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The lesson is this: What's working, and what's popular, is not what's best. Wholesalers of investment companies visit Financial Advisor offices to talk about their best performing and most popular product offerings. Investment companies roll out new and popular product offerings.
The problem is, what's popular typically carries the most risk for investors. Most Financial Advisors know this intuitively, and have lived and learned the lesson. The general public, however, has not learned the lesson. It was growth funds in the mid-90's, it was focused large-cap and internet funds in the late 90's and early 2000's, it was real estate in the early 2000's, it was oil and financials in the late 2000's, and now....GOLD.
All of the hype around GOLD today is a stark reminder of the old lesson.
Today the price of gold went over the $1000 an ounce. WOW!
The exchange-traded fund "GLD" has amassed a record amount of assets at $35 Billion.
New investment products for gold are rolling out left and right. (SGOL-Swiss Gold Shares)
There is an unprecedented amount of radio and tv ads about investing in gold. Literally every commercial break on CNBC includes a gold commercial. I saw one recently that was featuring a former spokesperson from the U.S. Mint. Seriously? Are we that stupid?
I wish I could be a fly on the wall in Financial Advisor offices now. I can just hear the intelligent discussion about the precious metal. As I said, MOST Financial Advisors are smart enough not to get sucked in, and not to let their clients get sucked in.
When I feel myself getting pulled in, I'll sing to myself "Won't Get Fooled Again" by one of my favorite bands, The Who. That keeps me grounded.
There is plenty of press about GOLD, and how great it is, but Brett Arends of the WSJ does a very nice job of covering where gold may go from here. In his most recent article entitled "Gold Prices-How Much Should Gold Cost", he reminds us of a long-standing rule of thumb in that an ounce of gold should equal the cost of one high-quality man's suit. If you ask me, $1000 would buy a pretty nice suit these days!
Of course, I may be wrong and I am often early, and GOLD may go to the moon. Yes GOLD can serve as an inflation hedge but we haven't yet seen any signs of inflation. All of this GOLD stuff sounds like the same old song and dance to me and if I were you, I'd be very careful about investing in it, or you might learn THE lesson the hard way. Oh, and if you're interested, there are plenty of ways to bet against it.
Disclosure: No positions