(Money Magazine) -- Question: I took some money from a maturing CD and bought gold when it was selling for around $800 an ounce. How can I know when it's a good time to sell this gold and reinvest elsewhere? And what should that elsewhere be? --Christine, Cocoa Beach, Florida
Answer: There are plenty of people who are willing to speculate on where the price of gold is headed.
Indeed, two luminaries of the financial world -- investing guru-motorcyclist-bowtie buff Jim Rogers and New York University economist Nouriel "Dr. Doom" Roubini -- squared off on this very issue late last year. Rogers predicted that gold would rise to $2,000 an ounce, while Roubini called that notion "utter nonsense" and said it would settle in at around $1,100 or so.
But, frankly, I don't think I'd be helping you by jumping into the fray.
For one thing I believe that trying to figure out the best time to enter and exit the gold market makes about as much sense as trying to time the stock market -- i.e., none at all.
Besides, even if you manage to get out of gold at an ideal time, you still have the other half of your question to address: Where do you put the proceeds from the sale?
But trying to predict which of the many different investments available is likely to take off is another Mission Impossible.
If you don't believe me, check out this chart, which ranks the performance of eight different asset classes year by year for the past 20 years.
Note how often the top performer changes. Yes, there are periods when one asset class repeats. But notice how an investment that's at the top one year can also slide down the rankings in subsequent years.
But I think the question you've really got to ask yourself is, given the whole lotta shakin' going on in this chart, would you really feel confident about predicting next year's ranking for any investment?
And, remember, we're talking about only eight asset classes here. The task gets exponentially more difficult if you start throwing in gold, real estate, dozens of arcane ETFs and all the other investments out there vying for investors' attention.
Okay, so now that I've told you I think you're taking the wrong approach to your investing, what do I think you should be doing?
Basically, I believe you need to shift from a "serial" method of investing -- ever ready to move your money from one investment to another -- to a "spread your money around" approach that involves holding a variety of different assets at the same time. Or, as this strategy is better known, building a diversified portfolio.
The problem with being a serial investor is that you're always faced with the same question: When should I get out of my current investment and where do I go when I do? I see this approach not so much as a strategy as a never-ending guessing game.
If you feel confident about playing that game -- or working with any number of advisers who are more than eager to play it for you for a fee or commission or both -- fine. Go ahead. But I think your odds of consistently getting both answers right -- i.e., knowing when to get out and knowing what to get in -- are slim, notwithstanding the fact that you've done well (up to this point) in gold.
If you go the diversification route, on the other hand, you'll bypass the guessing game. Instead, you'll have a plan. You'll put together a mix of different investments -- starting with stock funds, bond funds and cash as the basic building blocks -- that makes sense given how much risk you're willing to take and how long you plan to invest.
Granted, with this approach you won't hit any home runs since you'll never have your entire portfolio in the top-performing investment. Then again, you won't strike out either, as you won't be in the position of having all your money in an investment that you thought would be a winner but turned out to be a dog. That's important because investing success doesn't come down only to racking up gains; avoiding losses resulting from big bets that go wrong also matters.
By the way, if you're so inclined, your diversified portfolio can certainly include gold -- or real estate, commodities or any number of other investments (although you don't want to go crazy and end up with a mish mash). But you would invest in gold or other assets with an entirely different mindset than you have now.
Rather than buying gold with an eye of jumping out at the right time, you would simply keep a certain percentage of your portfolio in gold (or, for more convenience, gold or precious metal mutual funds) and then rebalance back to that percentage every year.
After a year in which gold has soared, you would sell a portion of your stake; after years in which gold loses value, you would add to your holdings to get back to that pre-set percentage. In short, you would become a bit of a gold contrarian, selling some when others are ga-ga about gold and buying when others shun the metal.
You can argue about what that percentage should be, but I'd say it should be relatively small, say, 5% to 10% of your overall holdings. That should be enough to provide a bit of hedge during periods of extreme upheaval or when inflation fears spike, yet allow more traditional assets to boost your portfolio's value during the majority of time when the markets aren't in crisis.
The main point, though, is to break out of this "When do I sell what I own and what do I then buy?" mode. Because if you don't, you're relegating yourself to asking that question again and again and again.
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|Overnight Avg Rate||Latest||Change||Last Week|
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|30 yr refi||4.47%||4.37%|
|15 yr refi||3.48%||3.41%|
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