Bitcoin and Gold: The ETF Conspiracy
One of the things that makes me different from other financial educators is that I don’t tell you what to buy or what to invest in. Instead, I teach why an opportunity is good and we show you how many different things there are to invest in.
Real estate may be a good fit for many investors but it’s not a great fit for all investors. Stocks may make a lot of sense to most people, but certainly not all. A good investment vehicle (stocks, real estate, business, commodities) needs to fit with your lifestyle, your personality, and your philosophies.
No investment vehicle is one size fits all.
Unfortunately, due to a lack of financial education in schools, most people blindly turn their money over to people they believe are financial experts: people such as bankers, financial planners, and stockbrokers.
But most of these “experts” are not investors in the I quadrant. Most are employees in the E quadrant working for a paycheck, or they are self-employed financial advisors in the S quadrant working for fees and commissions.
Most “experts” cannot afford to stop working, simply because they don’t have investments working for them.
What are ETFs?
Warren Buffett said, “Wall Street is the only place where people ride to work in a Rolls Royce to get advice from those who take the subway.”
Most Es and Ss are retail investors who invest in stocks, bonds, mutual funds, and exchange-traded funds. Professional investors are people who manufacture their investments or invest at wholesale prices. The people who say, “You can’t do this” are Es and Ss who invest in paper assets.
Paper assets are made up of stocks, bonds, mutual funds, insurance, annuities, savings… and the increasingly popular exchange-traded funds.
Today I want
What exactly is an ETF?
The first gold ETF launched was Gold Bullion Securities, which listed 28 March 2003 on the Australian Securities Exchange,
ETFs were intended to be an alternative for the investor who did not want to hoard physical gold or invest in gold mining stock. The gold ETF made it easier for investors to invest in gold.
A gold ETF is like the old U.S. money, a piece of paper backed by gold, known as a gold certificate. The difference is an ETF can go up and down with the fluctuations in the world price of gold.
Does a gold ETF Have a Secret Vault in a Mountain Full of Gold?
According to ETF Database: “Physically Backed Gold ETFs seek to track the spot price of gold. They do this by physically holding gold bullion, bars, and coins in a vault on investors’ behalf. Each share is worth a proportionate share of one ounce of gold. The ETF’s price will fluctuate based on the value of the gold in the vault.”
For example, The SPDR Gold Shares ETF (GLD), one of the largest gold ETFs, held roughly 36.49 million ounces at vaults in London and other locations, as of June 2020. Each share of the ETF is worth 0.093995 ounces of gold.
However, you do not own the gold asset. You never actually own the gold bar or coin. They’re contracts that can only be redeemed for cash.
Moreover, ETFs can legally sell gold and silver they do not own. It is estimated that for every ounce of real gold an ETF has, the ETF may sell a hundred ounces of fake gold.
How is a Bitcoin ETF Different From a Gold ETF?
Just like the gold ETF, there are Bitcoin ETFs, and just like the gold ETF tracks the value of gold, the Bitcoin ETFs track the value of Bitcoin and trade on traditional market exchanges rather than the cryptocurrency exchanges.
As I type this, in the U.S., crypto investors are awaiting a decision from regulatory agencies to approve a crypto ETF.
In an article from over the weekend, Fortune.com says,
“One obstacle for Bitcoin ETFs, is ETFs, by definition, trade on exchanges, which are subject to work week-hour trading restrictions. Cryptocurrencies, on the other hand, can be bought and sold at all hours of the day, any day of the year — it’s one of the many benefits.
The problem with the work week-hour trading restrictions is, should the price of Bitcoin abruptly plummet on a Saturday, investors in a Bitcoin ETF would theoretically be trapped in that fund until the market opens on Monday. Should it spike, they’d have to wait to trade for a profit.”
The volatility in cryptocurrencies makes a crypt ETF less appealing than that of its commodity counterpart.
Why I Prefer to Own the Commodity, not the Derivitive
If there’s anything to be learned from the last few years of the current financial mess, it’s that nothing is guaranteed. And that includes all the long-term investments that your financial planner will encourage you to buy, such as ETFs.
It’s worth noting that financial planners didn’t exist until about forty years ago when people were forced to take control of their own retirement funds through vehicles like the 401(k). Financial planning is an industry created by the banks to make money off the financially illiterate.
Nearly every financial planner will tell you that to be financially secure, you must diversify. Unfortunately, what they mean is not true diversification. Rather it is diversification in only one asset class, paper assets — the class where banks make big money in the form of fees. Virtually ignored are the other asset classes, real estate, commodities, and business.
For all the reasons above, are the reasons I prefer not to own ETFs but rather the actual asset itself. I do not trust anything paper. Anything paper is a derivative, something that requires a counterparty for value.
Gold and silver are finite resources. The government can’t create more whenever they want to.
They are also true money, meaning they have intrinsic value and can be used to purchase other items that have value.
Gold has been valuable throughout history. The value of currencies used to be determined based on the amount of gold the government had stocked away. It’s familiar, safe, and it will always be valuable. As a hedge against a weakened currency and inflation, gold can be a good investment.
I believe everyone should have a little gold in their investment portfolio, as a hedge against future financial turmoil. When it comes to investing, a hedge is like insurance. It is used to offset possible losses. It’s like a financial fence for your investments and it’s available in almost every one of the five major asset classes you could invest in.
This does not mean you should not invest in ETFs or mutual funds. As I stated in the beginning, these paper assets have certain advantages for diﬀerent people.
Play it smart,
Editor, Rich Dad Poor Dad Daily