Latest / Merryn Talks Money / Physical Gold, Stocks and Retirement: Your Questions Answered

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Physical Gold, Stocks and Retirement: Your Questions Answered · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios. Podcasts. Radio.
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  Speaker 2: News. Welcome to Merrin Talks Your Money, the personal finance
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  Speaker 2: edition of Merrin Talks Money.
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  Speaker 1: In these bonus podcasts.
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  Speaker 2: We talk about the best strategies for making the most
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  Speaker 2: of your money. I'm Merrin Somerset Webb, and with me,
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  Speaker 2: senior reporter and money distilled author, John Steppett.
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  Speaker 1: Hi, John. Hi, Merrin. Don, we get a lot of emails,
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  Speaker 1: which we love. We love emails. Send us more emails.
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  Speaker 2: Today, we are digging into the show in books and
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  Speaker 2: pulling out some of the questions that listeners have sent
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  Speaker 2: us to discuss. Okay, so the first one is one
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  Speaker 2: that I know we both have firm answers to it,
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  Speaker 2: and it's about from someone who came from one of
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  Speaker 2: our fringe shows in Edinburgh. And basically, he holds the
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  Speaker 2: majority of his gold through one of the physically backed
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  Speaker 2: ETFs rather than owning it directly. Increasingly, he says, he'd
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  Speaker 2: been wondering about the risks inherent in holding gold this
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  Speaker 2: way and whether some of those risks potentially undermine the
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  Speaker 2: very reasons for owning gold in the first place.
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  Speaker 1: So he wants to know how comfortable.
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  Speaker 2: Are we with the idea of physically backed ETFs or
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  Speaker 2: ETCs as a long-term way of holding gold.
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  Speaker 1: Now, I have a very clear answer to that, which.
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  Speaker 2: Is that you're holding gold as emergency insurance. So I
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  Speaker 2: think that you should have a reasonable amount of your
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  Speaker 2: gold in actual, physical, easy-to-access gold, just in case all
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  Speaker 2: the worst things really happen all at once, and then
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  Speaker 2: you have your gold. But you can also, you know,
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  Speaker 2: gold in a ETF or ETC with a good provider
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  Speaker 2: is a pretty safe way to do. Yes, you are
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  Speaker 2: inside the financial system. Yes, you do have custodian risk
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  Speaker 2: and management risk and financial risk to the extent it's
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  Speaker 2: entirely possible that your provider might become insolvent, might go bust,
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  Speaker 2: and then it'll be difficult for you to reclaim your money.
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  Speaker 1: But the gold is there. The gold is there.
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  Speaker 2: And while you don't have an individually allocated bit of gold,
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  Speaker 2: you have a share of the existing gold.
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  Speaker 1: So are there risks with it? Absolutely. But the gold
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  Speaker 1: is there.
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  Speaker 2: So yes, you should have a reasonable amount, I think,
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  Speaker 2: as physical gold, because one of the reasons for holding
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  Speaker 2: gold is because terrible, terrible things can happen But if
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  Speaker 2: you're holding it as a protection against inflation or the
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  Speaker 2: general collapse of fiat currencies or repression that doesn't involve
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  Speaker 2: seizing gold, then it's a perfectly good way to capture
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  Speaker 2: that upside.
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  Speaker 1: Is that fair, John?
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  Speaker 3: Yeah, I do think that's fair. I mean, I think
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  Speaker 3: in a funny kind of way, there's a risk appetite
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  Speaker 3: thing going on here. And the honest truth is that
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  Speaker 3: I am not so confident worried about the physical side,
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  Speaker 3: I definitely take your point about if you're genuinely worried
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  Speaker 3: about an apocalypse, if you genuinely want to ensure against
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  Speaker 3: an apocalyptic scenario, then the only answer is to have
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  Speaker 3: some physical gold that you can literally access, which creates
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  Speaker 3: its own problems. It's a pain in the neck to
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  Speaker 3: store and you have to have a safe, things like that.
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  Speaker 3: But if that's what you want, then that's what you
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  Speaker 3: need to have. I'm perfectly comfortable with the idea of
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  Speaker 3: physically gold-backed ETFs don't have any kind of worries about
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  Speaker 3: that and I think it's a good way to get
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  Speaker 3: exposure to the price. But what I would say is
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  Speaker 3: this reader has pointed out that they actually do hold
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  Speaker 3: quite a lot of gold relative to, I guess, you know,
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  Speaker 3: what probably, certainly what your average kind of investor does.
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  Speaker 3: And so from that point of view, I would think that, well,
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  Speaker 3: you're clearly somebody that is worried about this sort of thing.
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  Speaker 3: So yes, you specifically probably have got a lower risk
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  Speaker 3: tolerance for the emergency scenario. So you probably should have
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  Speaker 3: a bit more physical gold literally to hand than you
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  Speaker 3: do at the moment. I guess would be the only
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  Speaker 3: kind of bet I would add to what you said.
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  Speaker 1: Okay, fair enough.
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  Speaker 2: Right, John, here's another one which I actually think is
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  Speaker 2: kind of Interesting. And we've discussed it the other way
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  Speaker 2: around previously. So it's from Tim, and he's writing about
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  Speaker 2: one of the podcasts we did recently. This one was
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  Speaker 2: with Lawrence Hulse, who is from Onward Opportunities, basically invested
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  Speaker 2: in small caps. And along the way in the podcast,
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  Speaker 2: he mentions that him buying the shares supports the businesses
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  Speaker 2: that he's buying into. And Tim says, you hear this often,
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  Speaker 2: but what does it mean in that If you're just
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  Speaker 2: buying shares in the secondary market, it doesn't seem to hold.
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  Speaker 2: So an investment fund buying a stake is just facilitating
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  Speaker 2: the selling of other investors. The funds, the shares just
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  Speaker 2: switch hands, but there's no impact on the firm itself.
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  Speaker 1: Now, that is absolutely fair.
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  Speaker 2: And one of the things that we've talked about or
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  Speaker 2: I've written about quite a lot over the years is
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  Speaker 2: that when people sell shares in big companies as a protest,
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  Speaker 2: you know, sell shares in tobacco companies or whatever, it
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  Speaker 2: makes absolutely no difference.
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  Speaker 1: Whatsoever to anything.
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  Speaker 2: Because the capital has already been raised and the company
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  Speaker 2: just carries on as is. But it's different, I think,
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  Speaker 2: if we're talking about small companies who may need to
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  Speaker 2: raise money again in the future. The higher the share price,
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  Speaker 2: the lower their cost of capital effectively. So if they
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  Speaker 2: want to raise more money, they want to issue shares
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  Speaker 2: at a high price. So if you're supporting a smaller
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  Speaker 2: company that may need an injection of capital, then simply
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  Speaker 2: by buying and holding the shares, you are to a degree,
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  Speaker 2: supporting them. So that does kind of work. And also,
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  Speaker 2: of course, but in the same way, you're providing them
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  Speaker 2: with the ability to pay their employees with some kind
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  Speaker 2: of equity stake or some kind of option stake, which
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  Speaker 2: we don't necessarily always approve of, but nonetheless is a
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  Speaker 2: positive for company management. So I'd say that if you're
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  Speaker 2: right down the bottom of the market cap structure, that
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  Speaker 2: can work. And if you look at the other way around,
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  Speaker 2: one of the things that we've talked about, quite the
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  Speaker 2: other way around, but with bigger companies, we've talked previously
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  Speaker 2: about The way that passive pushes shares in some companies
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  Speaker 2: up to what appear to be unreasonable valuations.
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  Speaker 1: Relative to their business.
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  Speaker 2: And one of the things that that does is a
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  Speaker 2: misallocation of capital on the other side. And it allows
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  Speaker 2: companies to raise large amounts of money very cheaply when
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  Speaker 2: maybe they wouldn't have otherwise.
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  Speaker 1: So it holds in that kind of place. You have
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  Speaker 1: to be.
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  Speaker 2: Raising capital or be needing at some point to raise
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  Speaker 2: capital for it to matter. Have I explained that well
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  Speaker 2: or I have made a complete mess of explaining it? No, no, no.
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  Speaker 3: I think you've explained the practical side of it really
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  Speaker 3: well there. But also there's the other point of when
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  Speaker 3: you go public, there's an element of doing that for
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  Speaker 3: profile as well. And it's one thing if you're BP,
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  Speaker 3: you don't need the profile. But if you're a kind
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  Speaker 3: of small cap that's just going public on aim or
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  Speaker 3: even at the bottom end of the footsie, then at
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  Speaker 3: least one of the reasons a lot of companies do
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  Speaker 3: that is to get some kind of exposure and some
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  Speaker 3: kind of profile and obviously investing in it is is
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  Speaker 3: a good way to kind of like help them on
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  Speaker 3: that front as well you know i know the other
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  Speaker 3: point that we're always talking about is if we want
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  Speaker 3: to have companies that uh you know british people if
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  Speaker 3: you like kind of benefit from as opposed to you
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  Speaker 3: know buying into spacex once it's already made a trillion
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  Speaker 3: percent on the private market then this is the kind
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  Speaker 3: of thing that we want to encourage. And that's getting
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  Speaker 3: away from what Tim's asking to an extent. But if
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  Speaker 3: you want to have a thriving ecosystem of businesses, then
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  Speaker 3: they need to know that they can go on the
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  Speaker 3: market and someone's going to be interested in their shares.
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  Speaker 3: Because if they don't, then if Lawrence House isn't buying them,
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  Speaker 3: then who is going to buy them?
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  Speaker 1: What's the point?
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  Speaker 3: Yeah, this is the other issue. Why have a market
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  Speaker 3: at all?
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  Speaker 1: Okay. All right. I think we're agreed on that.
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  Speaker 2: Right.
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  Speaker 1: One more question before we finish up today. This is
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  Speaker 1: from Robert in Sevenoaks. Thank you, Robert, for your question.
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  Speaker 1: By the way, Robert says that you're great, John. So
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  Speaker 1: that's nice.
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  Speaker 2: He is suggesting that we do some podcasts or even
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  Speaker 2: just talk about how you manage a tricky 10 years
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  Speaker 2: before you actually start taking your pension, assuming you have
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  Speaker 2: a DC pension that's inside a SIP wrapper, for example.
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  Speaker 2: How do you balance the move to less risky assets
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  Speaker 2: while at the same time acknowledging you may be investing
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  Speaker 2: for 13 more years? Now, Actually, we should do a
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  Speaker 2: proper podcast on this, but there is one thing that
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  Speaker 2: I wanted to say about it, which is that, of course,
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  Speaker 2: you can bring your risk levels down. You become increasingly diversified.
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  Speaker 2: Maybe you move more into equity income, etc. So there's
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  Speaker 2: lots of things you can do to bring down your
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  Speaker 2: risk while being fully invested. But the one thing that
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  Speaker 2: I would say is this is a time to have
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  Speaker 2: more cash or cash equivalents. So as a younger investor,
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  Speaker 2: we always say, you know, maybe you should have six
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  Speaker 2: months worth of spending money in cash. That makes sense.
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  Speaker 2: and then the rest of your money, you have time
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  Speaker 2: for it to grow. But if you are older, it
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  Speaker 2: seems to me that you should have quite significantly more
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  Speaker 2: of that, either in cash or short-term gilts.
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  Speaker 3: Yeah, and I think the other thing to remember is
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  Speaker 3: that it's moving from, because when you're younger, you're investing
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  Speaker 3: for growth, but the older, perhaps not the older you get,
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  Speaker 3: the closer you get to your retirement goals or whatever
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  Speaker 3: your financial goal, the more you should be focusing on, okay,
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  Speaker 3: I've made it, now can I protect it? So the
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  Speaker 3: kind of wealth protection element. So having a kind of
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  Speaker 3: clear idea how much you think you need is also
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  Speaker 3: really helpful there, because then it gives you the confidence
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  Speaker 3: to do the kind of de-risking that perhaps you need
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  Speaker 3: to do. Because it's hard, it's hard to shift out
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  Speaker 3: of that mode of like, oh, I want to make
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  Speaker 3: X percent and realizing, well, actually, what I've got is
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  Speaker 3: just about enough. So maybe I should be looking for
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  Speaker 3: something that delivers Y percent instead.
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  Speaker 2: And that's particularly the case if historically you've found investing
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  Speaker 2: to be.
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  Speaker 1: Kind of fun.
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  Speaker 2: You know, there's an experience.
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  Speaker 1: It's not so much fun, right?
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  Speaker 2: Maybe you have to do what we always suggest people do,
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  Speaker 2: which is that you move The majority of inter, more diversified,
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  Speaker 2: more income generating, et cetera.
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  Speaker 1: And just keep a little bit for playing. Yeah.
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  Speaker 2: Yeah. Anyway, we should do a full podcast on this
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  Speaker 2: and we'll try and find a proper expert to come
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  Speaker 2: and talk to us about this.
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  Speaker 1: Anyway, more questions, please send them in. We like them.
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  Speaker 2: And also it makes us think, which is useful. Thanks
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  Speaker 2: for listening to this week's Merrin Talks Your Money. If
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  Speaker 2: you like our show, rate, review, and subscribe wherever you
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  Speaker 2: listen to podcasts. Also be sure to follow me and
• 10:49
  Speaker 2: John on X at MerrinSW and John underscore Steppick.
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  Speaker 1: This episode was produced by Sam Asadi and Moses Andam.
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  Speaker 2: Questions and comments on this show and all our shows
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  Speaker 2: are always welcome. Our show email is merrinmoney at bloomberg.net.