Go for gold

There are many blogs about  investment, gold itself and other metals. I would like to write a few words about why I am interested in  gold and silver.

http://www.flickr.com/photos/wikicoins_user_james/

I have been thinking a long time about some investments that would allow me to save money for my retirement, there were a few requirements:

• easily exchangeable all around the world
• 'condensed' (lot of property in small volume)
• time resistant (retirement is a long time perspective)
• resistant to inflation and political turbulences 

This is not a coincidence that gold fits to all this requirements.

Gold's history is also one of the things that speak in favor of its usage as retirement investment. It has been used as the standard for many currencies (known as the gold standard). President Richard Nixon ended the direct convertibility of the dollar to gold in 1971. Now the exchange reserves of majority of countries is the U.S. $, in some countries the Euro, but in European countries it is the dollar again. As a result, the economy is based on paper currency which has no intrinsic value, it is called fiat currency . Some analytics suggests end of gold hegemony is only a matter of time, interesting article about it, some thinks that there would be a great return of gold standard (link).

Maybe in th future I will feel competent enough to cover this big topic in more detailed way

There is a few ways to buy gold: using Forex, buying gold certificates, investing in gold mining companies, gold related investment funds, and last, but not the least, buying physical gold. I decided to choose the last option because it is quite safe. I mean that it is real, physical piece of yellow shiny metal. The crash of electronic trading system or very strong sun storm and, as a result global loss of digital data, do not lead to the loss of my property. I can travel with it, sell ti wherever I want, ti always has its value as an metal. If someone planned to buy quite a lot of gold there could be a problem with a storing. In my case it is not, see monthly incomes. :)

First thing that came to my mind was: "How can I check if the piece of metal I bought is really the gold?" Here comes the next advantage of gold. It is unique as an element. Its density is ~19.30 g/cm3. If a debaser wanted to add something it would be wolfram or platinum. In case of platinum it is not profitable (for debaser of course), in case of wolfram it is really hard and the difference could be noticed in case of 1 oz coin or billet. If  the density of pure gold is unique I can just measure it. It was the first approach, but because my choice is a coin and because of its rough surface it was not so simple, but also not needed. My method is simple. Bullion coins have unified size and weight, measuring those values is enough to be 99.9% sure. Before taking any actions I decided to educate a bit. I found a very good site about investment in precious metals but unfortunately in polish (link). There is an article about gold testing. One of also considered methods was the Fisch, but the first approach is cheaper and reliable enough.It is also worth to mention that first coin should be bought in a trusted shop. Of course, it should be also tested to reduce the probability of buying forgery. Next coins could be bought from other, cheaper sources. They should be carefully tested and compared to the pattern (first coin).

As I mentioned before, my choice is a coin, Why? Because it is easier to sell it if needed, it is also harder to falsify.  I decided to buy Vienna Philharmonics bullion coin (same as at the picture). It was the cheapest, available, pure gold coin. No I am happy owner of two 1 oz coins.

   
Now a few words about silver.
Silver is a more common element. There is approximately 17.5 times more Ag than Au  on earth. On 11.02.2011 the price of 1 oz. of gold was worth 1259 $, 1 oz. of silver 30 $, the ratio is 41.9. If we assume that both silver and gold would have their value dependent on their availability silver is undervalued more than two times. Of course such assumption should not be treated 100% serious, there are many more dependencies than this one, but it could be one of  factors which make silver attractive for investment.

http://www.flickr.com/photos/bullionbonus/

Silver has longer history than gold because it was easier to obtain. Similar to gold, it was a standard for currency. If we compare prices in last 60 years it could be seen that silver is less stable. A few years ago people started to get interested in silver as an investment, similar as gold. It has a few disadvantages.One of them is oxidation. Contrary to gold silver oxidize in normal conditions. Second is the fact that in case of silver the asset is less condensed. There is also some confusion about silver, for example Marks Keiser's action: "buy one silver coin".

All in all, In my opinion silver could be good alternative to gold. My plan is to have equal amount of money located in silver and gold. This plan is not executed yet, because I had a opportunity to use money in more attractive way. I am going to return to my plan as soon as I will have enough relatively free money. I decided to buy American Silver Eagle, it was a bit more expensive than Vienna Philharmonics, but I would like to be independent from bullion coin producer. The strategy of testing is similar as in the case of gold.

Microeconomics: incomes, expenses, free resources

To not decrease income it is worth to now how big it is. Today it is easy to calculate. My mainly source of income is my full time job:

INCOME = 1184 $ monthly

It is very close to average salaries in Poland (gross). It was my requirement when I was looking for a job: have clear income at country average level.

I have some additional incomes: benefits in my company and income from financial market.
I treat financial markets rather like a school, so I am a bit over zero. 

This additional sources are so low that I will omit it in further analyze.

There are basically two ways to increase amount of 'free' resources. First is to increase income, second, to reduce expenses. Simple, isn't it?

www.flickr.com

My monthly expenses:  

apartment:	114 $
life costs (food etc.):	200 $
entertainment (books, tickets etc.):	100 $
latte factor:	50 $
PhD studies:	20 $
other (gifts for Christmas etc.):	50 $
_____________________________	_____
EXPENSES TOTAL:	534 $

I do not put into practice any of my dreams expect PhD studies, so the rest is assigned as savings.

SAVINGS = INCOME – EXPENSES = 650 $

Let check if something could be reduced.

• First of all, latte factor (money spend on small pleasures). I could resign from "latte" once a week, but is it really the point?
  I started this blog because I would like to work less, live and enjoy my life. I assume reduction of expenses only if I have to invest some money in new, alternative, less time consuming source of income.  

• Life costs: here I have a big field to act. If I will spend less time in the office it will be possible not to eat in restaurants or bars and prepare food by myself. It does not look fantastic, but believe me it is really a lot. It is healthier, cheaper and this pleasure. Yes, I love cooking! 

Now it is time for second possibility: bigger income. This target could be reached in many ways:

• The simples - changing the job. I have 8 months of experience in elite embedded systems project, probably I will earn much more in my second job, but…
  New job == more time spent on enabling, more time to show new boss "Hey! I am worth money you pay me!"  This is not my goal.

• Start own company. It gives the comfort of being own boss, no limitation of work hours, but...
  It is really hard to find the gap in the market and beat the competitors. Practically I will spend much more time leading my own company than just working as a corpo-slave. Second thing – money: at the begging the income will be, most likely, negative. In case of success path and long time horizon income would be much bigger than normal salaries in corporation, even when we take at account possibility of promotion. Maybe good solution, but it is risky. I could loose the best years of my life to creating something I couldn't enjoy. I am scared thinking about time when I could consume earned money. 

• Last possibility: remote job, as contractor or freelancer. It is very demanding, without enormous self-control success is probably impossible, but…
  At he moment I think it is only way. How I imagine my remote job, what I am planning and much more in next posts.

That is all for today. About savings there, for sure, will be independent post.