Your 401k’s Shortcomings – No Gold

Many financial advisers believe that every persons investment portfolio should contain at least some gold holdings.  I’ve seen recommendations ranging from 5% to 25%, and even higher.

So why do so many advisers believe this?

Because gold has consistently over time held up it’s purchasing power.  So while gold’s price has certainly fluctuated, it’s purchasing power has endured.  And when we are talking about 401k’s, we are typically talking about your future retirement funds.  And future purchasing power is really what that is all about.

But I have not seen gold as an investment option in the 401k’s I’ve looked over through the years.  I’m sure there must be some out there, but I’ve not seen them.

So that leaves you with all of your 401k investments priced in dollars.  And dollars have consistently lost value since the United States came off of the gold standard.  Since the U.S. did this back in August 15, 1971, the purchasing power of the dollar, adjusted for inflation, has gone down to $.18.  In other words, you can buy less than a fifth of what you could back then with a dollar.

But if you had bought a dollars worth of gold back then, in our example here, you could still buy a dollars worth of goods today, decades later.

What we are talking about here is also known as inflation.  And inflation is created by governments who print more money to pay huge debts without raising taxes.  It’s like someone promised to pay you back a nice bottle of bourbon, but they drank a lot of it, so they just added water to what was left and gave it back to you.  The bourbon they give back to you is worth much less because it has been watered down.

Similarly, governments spend more than they take in, borrow huge amounts of money, and then print more money when they make payments.  They are watering down the bourbon, so to speak.

With the financial obligations of the U.S. government in excess of $50 trillion, and growing, it is looking mathmatically impossible for the government to pay off it’s debt.  So it will continue to print more money.  Which will show up as inflation.  Which will be a loss of purchasing power for your investments in the future when you plan to retire.

But there’s one think the government can’t just arbitrarily print and create out of thin air.

And that is gold.

And that is why gold retains it’s purchasing power – because it remains scarce.

And that is why I believe every investment portfolio should have some percentage in gold.

So this seems to be another drawback to many 401k plans.  They don’t offer gold as an investment option, so you are not offered a way to protect some of your future purchasing power.

We will deal with this drawback in a future posts.  Until then…

to your health and prosperity – John



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