Steve's note: Today, you'll find the final essay in our Retirement Millionaire series. If you've been reading this week, you've learned how to take a nearly-free vacation, a little-known way to access your retirement savings without penalty, and how to save 60% on a night out.
But I think this last essay is the most important one you're going to read from my friend and colleague Dr. David Eifrig. For retirees in particular, this market is dangerous. And today's essay will show you how to...
Get Paid to Protect Your Savings
By Dr. David Eifrig, MD
February 8, 2009
Owning gold during turbulent times, like now, makes sense.
Gold is one of the few things that can hold its value in tough times. Throughout history, gold has been a hedge against calamity and a safe haven during the onset of inflation. And the Federal Reserve is doing everything in its power to cause inflation.
Unfortunately, investing in gold comes with two problems. First is where to store it... Gold is heavy, and it needs someplace safe. Some "gold bugs" even bury it in their backyard. The other problem is, gold doesn't generate any income. Unless you own a well-run mine that passes on cash flow to you, gold is just a boring hedge with no income.
I've found a secret that solves both of these problems. Here's how it works...
Today, you can buy the SPDR Gold Shares Trust (GLD). GLD is an exchange-traded fund that buys and owns gold bullion. By owning shares in this "trust fund," you own actual gold... and the trust stores it for you. That solves the first problem: storage.
But simply investing in this fund doesn't fix the income problem. The gold just sits in the trust's vaults, gathering dust. The trust doesn't pay a dividend.
So in order to get some income from your pile of gold, you can sell covered call options on the shares. If you're not familiar with trading options and find the idea uncomfortable, rest assured. This call-option strategy is easy and safe. In fact, the upfront income this trade generates makes it safer than simply buying shares in GLD.
Selling a call option simply gives someone else the right to buy your GLD shares at a specific price (the "strike" price) before a specific date (the "expiration" date). In exchange for that right, the investor pays you money upfront (called the "premium").
Here's one way to think about it...
Selling these covered calls is like owning a rental house... and giving your tenants the right to buy your house at a predetermined price, which is higher than the current value. In other words, it's a very, very safe investment.
You collect "rent." And if the price goes up, you get the gains up to a predetermined price.
So if your GLD shares never trade for more than the strike price, you keep the premium and the shares. If the share price exceeds the strike price on or before the expiration date, you sell your shares, book any profit up to the strike price, and still keep the premium.
If gold continues its seven-year uptrend, I expect you can make a safe 20%-25% a year with this strategy.
The best calls to sell have a strike price 10%-20% above the current price and expire in six months or so. Those will give you the plenty of cash upfront and still leave you some upside on your shares.
If you haven't sold options before, you should talk to your broker about the best way to take advantage of this opportunity. Please don't rush out and do anything you don't understand.
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But as I said above, this trade is one of the safest, easiest ways to own gold. It's a fantastic hedge against calamity and the collapse of the dollar. Plus, with 25% annual gains, you can earn more income than the best dividend-paying stock in the marketplace today.
Here's to a healthy and wealthy retirement,
Dr. David Eifrig
P.S. You know, after a decade of working on Wall Street, I'm continually amazed at the risky things brokers and financial advisors have their clients do. It's crazy, because there are so many really low-risk ways to make a fortune, especially right now.
Did you know, for example, there's a U.S. government-backed bond that should make you more than stocks over the next year? This and many more of secrets of a rich retirement are explained in my recent report. Click here for the full details... |
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AN UNUSUAL CHART, UPDATED FOR 2009
Back in March 2006, we published an unusual chart along with an unusual essay.
Despite the 2003-06 rally in the S&P 500 index, folks weren't any richer for owning stocks. The prices of fuel, food, and housing had climbed faster than stocks... So profits earned in the market weren't actually adding to your purchasing power. Our chart displayed the performance of stocks measured in terms of real, tangible wealth: gold.
You see, governments can print extra pieces of paper currency to pay for any ridiculous program you can imagine. This extra money in the system amounts to someone clipping little bits of value off your dollars. It's a silent, faceless theft hardly anyone notices. Hardly anyone except gold.
Gold is money Washington can't create with speeches, a printing press, or the stroke of a computer key... We've been urging you to own some for years. And not only is it a good idea to own gold as "wealth insurance." But we're also believers in sticking with the big trend... no matter what the trend is.
As you can see from today's updated chart of gold vs. the S&P, stocks are still declining against gold. The golden uptrend continues.
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The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come.
The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note rising to 2.95 per cent, up from just over 2 per cent at the end of December.
The Treasury said it would sell $67bn (£46bn) in new securities next week, the largest ever quarterly refunding, beating the last peak in August 2003. It may also start monthly sales of all its benchmark Treasury securities.
The Treasury Borrowing Advisory Committee expressed concern on Wednesday over the sharp jump in net borrowing needs – which market analysts estimate could reach $1,500bn to $2,500bn for the 2009 financial year.
– Financial Times
Potential inflationary pressures can be seen in the growth of money supply. January M1 rose about 20 percent year-on-year in the United States where a stimulus plan of about $800 billion is in the works.
"M1 is growing at about 9 percent worldwide," said Angus Murray, founder of fund manager Castlestone Management.
"People need a real asset to offset inflation. Investors are putting gold into their portfolios as an insurance policy. In 24 or 36 months time, gold will be higher by a minimum of the growth rate in money supply."
– Reuters
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