Author Archives: Jacob Gold

Jacob Gold

About Jacob Gold

Jacob Gold is a best selling author and Certified Financial Planner. He regularly appears on a number of media outlets, including The Wall Street Journal, Time magazine, Newsweek, The New York Times and CNBC and Fox Business. He and his company, Jacob Gold & Associates, manage the investments for several publicly traded companies and high net worth individuals. Contact Jacob at jacob@jacobgold.com.

After A Long Recession, Over-Spending May Be Tempting

After A Long Recession, Over-Spending May Be Tempting, But Consumers Beware

The desires of the American consumer have changed over the last few years. This concept is not difficult to imagine since the United States has suffered it’s worst economic downturn since the Great Depression. People have been forced to appropriately distinguish the difference between needs and wants.

Prior to the recession, the American consumer was living an unsustainable lifestyle while real estate prices were escalating. People were spending money as if they had their own personal printing press. In reality they did, it was called a home equity line of credit. Excess access to money created an irrational consumer, one who boasted of the ability to customize goods, cars, clothes, jewelry, etc. Consumers got to the point where they became addicted to the process of buying something new, just because they could.

Today, most people feel the opposite; they have a new respect for money and they feel that less can be more and that frugality is the new chic. Perhaps a near-death experience, economically speaking, is just what the consumer needed in order to fully respect the tremendous responsibility of proper money management.

Unfortunately, many people have a short-term memory. They will quickly forget their valuable lessons as the economic landscape slowly improves. They will feel they sacrificed when they had to, but now that things are economically improving, they will feel they can reward themselves. As wrong as this rationale is, millions of consumers will have a sense of entitlement as we enter this holiday season.

Target, the nation’s second-largest retail chain, told the Financial Times recently that it predicts this holiday season should be its best in three years. Target bases its prediction on the enormous pent-up demand of the consumer.

Consumer spending of course is a double-edged sword. On one hand, you want consumers to spend; they represent 66 percent of the nation’s GDP. On the other hand, you want Americans to save more because it creates more economic stability.

This holiday season will be interesting to follow. My hope is that the consumer spends prudently and does not fall back into the same spending trap as before.

Investing advice

Investors Can’t Avoid Risk, But They Can Minimize It With Education

For most investors, retirement plans took a turn for the worse, specifically in the last few years. They are faced with more challenges and require more discipline when planning for their “nest egg.” Many can remember when they were able to focus on basic techniques such as saving and investing to earn a conservative return. Today, this is not the case.

There are many more factors when investing that are out of our control. There are more influences from our government, politics, financial institutions and international economies. There has always been and will always be a mixture of economics and politics that will affect our economy. However, in the last few years we have seen much more government involvement than usual. Monetary and fiscal policy, which for years have helped to navigate our economy, now play an even larger role. What does this mean for the individual investor? A lot. This requires more responsibility, planning and action from investors.

Investors’ risk today is substantial. We can, however, reduce some of our risk by keeping involved and planning appropriately for our retirement needs. Many of today’s risks include inflation, interest rates, the economy, markets, and now real estate. To reduce risk we must understand it. We then can begin to develop techniques and strategies to limit our risks. I would first recommend that you to seek the advice of a financial planner and have active communication with him or her regarding your goals and needs. I would like to point out that active communication is critical, so as an investor you can evaluate all of your financial decisions objectively throughout your planning process.

Recently, many investors have been tested on their strategies and techniques for investment planning. Hopefully, they can benefit from the downturn they have experienced in the last couple of years and learn from it. If investors pay extra attention and educate themselves about the risks of today’s market, they can prepare for future economic changes.

We will all certainly face new and unknown challenges in our future; systematic risk is unavoidable. With the right counsel and guidance, one can plan accordingly to avoid big mistakes in investing. These mistakes can be controlled, not by the performance of the investments, but by investor behavior.

Michael CoachellEditor’s note: This month’s personal finance column was written by Michael Cochell, associate vice president at Jacob Gold & Associates Inc. Jacob Gold will return next month.

Coins

Can the Savings Rate Save America?

The financial norms of our society have changed considerably over the past five years. Assumptions surrounding retirement, investment returns and job security have all changed 180 degrees.

Perhaps this recession has been so monumental that it will permanently change the old norms and embrace a new realistic standard. Will this crisis create a new generation of Americans that look at money and entitlement similar to those who lived through the Great Depression?

Prior to this current recession, many people were living a lifestyle that was beyond their means. The Bureau of Economic Analysis stated that in 2005, America was only saving approximately 1 percent of its income. For many, the need for consumption of goods and services dominated their paychecks, so much so that they exhausted their savings accounts, ran up credit card balances and stripped the equity from their homes. You could say that America was living an era of overindulgence.

Today, it seems that people appreciate and respect their money more than they have over the past few decades. If they are currently employed, they are grateful to be able to provide for their families, as well as make sure that every dollar is stretched to its full potential.

Consumers now realize that when economic times become difficult, they cannot depend on banks to lend them money. This is why America is now saving more that 6 percent of its income — we are preparing for the unexpected and unknown.

In my opinion, the more people save, the stronger our economic landscape will become over time.

Of course many economists and Wall Street banks would love for consumers to return to their old spending habits, which would create a quick and bliss recovery.  Our economy is dependent on consumer spending and statistics have shown that the American consumer represents approximately two-thirds of the nation’s Gross Domestic Product. Unfortunately, the fundamental problem of overindulgence would not be addressed if this were to happen. We would only be setting the stage for another crisis in the future.

Fundamentally, it is beneficial to our financial system that Americans are saving more. It is unrealistic to assume that the United States economy will bounce back quickly; it will most likely take a number of years and still produce a high level of discomfort.

A slow recovery is acceptable as long as the consumer continues to make smarter decisions financially and attempts to avoid past mistakes. Perhaps if this positive trend continues, could our country’s best years still be ahead of us?

light reflecting off gold bars

Don’t Count On The Current Gold Rush Lasting

The recent economic recession forced society to relook at what we consider to be financial norms. What was considered reasonable several years ago is now unjustifiable based on today’s new standard.

The comfort of having money in an actual wallet is greater than having a pricey purse to carry it in.

It is possible that the same fear that shifted people’s spending habits is what has driven the price of gold to an all-time high.

In my book, “Financial Intelligence,” I show the historical volatility of the price of gold per ounce. Ten years ago this July, gold was trading at approximately $288 per ounce. Today, gold is now trading just shy of $1,200 per ounce. That is a near 15 percent compound rate of return per year over the last 10 years, while the stock market has gained no ground.

Now that the economy is slowly stabilizing, will gold continue to be a profitable investment? Only time will tell, but history suggests that there most likely will be a decline in price. Everything in this modern economic world is cyclical and vulnerable to corrections.

I am amazed about how many people assume that because gold is a tangible asset, it does not carry any risk. Despite what the late-night infomercials say, there is risk in gold and you should consider that risk before investing in it.

In my opinion, when you start to see repetitive get rich quick TV commercials, you should begin to doubt that “investment.” Remember in the late 1990s when TV commercials were touting that through day-trading stocks you could retire in your 4′s? Or the real estate gurus that told you that you could make millions in real estate if you attended their workshops? Today you can’t watch TV without seeing some type of commercial encouraging you to buy gold.

Given the economic environment that we just experienced, it makes sense that gold appreciated in value. Gold historically has increased in value during times of great uncertainty, but the tide is slowly changing. If the global economy can avoid a double-dip recession, we may see the price of gold revert back to its historical mean.

Apart from winning the lottery, there is no such thing as a get rich quick strategy. It always takes longer that you originally hoped and there are always setbacks.

It is always a wise move to invest in an asset that you feel meets your long-term investment objective and that enhances your diversification. Don’t try to time the market or try to get in on the next big thing; you could do more damage than good.

Bottom line, if you had a crystal ball, you should have invested in gold 10 years ago. Now it may be too late.