Gelden Geld

Gold

If all of the world’s gold were squished together, it would form a cube just 68 feet on each side.  That’s a very small amount of gold in a very big world.  No wonder it’s so expensive.  In times of economic uncertainty people often rally around what they see to be smart, safe investments.  For some people this is treasury bonds and low-risk stocks, for others it is physical assets like gold.  Although gold does have substantial value, ($1,553.65 per ounce as of May 15th) nothing can be produced from it and thus the only value gained from it is having it when others do not.  This is also a quandary because the price of gold can only rise when it is highly sought after, meaning that many people must buy gold in order to keep the price of gold up.

There are tangible benefits to owning gold, such as fiscal security in the event of an extreme economic downturn or global disaster. However, the astute financial mind of Warren Buffet likens it to building a bomb-shelter in your basement.  If you ever end up needing the bomb shelter than you have made a terrific purchase. However if no crisis occurs where a bomb shelter is necessary, you will be stuck with the sunk cost of a bomb shelter.  I suppose it could make a decent man-cave.

The uncertainty in economies and markets has helped fee a frenzy in gold-buying.  GLD, the exchange-traded fund introduced by State Street in 2004 is the second-largest ETF measured by assets under management.  But with an average daily trading volume of over 10 million shares it seems that buyers aren’t  ‘investing’ as much as they are placing a bet.  Nothing wrong with trying to win a bet but with gold trading at historical highs maybe there are better bets to place.

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Obfuscate

ob·fus·cate ( b f -sk t , b-f s k t )tr.v. ob·fus·cat·ed, ob·fus·cat·ing, ob·fus·cates

1. To make so confused or opaque as to be difficult to perceive or understand: “A great effort was made . . . to obscure or obfuscate the truth” (Robert Conquest).

2. To render indistinct or dim; darken: The fog obfuscated the shore.


[Latin obfusc re, obfusc t-, to darken : ob-, over; see ob- + fusc re, to darken (from fuscus, dark).]


ob fus·ca tion n.

ob·fus ca·to ry ( b-f s k -tôr , -t r , b-) adj.1

Obfuscate is a wonderful word.  I just wish it didn’t apply so often to issues in personal finance.  Annuity contracts are one example.  Recently I met with a client who owned several annuity contracts and she wanted help translating them – from obfuscatory English to plain English. The contracts were thick documents that I’m convinced were carefully designed to keep anyone from actually wanting to read them.   Buried within were onerous sounding surrender charges, various subaccount fees and expenses, commissions, penalties, insurance fees, redemption fees, and enough other terms to make you nervous.  Wouldn’t it be nice if one of the insurance companies selling annuities would lay out the information in a simple diagram or a flow chart? It would make a lot more sense and it would help consumers evaluate and understand, for example, what the real cost of that death benefit is.

If you find yourself struggling to understand the costs, benefits, and tradeoffs of an investment, perhaps it’s due to a deliberate obfuscation of the information.  So what should you do?  If you don’t understand it, don’t buy it.  It’s that simple.

1. The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.