HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
In the last two issues, I discussed why I feel we are in a bull market in the precious metals that still has years to run and why your core position should be US-minted Gold and Silver Eagles in your personal possession. In this issue I will describe how you can invest in the precious metals in your brokerage account.
The ETF (Exchange Traded Fund) GLD should be the core precious metal holding in your brokerage account. Each share represents 1/10th ounce of physical gold. GLD currently holds more than 1,000 tons of gold in their vaults, making it the 6th or 7th largest holder of bullion in the world. IAU has come along more recently and also represents 1/10th ounce of gold.
SLV represents 1 oz of physical silver.
Just recently “double” or leveraged precious metals ETFs have appeared. DGP moves twice the price of gold, AGQ moves twice the price of silver, and DLL moves twice the inverse of gold, i.e., if gold goes down, GLL goes up at twice the rate. I mention them mostly for completeness. I would consider them a tool for very sophisticated investors making short-term trades.
Note that the IRS taxes gains on GLD and SLV at the “collectibles” tax rate, which is higher than the standard long-term capital gain rate. Discuss this with your accountant. This is not an issue in a retirement account.
The miners are “leveraged” to the price bullion, i.e., in bull markets they go up more and in bear markets they go down more than the underlying metal. If you have the time to perform your own research you can invest in individual issues. For most investors, it is best to diversify your investment via the ETF GDX, which represents a basket of the largest miners.
The “junior” miners are the smaller, exploration-oriented, more speculative companies. Say their production costs are $1,400 per ounce. At current gold prices they are unprofitable and sell for 50 cents per share. But if gold goes to $2,000 per ounce, their share price could rocket to $10 per share. The ETF GDXJ is a basket of the “juniors”.
The core position of the precious metals in your brokerage account should be gold bullion (GLD), with probably some exposure to silver (SLV) and the miners (GDX): For example; ½, ¼, ¼ respectively. When gold and silver break to new highs, you may wish to add to your positions of SLV and GDX, since they will probably out-perform gold.
As mentioned in previous issues, if you watch just one precious metal stock, I suggest Silver Wheaton (SLW, chart below). It continues to hover around its all-time high. If it breaks out, I would expect all of the precious metals to follow. If it breaks down, it could mean bad things for the market, and the economy.
I receive a good number of emails, and try my best to answer them all. Several recent emails raised interesting points worthy of detailed discussion. I will make them the subject of next week’s letter.
RMD
In January I received a notice from the IRS to provide documentation for Schedule C (expenses) for my 2007 return. It is the first time I ever received a request and have never been audited. I suggest the following when dealing with the IRS:
1) Pay Caesar what is due Caesar. If you cheat on your taxes, you will experience the fury of the most powerful agency of our government. No one, regardless of income, should cheat, but if you make the average physician salary ($250K) and cheat, you deserve whatever happens to you.
2) Keep detailed records. Save everything. No matter how honest you are, if you don’t have adequate records, you are sunk. I was able to document every penny. As a result, there was no change in my 2007 tax assessment.
3) This is just my opinion; others may have a different philosophy. Consider the IRS to be the out of bounds line in basketball. Some people are willing to go right up to the line, to take their chances on questionable deductions, etc. The IRS scares the heXX out of me; I want nothing to do with them. If my accountant says something is on the borderline, I say forget it.
4) Deal with the IRS through a third party, such as your attorney or accountant (Note: what you tell your accountant is not privileged, and thus protected, information). This provides a layer of protection. Lying to an IRS agent is perjury, and you will be prosecuted.
5) The IRS must function in a cost-effective way. They want to generate a profit for their efforts. They cannot afford to spend thousands of dollars worth of their time for $10.
6) If you deal with an IRS agent directly, remember that they are people too. Treat them nicely and with respect.
There were three consequences of WW I, the Great War:
1) It set the stage for the rise of Hitler, and ultimately WW II.
2) It saw the rise of Communism; in my opinion, the greatest evil foisted upon humanity in the Twentieth Century.
3) It saw the disappearance of the European hereditary monarchies, and over the next half-century, the dismantling of their empires.
I am reading George, Nicholas and Wilhelm: Three Royal Cousins and the Road to World War I (Carter, Knopf). What a scathing comment on the aristocracy.
“The intricacies of dress were an expression of the pointless arbitrariness and the leisurely emptiness of court life…the more arbitrary and pointless the rules, the more complicated and peacock-like the uniforms, the more differentiated they (the nobility) were from the common herd…By the 1890s, the courts had become disengaged in all senses from the rest of society, and their labyrinthine pointlessness…seemed to have grown in inverse proportion.
The obsession with appearances …and the insistence on certain rules and conformity of behavior had more sinister consequences than mere pointlessness and triviality. It almost guaranteed that a kind of hypocrisy became encrusted in the culture of the court and the upper class…
The (Russian) imperial household and the imperial court consisted of 16,500 persons, mostly servants…There were hundreds of court officials: 287 chamberlains (an attendant on a sovereign or lord in his bedchamber-Webster’s), 309 chief gentlemen-in-waiting, 103 stewards…”
RMD comment: It’s easy to see why people came to the United States, or as in Russia, revolted.
In the last letter, I talked about high school basketball, with special mention of Win Wilfong, who led Puxico High to a Missouri state championship, led the nation in rebounding at Memphis State, and played 4 years of pro ball.
This is from a subscriber:
“Win lived in Mexico, MO in the 60s and 70s (after his pro playing days were over). He attended our church and was the star pitcher on our fast pitch softball team. He was a quite and unassuming guy, but obviously a tremendous athletic talent. I caught for him and remember two pitches he threw that were rarely hit. One looked like it was coming in chest high at 90 mph and then 3 ft in front of the plate drop out of sight. The other was a knuckleball that floated all over the place. He threw so hard that by the end of the game the fingers on my catching hand were so swollen it was difficult to hold the bat”.
M.N., MO
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