Physical Gold, Stocks and Retirement: Your Questions Answered

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News. Welcome to Merrin Talks Your Money, the personal finance edition of Merrin Talks Money.

In these bonus podcasts.

We talk about the best strategies for making the most of your money. I'm Merrin Somerset Webb, and with me, senior reporter and money distilled author, John Steppett.

Hi, John. Hi, Merrin. Don, we get a lot of emails, which we love. We love emails. Send us more emails.

Today, we are digging into the show in books and pulling out some of the questions that listeners have sent us to discuss. Okay, so the first one is one that I know we both have firm answers to it, and it's about from someone who came from one of our fringe shows in Edinburgh. And basically, he holds the majority of his gold through one of the physically backed ETFs rather than owning it directly. Increasingly, he says, he'd been wondering about the risks inherent in holding gold this way and whether some of those risks potentially undermine the very reasons for owning gold in the first place.

So he wants to know how comfortable.

Are we with the idea of physically backed ETFs or ETCs as a long-term way of holding gold.

Now, I have a very clear answer to that, which.

Is that you're holding gold as emergency insurance. So I think that you should have a reasonable amount of your gold in actual, physical, easy-to-access gold, just in case all the worst things really happen all at once, and then you have your gold. But you can also, you know, gold in a ETF or ETC with a good provider is a pretty safe way to do. Yes, you are inside the financial system. Yes, you do have custodian risk and management risk and financial risk to the extent it's entirely possible that your provider might become insolvent, might go bust, and then it'll be difficult for you to reclaim your money.

But the gold is there. The gold is there.

And while you don't have an individually allocated bit of gold, you have a share of the existing gold.

So are there risks with it? Absolutely. But the gold is there.

So yes, you should have a reasonable amount, I think, as physical gold, because one of the reasons for holding gold is because terrible, terrible things can happen But if you're holding it as a protection against inflation or the general collapse of fiat currencies or repression that doesn't involve seizing gold, then it's a perfectly good way to capture that upside.

Is that fair, John?

Yeah, I do think that's fair. I mean, I think in a funny kind of way, there's a risk appetite thing going on here. And the honest truth is that I am not so confident worried about the physical side, I definitely take your point about if you're genuinely worried about an apocalypse, if you genuinely want to ensure against an apocalyptic scenario, then the only answer is to have some physical gold that you can literally access, which creates its own problems. It's a pain in the neck to store and you have to have a safe, things like that.

But if that's what you want, then that's what you need to have. I'm perfectly comfortable with the idea of physically gold-backed ETFs don't have any kind of worries about that and I think it's a good way to get exposure to the price. But what I would say is this reader has pointed out that they actually do hold quite a lot of gold relative to, I guess, you know, what probably, certainly what your average kind of investor does.

And so from that point of view, I would think that, well, you're clearly somebody that is worried about this sort of thing. So yes, you specifically probably have got a lower risk tolerance for the emergency scenario. So you probably should have a bit more physical gold literally to hand than you do at the moment. I guess would be the only kind of bet I would add to what you said.

Okay, fair enough.

Right, John, here's another one which I actually think is kind of Interesting. And we've discussed it the other way around previously. So it's from Tim, and he's writing about one of the podcasts we did recently. This one was with Lawrence Hulse, who is from Onward Opportunities, basically invested in small caps. And along the way in the podcast, he mentions that him buying the shares supports the businesses that he's buying into. And Tim says, you hear this often, but what does it mean in that If you're just buying shares in the secondary market, it doesn't seem to hold.

So an investment fund buying a stake is just facilitating the selling of other investors. The funds, the shares just switch hands, but there's no impact on the firm itself.

Now, that is absolutely fair.

And one of the things that we've talked about or I've written about quite a lot over the years is that when people sell shares in big companies as a protest, you know, sell shares in tobacco companies or whatever, it makes absolutely no difference.

Whatsoever to anything.

Because the capital has already been raised and the company just carries on as is. But it's different, I think, if we're talking about small companies who may need to raise money again in the future. The higher the share price, the lower their cost of capital effectively. So if they want to raise more money, they want to issue shares at a high price. So if you're supporting a smaller company that may need an injection of capital, then simply by buying and holding the shares, you are to a degree, supporting them. So that does kind of work. And also, of course, but in the same way, you're providing them with the ability to pay their employees with some kind of equity stake or some kind of option stake, which

we don't necessarily always approve of, but nonetheless is a positive for company management. So I'd say that if you're right down the bottom of the market cap structure, that can work. And if you look at the other way around, one of the things that we've talked about, quite the other way around, but with bigger companies, we've talked previously about The way that passive pushes shares in some companies up to what appear to be unreasonable valuations.

Relative to their business.

And one of the things that that does is a misallocation of capital on the other side. And it allows companies to raise large amounts of money very cheaply when maybe they wouldn't have otherwise.

So it holds in that kind of place. You have to be.

Raising capital or be needing at some point to raise capital for it to matter. Have I explained that well or I have made a complete mess of explaining it? No, no, no.

I think you've explained the practical side of it really well there. But also there's the other point of when you go public, there's an element of doing that for profile as well. And it's one thing if you're BP, you don't need the profile. But if you're a kind of small cap that's just going public on aim or even at the bottom end of the footsie, then at least one of the reasons a lot of companies do that is to get some kind of exposure and some kind of profile and obviously investing in it is is a good way to kind of like help them on that front as well you know i know the other point that we're always talking about is if we want to have companies that uh you know british people if you like kind of benefit from as opposed to you

know buying into spacex once it's already made a trillion percent on the private market then this is the kind of thing that we want to encourage. And that's getting away from what Tim's asking to an extent. But if you want to have a thriving ecosystem of businesses, then they need to know that they can go on the market and someone's going to be interested in their shares.

Because if they don't, then if Lawrence House isn't buying them, then who is going to buy them?

What's the point?

Yeah, this is the other issue. Why have a market at all?

Okay. All right. I think we're agreed on that.

Right.

One more question before we finish up today. This is from Robert in Sevenoaks. Thank you, Robert, for your question. By the way, Robert says that you're great, John. So that's nice.

He is suggesting that we do some podcasts or even just talk about how you manage a tricky 10 years before you actually start taking your pension, assuming you have a DC pension that's inside a SIP wrapper, for example. How do you balance the move to less risky assets while at the same time acknowledging you may be investing for 13 more years? Now, Actually, we should do a proper podcast on this, but there is one thing that I wanted to say about it, which is that, of course, you can bring your risk levels down. You become increasingly diversified.

Maybe you move more into equity income, etc. So there's lots of things you can do to bring down your risk while being fully invested. But the one thing that I would say is this is a time to have more cash or cash equivalents. So as a younger investor, we always say, you know, maybe you should have six months worth of spending money in cash. That makes sense.

and then the rest of your money, you have time for it to grow. But if you are older, it seems to me that you should have quite significantly more of that, either in cash or short-term gilts.

Yeah, and I think the other thing to remember is that it's moving from, because when you're younger, you're investing for growth, but the older, perhaps not the older you get, the closer you get to your retirement goals or whatever your financial goal, the more you should be focusing on, okay, I've made it, now can I protect it? So the kind of wealth protection element. So having a kind of clear idea how much you think you need is also really helpful there, because then it gives you the confidence to do the kind of de-risking that perhaps you need to do. Because it's hard, it's hard to shift out of that mode of like, oh, I want to make X percent and realizing, well, actually, what I've got is

just about enough. So maybe I should be looking for something that delivers Y percent instead.

And that's particularly the case if historically you've found investing to be.

Kind of fun.

You know, there's an experience.

It's not so much fun, right?

Maybe you have to do what we always suggest people do, which is that you move The majority of inter, more diversified, more income generating, et cetera.

And just keep a little bit for playing. Yeah.

Yeah. Anyway, we should do a full podcast on this and we'll try and find a proper expert to come and talk to us about this.

Anyway, more questions, please send them in. We like them.

And also it makes us think, which is useful. Thanks for listening to this week's Merrin Talks Your Money. If you like our show, rate, review, and subscribe wherever you listen to podcasts. Also be sure to follow me and John on X at MerrinSW and John underscore Steppick.

This episode was produced by Sam Asadi and Moses Andam.

Questions and comments on this show and all our shows are always welcome. Our show email is merrinmoney at bloomberg.net.

Physical Gold, Stocks and Retirement: Your Questions Answered

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