Physical Gold, Stocks and Retirement: Your Questions Answered

SPEAKER_1 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Merryn Somerset Webb (0:17)

Welcome to Merryn Talks Your Money, the personal finance edition of Merryn Talks Money. In these bonus podcasts, we talk about the best strategies for making the most of your money. I'm Merryn Somerset Webb, and with me, senior reporter and money distilled author, John Stepek. Hi, John.

John Stepek (0:31)

Hi, Mel.

Merryn Somerset Webb (0:32)

John, we get a lot of emails, which we love. We love emails. Send us more emails. Today, we are digging into the show in books and pulling out some of the questions that listeners have sent us to discuss.

So the first one is one that I know we both have firm answers to it, and it's about from someone who came from one of our friend shows in Edinburgh. Basically, he holds the majority of his gold through one of the physically backed ETFs rather than owning it directly. Increasingly, he says, he's been wondering about the risks inherent in holding gold this way, and whether some of those risks potentially undermine the very reasons for owning gold in the first place. So he wants to know, how comfortable are we with the idea of physically backed ETFs or ETCs as a long-term way of holding gold? Now, I have a very clear answer to that, which is that you're holding gold as emergency insurance. So I think that you should have a reasonable amount of your gold in actual, physical, easy to access gold just in case all the worst things really happen all at once, and then you have your gold. But you can also, gold in an ETF or ETC with a good provider is a pretty safe way to do. Yes, you are inside the financial system. Yes, you do have custodian risk and management risk, and financial risk to the extent it's entirely possible that your provider might become insolvent, might go bust, and then it'll be difficult for you to reclaim your money. But the gold is there.

The gold is there. And while you don't have an individually allocated bit of gold, you have a share of the existing gold. So are there risks with it? Absolutely. But the gold is there. So yes, you should have a reasonable amount, I think, of physical gold, because one of the reasons for holding gold is because terrible, terrible things can happen. But if you're holding it as a protection against inflation or a general collapse of fiat currencies or repression that doesn't involve seizing gold, then it's a perfectly good way to capture that upside. Is that fair, John?

John Stepek (2:48)

Yeah, I do think that's fair. I mean, I think in a funny kind of way, there's a risk apathy thing going on here. And the honest truth is that I am not so worried about the physical side. I definitely take your point about, if you're genuinely worried that kind of apocalypse, so if you genuinely want to insure against an apocalyptic scenario, then the only answer is to have some physical goal that you can literally access, which creates its own problems. It's a pain in the neck to store and you have to have a safe, things like that. But if that's what you want, then that's what you need to have.

I'm perfectly comfortable with the idea of physically go back to kind of ETF. Don't have any kind of worries about that. I think it's a good way to get exposure to the price.

But what I would say is this reader has pointed out that they actually do hold quite a lot of gold relative to, I guess, certainly what your average kind of investor does. And so from that point of view, I would think that you're clearly somebody that is worried about this sort of thing. So yes, you specifically probably have got a lower risk tolerance for the emergency scenario. So you probably should have a bit more physical gold literally to hand than you do at the moment. I guess would be the only kind of better we'd add to what you said.

Merryn Somerset Webb (4:10)

Okay. Fair enough.

Right, John, here's another one which I actually think is kind of interesting and we've discussed it the other way round previously. So it's from Tim and he's writing about one of the podcasts we did recently. This one was with Lawrence Hulse, who is from Onward Opportunities, basically invested in small caps. And along the way in the podcast, he mentions that him buying the shares supports the businesses that he's buying into. And Tim says, you get the cell phone, but what does it mean in that if you're just buying shares in the secondary market, it doesn't seem to hold to an investment fund, buying a stake, it's just facilitating the selling of other investors. The funds, the shares just switch hands, but there's no impact on the firm itself. Now that is absolutely fair. And one of the things that we've talked about, or I've written about quite a lot over the years, is that when people sell shares in big companies, there's a protest, you know, sell shares from tobacco companies or whatever, it makes absolutely no difference whatsoever to anything, because the capital has already been raised and the company just carries on as is.