Alternatives, Part III Cash & Bullion…



This article is third in a series on investing in alternatives.  Here’s: Part I & Part II .   In this article I’ll discuss physical cold-hard cash and bullion and their place in one’s list of essential items.

I previously wrote Cash as an Asset Class and provided an argument for holding adequate cash reserves in your investment portfolio as a volatility buffer, as a hedge and as a means to exploit market sell-offs.  Cash allows you to bargain hunt during a market correction.  This cash should be held in a money market, T-bills or your brokerage sweep account.  It should be easily attainable and deployable when needed.

The cash I am pertaining to in this article is actually physical cash/currency (“cold-hard” cash).  Most of the early retirement/FIRE bloggers I avidly read do not believe in keeping much cash, whether in your portfolio, your checking account, or your home.  This is a mistake, I insist!   I’m a believer in having adequate reserves in your checking account of at least 6 weeks worth of your normal expenses.  In my case I keep 2 months worth (of our expenses/bills) of cash reserves in my checking account.

As for emergency cash, this is aside from your emergency fund.  I was astounded that several bloggers mentioned they have little to no emergency fund, that they’ll use their credit card float as their emergency fund.  I disagree with this idea entirely.  The unfortunate survivors of the recent Puerto Rican hurricane wouldn’t have been able to access a credit card float as electricity was down and ATM’s were either down or were out of cash!  Heaven help us!  I believe in holding a cash reserve equal to 6 months worth of expenses in a high yield savings account.  I keep my savings here: Pure Point Financial .  Aside from this emergency fund held in savings, I believe in keeping a “CODE BLUE” emergency fund (my own term, parlance for “when the shit hits the fan savings!”), meaning readily available cash on hand.  This should amount to at least $1000-1500. which is enough to get by in the event of a disaster.  My wife is from Louisiana and lived through Katrina.  Cell phones were out, gas was being rationed, water supplies were very limited (a case of bottled water cost $200?!!!) and there was panic (and looters!) in the streets.  You’ll need cash for this sort of instance.  No matter whether you live along the coast, in the mountains or in the midwest; you should hold some emergency cash.  I personally keep (a month’s worth of expenses) cash on hand in my home.  Trust me, keep some CODE BLUE cash on hand. It’s better to have it and never use it than to need it and not have it available.  What about the risk of theft/burglery?  Keep your cash in a fireproof safe, preferably a gunsafe (here in the Deep South most of us have one or two of these!).  Aside from the home security system and my firearms, my first line of defense are these family members and that lighter-colored, white-ish Alpha Male (“Maverick”) doesn’t play!  Only 3 years old, he’s a retired (medically discharged) combat dog.  He’s survived being shot and I had the privilege of taking him in as a permanent member of my family.  He took charge as Leader of the pack, the Alpha.  He’s grown very attached to us and we are blessed to have him, BUT he barks ferociously, snarls and growls at anyone outside the family and my packages haven’t been arriving… Maverick (with the other two in tow) scare away delivery drivers.  It’s becoming a nuisance having to track down my packages.  In sum, my home and physical assets are well-protected.  Someone trying to cross over my fence and into my property would be on a suicide mission.

Bullion:  I am a big believer in owning precious metals.  I don’t own any “paper gold” (ETF’s like $GLD).  I believe in owning physical bullion in the form of coinage and bars, both gold and silver and even a little platinum.  I believe in dollar-cost-averaging into bullion.  That way it doesn’t matter whether the price of spot gold is trading at $1100 or at $1300 per oz.  You simply buy metals each and every month or quarter.  For a period of two years (Gold traded between $1100 & $1280/oz during this period) I purchased one ounce of gold every month, sometimes a one ounce bar and sometimes a one ounce coin like a Maple Leaf of Kruggerand.  Silver bullion coins should be purchased in rolls of 20 (or 25 if you purchase Canadian Maple Leaf).  The three online dealers I’ve often purchased from are: SD Bullion , JM Bullion and on occasion, APMEX .  (I am not affiliated with any of these dealers and I receive zero compensation from the links provided.  I wish I did, but they don’t offer affiliates, which is good for you as it keeps costs down.)

I don’t necessarily consider bullion as an investment.  When I tabulate my overall asset allocation I don’t count these holdings in the equation.  I consider bullion as an insurance policy.  Insurance against inflation eroding my cash holdings and my purchasing power, and insurance against a (one day, potentially) tyrannical government.  How much bullion should one own?  The opinions on this vary.  Jim Rickards who is an author and newsletter editor (I’m a lifetime subscriber to his letter “Strategic Intelligence” and I enjoy it very much) that I avidly read believes in holding 10% of your investable assets in Gold/Silver bullion.  My holdings are not near that high.  Personally I feel that up to 3% of your investable assets is enough.  In fact, if and when gold trades at $2500/oz I plan pare back 1% on my holdings and take profits.  I’ll still hold a core amount for as long as I remain alive.  This concludes my series on investing in alternatives.



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