Do you think it would be wise?

[Rand]

Given the turmoil and uncertainty in the financial markets do you think it would be wise to pull enough cash for a few months expenses out of the bank and stash it in a safe?

I know the govt is 'guaranteeing' deposits up to 100,000 with the FDIC but how much can we really trust the government? I'd like to but I fear that might ultimately be foolish.

Looking back at history suggests that perhaps the wisest course of action is to buy gold coins. If things really do collapse the coins will still have value. The paper money could turn out to be worthless.

I really hope things don't get that bad but at this point I am fearful. I would take a substantial loss if I sold all my stocks and traded them for gold today. I am considering hedging my bets and converting 50% into gold.

Any opinions?

What are you doing to protect your assets?

[gsmittle]

What are you doing to protect your assets?

Well, usually I wear jeans.

I have NO idea what the best course of action is. I also own zero stock, so I'm probably less personally concerned than most. I don't have a 401 (k), just MO teacher's retirement.

Being close to flat broke has its advantages...

g.

[Kristofor]

Putting cash in a safe won't help you if you don't trust the government to back the FDIC insurance since they can always print the money to cover those obligations. The corresponding devaluation of the dollar would impact your cash on hand the same way as it would in a bank.

Buying commodities like gold may partially isolate you from changes in the dollar but you'd be buying at near record high prices to begin with. Add to that the fact that if the American economy were to collapse to the point of the government defaulting on its obligations the rest of the globe is coming right down with us to a greater or lesser extent. At that point demand for most commodities would also sharply decline lowering its value.

Gold is a bit unique in that it has some industrial uses, aesthetic uses, and a historic monetary use as well so those prices may increase further (or you could be soaked if we ride through this with little further financial disruption, but a significant economic slowdown). For now, I'll take a wait and see approach. I'm not retiring for another 30+ years, and my holdings are already rather diversified so I'll be standing pat on those (even as they fall in value) and will continue to pump more in at the same rate with each paycheck.

[herb fellows]

Remember who owns the printing presses! The government will not 'go broke' per se, they will just decrease the value of the dollar you have saved by printing more of them.
If the government goes under, that's all she wrote, the game is over, the jig is up.
There is no safe haven if the government collapses.

Sorry, I didn't read the above post first, which stated the same thing. Now the delete button isn't working??!

[dbhost]

Given the turmoil and uncertainty in the financial markets do you think it would be wise to pull enough cash for a few months expenses out of the bank and stash it in a safe?

I know the govt is 'guaranteeing' deposits up to 100,000 with the FDIC but how much can we really trust the government? I'd like to but I fear that might ultimately be foolish.

Looking back at history suggests that perhaps the wisest course of action is to buy gold coins. If things really do collapse the coins will still have value. The paper money could turn out to be worthless.

I really hope things don't get that bad but at this point I am fearful. I would take a substantial loss if I sold all my stocks and traded them for gold today. I am considering hedging my bets and converting 50% into gold.

Any opinions?

What are you doing to protect your assets?

Your money is simply a representation of value backed by the government. The government has the authority (and the weapons) to remove tangible assets from individuals, including holdings in Gold.

Pulling your resources from the bank along with the other knee jerks out there will create what is known as a "run on the bank" which will precipitate further decline of the value of the dollar. Meaning the idiots pulling money willy nilly out of the banks, are a necessary ingredient for an economic depression. You may want to read up on the great depression, it's causes, and what ended it (WW-2).

If you act out of fear, you will certainly reap what you sow in that area. Keep your head cool, put your resources where they will do the most good, and get ready for some lean times ahead... Or to quote Hank Williams Jr.

"...we can skin a buck; we can run a trot-line
And a country boy can survive"

And yes, I do fully intend, especially if the economy gets much worse, to spend more time in the field bringing home wild boar, deer, and in certain areas the occasional Ibex. (No joke, a friend has Ibex that have bred unchecked for decades on his land, plenty 'o meat there...).

[Uncle Cracker]

Your money is insured in the bank (up to the limits). What you are proposing is exactly the straw that broke the camel's back and toppled WAMU... the uneasiness of its depositors. They pulled out $16 billion dollars in deposits in 10 days, and blew all the fuses of the banking gods.

[BobSch]

Buying gold might have been a good option some time ago, buut I wouldn't bother right now.

http://goldprice.org/live-gold-price.html

[dbhost]

Speaking of economics, and gas prices and such silliness. I was watching the music video for the old song "Cruel Summer" by Bananarama recorded in 1984. The opening scene the girls are working in an old style full service gas station, and the price of regular unleaded gasoline was $1.489 (why the 9/10 anyway?). Let's look at this in perspective shall we?

This morning, gasoline at the Chevron station by my office, for regular unleaded was $3.699. Doing a little math comes up with...

$3.699 / $1.489 = 2.48... Rounded up 2.5. So effectively we are paying 2.5 times the 1984 cost... Do the math with other items that were new in 1984.

1984 Mazda 4cylinder SE5 regular cab pickup, MSRP $4,999.00
2008 Mazda 4cylinder SE5 regular cab pickup, MSRP $18,200.00

18200.00 / 4999.00 = 3.69...

New construction 4br home in League City TX (Average, not my house as an example, but data from real estate research in my town...) Similar neighborhoods, schools, features, etc... In 1984 $40,000.00, current value of THAT house if kept up, $160,000.00, new construction of similar home in same area averages $200,000.00 (cost of living is one reason I put up with hurricanes). A casual glance shows that is 4-5 X higher...

Median Household income for my town, in 1984, $25,000.00, in 2008 $100,000.00 a 5x increase.

Assuming League City is reasonably typical of the nation as a whole, the effective purchasing power of the average household in regards to energy has INCREASED substantially since 1984...

Just some odd ponderings...

[stocktr8er]

You must remember there are a couple different things happening right with the financial system.

The crisis is not that the banks are failing, it is a loss of liquity. The banks are not lending to anyone. The Fed is pumping liquity at unheard of quanities. There exists a "plug" in the system surrounding the bad morgages. How to break this plug is the base of the the bailout agruement happening in Congress right now. If they cannot free the lending cycle, Mom & Pop business will start to fail from lack of funding sources. That will lead us directly into a depression type era. It is not the failure of Wall Street but the Failure of Main street that needs to be feared.

Like UC said WaMu failed beacuse of the run to the bank. And to what end, people went to sleep with an account at WaMu and woke up as JP Morgan clients. Business as ususal.

We have had 15 banks fail in all this. In the 30's the rate was 1000+ a year.

Also gold ran up 20% in a week. Run up by fear and speculation. It is near a near term high. I would consider that a risky position. After the quick run up in the late 70s, gold spend a little over 20 years trending down.

I know one has to be in a position to sleep at night and that may be all in cash in the coffe can hidden in the back yard. I would just caution you to make desions by turning off CNBC and the media and use your head. Running with the herd usually componds the problem as with the case of WaMu.

[Rand]

I thought WAMU got in trouble because it was the largest subprime lender? The stock had been shorted to death and people didn't trust it anymore.

I really am trying to use my head. I just don't know what the smart thing to do is in this case.

I hear you about running with the herd.
I just don't want to be the one stupid gazelle staring stupidly at the rest of the herd as they run away from the lion.

[Black wallnut]

Speaking of economics, and gas prices and such silliness. I was watching the music video for the old song "Cruel Summer" by Bananarama recorded in 1984. The opening scene the girls are working in an old style full service gas station, and the price of regular unleaded gasoline was $1.489 (why the 9/10 anyway?). Let's look at this in perspective shall we?

This morning, gasoline at the Chevron station by my office, for regular unleaded was $3.699. Doing a little math comes up with...

$3.699 / $1.489 = 2.48... Rounded up 2.5. So effectively we are paying 2.5 times the 1984 cost... Do the math with other items that were new in 1984.

1984 Mazda 4cylinder SE5 regular cab pickup, MSRP $4,999.00
2008 Mazda 4cylinder SE5 regular cab pickup, MSRP $18,200.00

18200.00 / 4999.00 = 3.69...

New construction 4br home in League City TX (Average, not my house as an example, but data from real estate research in my town...) Similar neighborhoods, schools, features, etc... In 1984 $40,000.00, current value of THAT house if kept up, $160,000.00, new construction of similar home in same area averages $200,000.00 (cost of living is one reason I put up with hurricanes). A casual glance shows that is 4-5 X higher...

Median Household income for my town, in 1984, $25,000.00, in 2008 $100,000.00 a 5x increase.

Assuming League City is reasonably typical of the nation as a whole, the effective purchasing power of the average household in regards to energy has INCREASED substantially since 1984...

Just some odd ponderings...

Although this is interesing looking at the long term and it may not even look that bad. What is a problem though is the timeline of when the increase in energy costs happened. 3 years ago the average price of a gallon of gas or diesel was less than 1/2 of what it was in mid July. The other items you are comparing this too have not changed anywhere close to this.

Wages sure as heck didn't increase enough to compensate for the rising energy costs short term. Frieght rates have not either. The transportation sector is really feeling this and an economic slow down will not help.

Getting back to the OP topic, I think you've been able to read plenty of gret reasons to not withdraw your money in response to panic. Panic breeds panic and results in serious harm. Serious harm possibly to you but surely serious harm to others.

[dbhost]

BW, you kind of make my point for me...

We need to bear with the short term pain, avoid the knee jerk panic, and stick with it to get the long term benefit...

Agreed, the short term increase in energy costs has been EXTREME. Honestly, we had it WAY too easy on energy for a long time as far as price increases go... When I bought my pickup in 2004, regular unleaded hadn't even gotten close to $1.50 a gallon since the mid 1980s, I think I was paying $1.35 a gallon when I filled the truck up the first time... Now, the pump HURTS...

Impatience, greed, and panic are kind of the hallmarks of foolish management, in corporations, small businesses, and personal finance...

There is nothing wrong with wanting to diversify your portfolio, and hedging your bets, but yanking out your cash, dumping it into gold, or some other physical commodity and taking it out of the economic flow, if enough people do it, and the case with WaMu clients they did, will cause serious financial harm to not just themselves, but precipitate a global economic crash that nobody except those with an extreme political agenda want.

I just hope and pray that this is not 1927 playing itself over again just slower, it took WW2 to get us out of that slump. We may not make it through WW3...

[Uncle Cracker]

I guarantee that many people with liquidity are looking at this as an opportunity. That's one reason that JP Morgan Chase grabbed WAMU at fire-sale prices, just like they did Bear-Stearns previously. What the smart people now will be doing is looking to gain a position in any investment that will make money from the disaster (such as those companies who make and market cellulose insulation from shredded incriminating banking records... ).

[cgallery]

I guarantee that many people with liquidity are looking at this as an opportunity. That's one reason that JP Morgan Chase grabbed WAMU at fire-sale prices, just like they did Bear-Stearns previously. What the smart people now will be doing is looking to gain a position in any investment that will make money from the disaster (such as those companies who make and market cellulose insulation from shredded incriminating banking records... ).

Yep, you gotta think like Potter in the movie, "Its a Wonderful Life." Instead of panicking with the masses, look for wise investments. I know it is hard, but you may even think about increasing your contributions into your retirement funds (if possible to do so w/o tax implications).

"Buy low, sell high" is the old adage. Most experienced investors would advise AGAINST selling now.

But one thing you CAN do is reallocate. Selling something you've already taken a beating on is easier to justify if you're using the funds to buy something that you feel has more upside potential as the market rebounds.

[JR]

But one thing you CAN do is reallocate. Selling something you've already taken a beating on is easier to justify if you're using the funds to buy something that you feel has more upside potential as the market rebounds.

That advice goes directly to OP's question. The suggestion to pull 50% out of stocks and put it in gold is a hedging strategy. It implies that gold would be the vehicle with highest performance of all the choices, or at least that it would mitigate the risk of an underperforming stock market.

At that point one should be inject time horizon into the picture, IMHO. If one invested in US stocks in the 1920's, the return would have been greater than with any other vehicle, even when considering the crash of '29 and other calamities. As much difficulty as the financial markets are in, it would seem unlikely that our economy is going to completely collapse with no recovery possible (once again, this is my opinion and each person is encouraged to make his own judgements).

So the question should be "Where will my money do the most good over my time horizon?" The answer lies in simple arithmetic once a few assumptions are made - what will happen to stocks (perhaps with scenarios 1, 2, and 3), what do I think will happen to gold, what do I think will happen to cash.

You can't possibly predict every one of the answers, so the exact ratios are not necessary. A general idea of "mix" is what's necessary.

Personally, I'm still about 60% in stocks, with about 85-90% of that US vs International. The remainder is in cash. I wish I had a higher percentage of cash, if for no other reason than it would keep LOML quiet. She has 20/20 hindsight. Personally, I just don't see running from the market.

But what do I know? If Greenspan and Bernanke can get it wrong, I sure can, too.

JR