Learning from Germany

People who have learned to only invest in stocks should take a closer look at how Germany manages its economy. In 1970, European countries suffered a massive inflation. While most countries had more than a 20% increase in their basic products and services, Germany was able to keep their inflation to single digits. The secret? The country’s gold reserves that were able to preserve Germany’s wealth for many years.

Keep gold investments no matter what

The gold and stock market, as veteran investors know really well, are inversely correlated. This means that when gold prices are up, stocks are down and vice versa. While stocks have outperformed gold in recent years, it makes no sense whatsoever to remove gold investments from your portfolio. After all, people don’t invest in gold to gain a quick profit. Rather, people invest in the precious yellow metal in order to cover their assets in times of sudden events (inflation, bearish sentiments of investors, etc.) that would turn the market sour – a strategy that Germany has done for so many years. Gold’s value is ceaseless, which is why Germany decided to not sell its gold unless absolutely necessary. In the 90s, gold per ounce only costs around $380. Today, gold’s spot price fluctuates around $1,260 - $1,300. If Germany decides to liquidate some of their reserves, it would be able to support its countrymen for decades.

Germany’s gold amounting to 3,391.3 tons will be kept safely in the vaults of Bundesbank, The U.S. Fed, and London for many years. And speaking of keeping the country’s gold in vaults around the world, investors should also take cue from this. While keeping gold in personal vaults within your own country sounds patriotic, it actually makes greater sense if you keep a portion of them in multiple vaults abroad.

Storing gold outside your country

Germany’s gold reserves are stretched all over the world. Should another country invade Germany, the latter would be able to access their gold quickly. If the country’s gold reserves are all within Bundesbank, Germany would have a hard time shipping them out for liquidation. Private investors should do the same thing. If you’re an owner of physical gold, consider storing some from outside your country of origin. Investors don’t need to buy whole bars to get exposure to gold. There are ½ and ¼ oz. gold coins, and even online peer-to-peer services that allow investors to own a single gram of gold from a good delivery bar. Buying gold is cheaper and more efficient now thanks to the advancements of investing. Stocks will lose its value and currencies get devalued. However, gold has stood the test of time and remained a valuable asset especially in times of high inflation. Keep this in mind when you think about investing only in stocks.


About jrv

I was born in Spain and lived in Belgium, Chile, France, USA, Argentina among other places. Currently I am trying to settle down in a wild place. I am "retired", even though now I dedicate more hours "working" for my investments than I ever worked in the real labor market where I used to work in IT and Banking. I am a family man, I have a lovely wife, several sons and one step daughter. I have humble tastes, I like to stay home and read about companies and investments. I started investing at 25 before the internet bubble exploded. I did not know much about investing and liked technical analysis so my results were pretty bad. Fortunately I did not have much to lose. Some years later in 2006 bored of doing only real state investments and with quite a lot of money saved I opened an account in a cheap and excellent online broker and started again. This time I did not want to commit the same mistake, so I decided to follow a model. I heard that Warren Buffett was the best at making money via stocks so I started by reading a lot about him, all of his shareholders letters and several of the books that he recommended. I learned a lot, started applying his investing principles and reading a lot of 10K's. Digested news from lots of different sources. Basically I started buying very good and cheap companies and holding them for ever if possible and if nothing changed fundamentally. When the housing crisis started I was more than 75% cash. At that time I identified good companies at incredibly cheap prices so I invested most of my savings in stocks. In less than I year I doubled. By the second semester of 2009 I turned my software company into an investment vehicle and dedicated myself full time to it. My wife and I decided to change our lifestyle and moved from Belgium to the beach in a wild country. The goal was to keep fixed costs low in order to be able to live with a minimum 6-8% yearly return but specially to move away from the inhuman life of civilization and to have finally some peace and sunny weather to concentrate better on investing. Now I can think and study about companies 60 hours a week and I am doing great. I can finally do what I want full time and can proudly say that I have never been so happy, specially also with my just born 4th son, my other great kids and my sweet wife who supports me fully while I study most of the day and patiently wait for the opportunity to make a swing ! You can learn a bit more about my portfolio by viewing it at www.kuchita.com/view/sumo.php or you may learn more about me and my family by following the link "Author's site" from the menu above.

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