THE TRUTH ABOUT YOUR FUTURE with Ric Edelman

Episode: “Gold!” (December 19, 2024)
Host: Ric Edelman

Episode Overview

In this episode, Ric Edelman delves into two major personal finance topics: the tax considerations for risky investments like Bitcoin, and a comprehensive exploration of gold as an investment asset. Employing his approachable style, Ric answers a listener question about taxable versus tax-advantaged accounts for volatile assets, then shifts gears to offer a deep dive into the pros, cons, history, and mechanics of owning gold—an asset class many investors are curious about, especially in times of economic uncertainty.

Key Discussion Points and Insights

1. Listener Question: Handling Risky Assets in Taxable vs. IRA Accounts

• [00:29] Question from Pepe, Portland, OR: Should riskier assets like Bitcoin be held in a taxable account or an IRA?
• Ric’s Perspective:
  • Type of Asset Matters Most: Bitcoin, like other growth assets (growth stocks, land, collectibles), generates no annual income, so tax on its appreciation is deferred until sale.
  • IRAs Shelter Income-Producing Assets: Assets that generate taxable income (dividends, interest, rental income) are best for IRAs, which shield this income from annual taxes.
  • Loss Deductibility:
    • “If you own an asset inside an IRA and that asset loses money, you can’t deduct the loss.” [03:10]
    • Losses in taxable accounts can offset other gains, but not in IRAs.
  • Roth IRA Exception:
    • “Here’s an argument for putting Bitcoin or those growth stocks inside a Roth IRA… Under current tax law, the distributions from the Roth are tax free, which means you could own your Bitcoin and never pay taxes on its profits…” [06:08]
  • Conclusion: “There’s no better answer I could give you than go talk to a tax advisor and your financial advisor.” [07:02]

2. Gold as an Investment: Myths, Mechanics, and Methods

• [08:00] Transition to Gold:
  • Ric clarifies that he is discussing physical gold as an investment, not the “digital gold” narrative around Bitcoin.

A. Is Gold a Legitimate Asset Class?

• “If you believe in a long-term diversified portfolio, you gotta admit gold is a legitimate asset class.” [09:01]
• Aligns with modern portfolio theory—diversification reduces risk.

B. Gold’s Unique Characteristics

• Physical Challenges: Heavy, bulky, unregulated, and involves storage/safekeeping hassles.
• Buying Gold Directly:
  • Not as simple as buying securities—must consider where and how to buy, store, and sell.
  • “Gold is not a security any more than baseball cards or rare stamps.” [10:00]
• Popular Alternative: Gold ETFs
  • Example: GLD (SPDR Gold Shares ETF) from State Street Global Advisors, “the very first gold ETF brought onto the market” in 2004. [11:03]
  • Rapid adoption: “In just three days, investors threw a billion dollars at this ETF.”
  • Today, GLD holds $74 billion in assets.
  • “Shows you the value of being first in the marketplace.” [12:35]
  • Gold is physically stored in vaults in London and New York.

C. Why Do People Buy Gold?

• Store of Value: 5,000-year track record.
• Usage Breakdown:
  • ~50% jewelry (can enjoy and wear it)
  • 28% investment
  • 17% central bank reserves
  • 8% industrial/tech uses (electronics, medicine, aerospace, cosmetics, etc.)
• “You can't wear your mutual fund shares, can you?” [14:20]
• All gold ever mined still exists; supply increases but does not diminish.

D. Industrial and Cultural Uses

• “There's a bunch of it in your smartphone.” [16:10]
• Gold's unique properties: excellent conductivity, corrosion-resistant, malleable.
• Used in medical, aerospace, construction, and even culinary arts.

E. Gold as an Inflation Hedge

• “That's the number one reason people say they like to buy gold—that the government devalues the dollar all the time…” [17:53]
• Generally gold is a good inflation hedge—though “it’s not always true.”
• Gold is also favored during geopolitical tension and currency devaluation.

F. Gold as a Portfolio Diversifier

• “It's common to see advisors recommend allocations of as much as 5% to toward gold and other precious metals.” [20:31]
• Low correlation with stocks: gold may rise when stocks fall, especially during inflation.

G. Ways to Invest in Gold

• Physical Gold (Coins/Bars):
  • Coins: American Eagle, Canadian Maple Leaf, Krugerrand—“Even Costco has been selling gold coins lately.” [23:36]
  • Drawbacks: commissions (e.g., Costco charges about 1.5%), illiquidity, safekeeping.
  • “Costco will not buy it back. Even though Costco makes it really convenient and simple and easy to buy the gold, you’re on your own if you ever want to go sell it.” [24:25]
• Gold ETFs:
  • GLD is highlighted as the most convenient, liquid, and widely-used method.
  • “You don’t have to worry about commissions, you don’t have to worry about safekeeping, you don’t have to worry about the burden of holding the physical asset.” [27:00]
• Gold Mining Stocks/ETFs: Exposure via companies that mine gold, not the gold itself.
• Futures/Options: High risk and complexity—“This is very risky and speculative because you not only have to be right about what the future price is going to be, you have to be right about when that's going to happen.” [26:54]

3. Final Thoughts and Reflections

• Ric encourages listeners interested in gold to “go to SSGA.com to learn all about the State Street Spider Gold shares ETF symbol GLD. Or better yet, ask your financial advisor.” [28:14]
• He reflects on his 35-year broadcast career, mentioning the imminent conclusion of his regular podcasts on December 27th, and invites listeners to stay connected via his distribution list. [29:00]

Notable Quotes and Memorable Moments

• On IRAs and Losses:

  “If you own an asset inside an IRA and that asset loses money, you can’t deduct the loss.”
  —Ric Edelman [03:10]

• On Roth IRAs for Growth Assets:

  “Here’s an argument for putting Bitcoin or those growth stocks inside a Roth IRA… you could own your Bitcoin and never pay taxes on its profits.”
  —Ric Edelman [06:08]

• On Buying Physical Gold at Costco:

  “Costco will not buy it back. Even though Costco makes it really convenient and simple and easy to buy the gold, you’re on your own if you ever want to go sell it.”
  —Ric Edelman [24:25]

• On Gold as Wearable Wealth:

  “You can’t wear your mutual fund shares, can you?”
  —Ric Edelman [14:20]

• On Gold ETFs (GLD):

  “You don't have to worry about commissions, you don't have to worry about safekeeping, you don't have to worry about the burden of holding the physical asset.”
  —Ric Edelman [27:00]

Key Timestamps

• 00:29 — Listener question about Bitcoin and IRAs
• 03:10 — Risks and losses in IRAs vs taxable accounts
• 06:08 — Roth IRA benefits for growth assets
• 09:01 — Should you own gold? Gold as an asset class
• 10:00 — Buying physical gold: challenges and regulatory status
• 11:03 — The rise of GLD, the first gold ETF
• 14:20 — Gold as jewelry vs. other investments
• 16:10 — Gold in technology and industry
• 17:53 — Gold as an inflation hedge
• 20:31 — Gold as a diversifier in portfolios
• 23:36 — Ways to buy gold, including at Costco
• 24:25 — Issues with selling physical gold bought at retail stores
• 26:54 — Risks of gold futures and options
• 27:00 — Why GLD is so popular
• 28:14 — Ric’s advice on learning more about gold ETFs
• 29:00 — Ric’s career reflection and invitation to subscribe

Conclusion

Ric Edelman provides listeners with practical, nuanced advice on asset placement for tax purposes and an accessible, insightful primer on gold as an investment. He highlights the specific benefits and pitfalls of various methods for adding gold to a portfolio, urges due diligence, and—above all—reminds listeners to consult with professionals before making significant investment decisions. The episode is educational, candid, and reflective, exemplifying Ric’s trusted and personable approach to personal finance.