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Gold vs savings vs low interest debt

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Gold vs savings vs low interest debt

Old 11-10-2010, 06:20 AM
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Default Gold vs savings vs low interest debt

Please stay off of the political soapbox. This is a fishing forum, so keep the financial geek speak lite...my glasses aren't that thick.


If the current policies and actions being taken globally are feeding a gold bubble and you're not already in, how do you protect your money?

Let's assume we come out of this down cycle. Gold price will come down right? Then savings should rebound?

With such insanely low interest rates, does it make sense to make big ticket purchases to secure the low interest rate instead of pouring money into a savings acount that can't keep up? House, new truck, boat, land, etc?

Just seems like if the dollar continues to fall and inflation is coming, having low interest debt that actually shrinks would be a good way to set up for the long term.

What am I missing...other than a degree in finance?
Old 11-10-2010, 07:14 AM
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English degree here, -no thanks needed for the following advice-

I have had several people tell me that big ticket loans are the way to go here, as interest rates will never again be so low. For some, that may make sense, but it sounds an awful lot like the thought process that went in to the housing refi insanity.

If you can pay the nut easily, and need the item, or have the investnent cash, and can go in for the long haul, then by all means take advantage of the current rates. If you are AT ALL stretching to take advantage of the rates. Think long and hard, and if you have to, re think.

I am not at all convinced that we are coming out of any cycle. Seems to me that the next 18 months is a time to remain prudent, and stay pretty liquid. That said, I heard last week that American Express has quadrupled their advertising budget this year. Hopefully they see as shift, and are rushing to get ahead of it. First good news I have heard and believed in a long time (not that I was not ESTATIC when all those census jobs bouyed the economy some time ago).
Old 11-10-2010, 07:30 AM
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I am on the dimwitted side as far as financial stuff goes, so here's my simpleton's view. In times of inflation, it helps out the people in debt, since they can pay their debts off easier. The dollar isn't worth much, but there's a lot of low value dollars hanging around. Interest rates will generally be low.

When it goes the other way, and the dollar is strong and sought after. People want dollars, and will pay a premium for them. This benefits the people who are saving or investing money. Interest rates will go up.

Now here is the interesting part. We are now on a fiat currency system, which isn't backed by anything other than our good name. The gold standard went out years ago. People forget that gold was already outlawed once in our history. If the economy takes another dive, it might be similar to what happened in Germany, or we may get biflation (or whatever term you want to call it) where consumable goods suffer from inflation while hard assets suffer from deflation. In this case, things like milk and bread go up in price, and the demand is there, while things like cars and houses will be less sought after .

I still don't think having debt helps you, I just think that those with debt are 'helped' (ie hurt less) by inflation than those who save. The guy with no money and no debt is still ahead of the guy with no money and a big debt.
Old 11-10-2010, 07:31 AM
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Not an expert, just some thoughts.

Borrowing to buy something is a "good investment" if what you buy increases in value above the cost of the debt. New truck, car, boat will probably not increase in value so this is not an investment - you are borrowing because the debt is historically cheap and you want it. You still have to repay.

What if you buy gold or stocks or some collectible- all they have to do is increase more than the cost of the debt and you are a winner. If it was easy everyone would be doing it. It ain't always easy.

If you borrow money to buy something you really need and it is long term loan then it gets interesting. Use land or a house as an example. If you are going to buy a house, will live in it for some years, AND can pay back the mortgage then I would buy now.

US economy is getting better very slowly. Economies outside the US (Brazil, China, India, etc) will grow faster and the US dollar may need to drop in value. And, we can have big time inflation ahead. Does this mean gold drops in value? If gold is priced in US dollars and the buyers are from other countries then there are reasons for gold to go up or hold value. Will gold stay up? It was $300 in 1998, it is $1400 now. Looks like it has to drop sooner or later
Old 11-10-2010, 09:31 AM
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rit- Your question and conditions for a reply is like someone explaining to their wife why lipstick is on their underwear when he told the wife he was going fishing with his buddies.

IMO- there is not really a solid play to protect your money. If you believe the US economy and dollar is failing then the best play would be to put funds outside the U.S., in an area where you believe is doing well and is politically stable.

The thought being exercised by the government to keep interest rates low that will result in loans being made by the business community, thus, people becoming employed because of economic expansion resulting from loans used to grow business, is in reality, a fallacy.
Old 11-10-2010, 11:29 AM
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I should clarify. Buying a new truck now as opposed to 2 years from now seems to make sense to me based on my original post. Not a "need" yet but a smart purchase before interest rates take off. That money would otherwise be going into savings and potentially losing money. Of course the truck will depreciate, but will save me more money in the long term.

None of this justifies living outside your means. Just a different perspective on protecting my financial situational through a rather unpredictable period.

Example: $35000 truck @ 1.9% over X months. Vs. Same truck costing 45000 in 3 years and my savings account actually having lost value.

Insert a 100,000 land purchase vs money into savings. Same theory applies with the exceptional of an asset actually gaining value.(intrinsic if nothing else)
Old 11-10-2010, 11:35 AM
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You are negating the depreciation of the truck in two years.
Old 11-10-2010, 11:38 AM
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Truck may go from 35,000 to 45,000. Interest rates can go up. The money you put in the savings account will not have lost value - $10,000 will still be $10,000. But if inflation kicks in the $10,000 will buy less. In this example you accounted for inflation by having the truck go from 35,000 to 45,000.

Cars and trucks are a tough way to argue buy now because they depreciate so quickly. What do you lose when you drive off the dealers lot? 20%? What is any vehicle worth two years after you buy it?

Drop the financial analysis. Do you want a new truck and will you enjoy driving it? Can you make the payments? Then buy it - probably won't get any cheaper.
Old 11-10-2010, 01:41 PM
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I am dimwitted also - but I try to stick with certain guidelines.

-Most (if not all) debt is risk, even if the rates are low.
-Cash is king.
-Only borrow if you have the ole 6 months in savings - to cover everything, including the new loan. If you don't have that, the "big ticket" purchase will put you at risk. No one can foreclose or repo your cash.
-Don't borrow for your "toys".
-Buy low - sell high. Silly right? But thats not what people do - thats how bubbles happen. Buying gold now is buying high, you will more than likely end up selling low.
-As you stated, rates are low. That usually goes hand in hand with the stock market. Low rates typically = a low market. For me, that = time to buy. Thinking long term & using history, the market will go up & the rates will follow.

Gold is a bubble, Bonds are a mini bubble. The high sellers will move their money - I think they will move into the market. So, I am buying S&P tracking funds & the like.

I just heard an ad on the radio that follows some of the above points. This company was willing to trade their gold investments for your stock investments - even encouraging people to dump their 401k's. They are going on the notion that people will buy into the hype of a bubble & buy in on the high side. They are going to sell the gold to you high & buy your stocks low. They will profit, you wont - yet people will still buy.

Typically, I don't do what "they" are telling me to do. They are telling me stuff so they can profit, not me.
Old 11-10-2010, 02:37 PM
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Thanks guys.

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