLV and GLD. All the warning bells that I've been trying to ignore are now ringing loudly inside my brain so I'd like to know what's the least painful method of moving my IRA SLV and GLD into Phyzz. I have a good relationship with my financial adviser and I hate to do it, but I guess I'm going to have to pull my funds out of the account he manages. Is that correct? I'm also feeling completely clueless on how to make this change. I own some Phyzz - I've bought some eagles for $3.75 over spot from a local coin dealer who gets them directly from the U.S. Mint. Is this what I would do with the funds from my IRA? Will my financial adviser hate me for life? Do I need to get some kind of heated safe? I'm sure there are entire books written on this, but I don't want to get severely ripped-off or screw myself into tax hell in the process. Thanks!


Many of our readers find themselves in your exact position.  They’d love to convert to phyzz, but they just can’t get themselves to take the tax hit of cashing out of their GLD/SLV/401k/IRA.  AGXIIK is working on the details of how to be your own custodian of your own IRA- meaning the best of both worlds.  We’ll get that out to the readers as soon as he has finished his research.  Until then…here are my thoughts…
Again, The Doc is not an investment adviser, so this is not investment advice- these are merely The Doc’s thoughts as well as what he has done personally. 
As MF Global has shown 140,000 investors, and as Jason Fine has discovered particularly, IF YOU DON’T HOLD IT, YOU DON’T OWN IT!!  PERIOD!!
What’s your tax hit to cash in your stocks/ IRA?  15%? 20%? Gold’s AVERAGE gain over the past decade is ~ 23%.  So if gold’s average annual gain continues, you’ll be back to even with real money in your own possession in under a year.  Buy into silver at the right time at the bottom of a major correction and your gains are even better.   Those who bought silver into $8 in 2008 saw a 6-bagger within 2.5 years!
Those with 401k’s and IRA’s who are always most concerned about their tax implications are most focused on their yields.   Do you know what big (smart) money is ALWAYS most concerned about?  Not the return on their investment, but the return OF their investment.   I see a forced moved into fixed low-yielding T-bonds for US retirement accounts on the not-too distant horizon as there is simply no other way to kick the can much further.  There is a real risk that at some point you will no longer be given the choice of liquidating your retirement funds and taking the tax hit, but you will be “informed” that your assets have been turned into “Build America” 30- year bonds at 2 or 3% while inflation runs at 15-20%.  Even if this scenario never comes to pass, you still have ~80% (due to tax hit) of your current fiat value in physical assets that are a shield against inflation, and will help you be able to provide for yourself and your spouse throughout your golden years.   If your retirement funds are forced into worthless bonds and inflated away to pay for a hyperinflating federal debt/budget, will you be able to provide for yourself and your loved ones? 
Finally as regards to the thoughts of your financial adviser and your relationship with him, please realize two things:
1. Financial advisers make a living by selling you paper.  Expect to experience resistance from your financial adviser when you suggest taking personal control of your finances and wealth.  There’s no slice of the pie for Mr. Edward Jones in your basement vault!
2. Unless your financial adviser is your spouse, your best man, or your child, I suggest you put the well being of your family over the feelings of your financial adviser.   Do you think your financial adviser will come running to help you out in a financial collapse!?!
Finally as to what to do with the funds- personally I gravitate towards pre-1964 US 90% silver currency, as well as US Eagles when premiums are low ($2.50-$3/oz over spot).   90% “junk” silver can often be found for around spot to $1 over during times of supply constraints.  Again, this is me personally. 
As MF Global accounts holders are discovering first hand- this is a game of musical chairs with 500 participants, and 2 remaining chars.  Why wait for the music to stop?  Why don’t you sit down now?