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benjamen

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Across multiple precious metals forums I have run across the idea of "what size stack should I shoot for".

This made me think of how I would tackle this question:
Should I measure my goal in the local paper currency?
Should I measure my goal in silver ounces?
Should I measure my goal in gold ounces?
How does my income affect my goal? (post/pre tax?)
How does my age affect my goal?

..........................................................

I selected gold ounces as my measure. While you do not have to exclusively invest in gold, you can simply use current ratios to convert the current worth of your other metals to gold.

I assume you don't start stacking until you are an adult, so I adjusted the age to current age minus 18.

I also assume you will be able to save/invest more of your money as you get older. For my equation, I selected 5%, at age 20, as my scalar and add another 2.5% every five years.

Goal equation:
Goal = (Yearly Income / Gold Spot price) * (Age -18) * Scalar

Example:
40 year old
$100,000 in income
Gold spot price of $1,650

Goal = (100,000 / 1650) * (40 - 18) * 0.15 = 200 ounces

Of course, you can adjust the scalar to your particular tastes.
 
mljm76.jpg


~~~

I don't worry about specific numbers. I just shift wealth that I want to preserve for the long term into PMs as much as I can.
 
I buy when I have extra money come in. Some money is due in soon, so BAT THE PRICE DOWN B*****Z!

I have found at least a few times in the past that when I finally reached the goal of a certain "round number" of ounces of gold, well, I still wanted more soon after... That has happened AT LEAST four times to me... "Gold Fever", I guess? Be prepared for this interesting psychological anomaly, FOFOA has said that the marginal value of each new oz of gold that you buy has the LEAST decline of almost any product out there (that is, you always want more...).

Another thought should be factored in. If you have children, the imperative to buy more gold is even higher. Think of your children and grandchildren...

If you have no heirs (or likely will have none), then the imperative is much lower, IMO. Buy silver as a hedge for a SHTF.

A 10% of your net assets in gold is considered OK by many mainstream money managers. 10% is a reasonable minimum (and that would be physical gold in your possession). I hold some silver as well, but the BIG BULK of my PMs ($ value) is gold. I would try to edge that higher than 10% as the years go by, especially if you have money in the stock market, in the bank, etc.
 
It's good to have a short term goal: "I want this much by this date" It will help keep you focused short term, but at the end of the day, just buy dude! Once you hit your "goal", realistically you aren't going to stop there. Ask yourself why you are buying. Chances are it's to preserve wealth and protect from inflation. So the fact that you stop buying says "well, now that I hit this nominal goal, I'm protected enough and I don't care what happens to the rest of my money." That number associated with a goal just helps you "feel" more prepared, but at the end of the day, it means nothing.

BUY!
 
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I have found setting a realistic goal helps balance myself. It is a middle ground between "forsaking everything for the sake of saving" and "I will get to it eventually".




....gets distracted by the Smilies....
:banana::straw-man::mrt::redherring:
 
FOFOA sez that gold becomes worth MORE as it becomes more widely held (if only one person owned ALL the gold, it would not be worth much).

One way of looking at that statement is to first realize that only 1% - 3% (depending on whose numbers you believe) even own ANY gold (in non-jewelry form). Let's say it's 2%. The AVERAGE amount held by that 2% would be a LARGE number of ounces.

I would venture to say that probably almost all of us here are "Shrimps" or "Ants" (FOFOA's terms, NOT derogatory!). This means that even if you own, say, 60 ounces of gold, you are STILL (if you buy more) making gold more valuable as the average distribution (holdings) is going up! FOFOA uses another term for large owners of gold: "Giants". I saw one of his columns when he wrote part of an online chat he had been having with a "Small Giant", which he then went on to say was someone who owned a metric tonne! That's about $55,000,000 worth! I wonder what a plain old "Giant" looks like...

So, do yourself (and the world) a BIG FAVOR! Buy more gold! Even if you have a "lot"..., and who feels like he has a lot?

(OF COURSE I am talking my book too, but I am about to buy more, hey I have eat my own dog food and do my share!)
 
I don't think you should limit yourself by saying after I have x amount I am going to stop. I dont like putting a specific number on max stack size. Although I do think you should have numeric value on minimum purchases... like I want to covert x amount of dollars into PM's each month, of course if income changes then obviously change the amount.

I couldn't find it but I watched an interview with a CEO of a silver mining company, his theory on this question went something like this. When he was asked how much an average person should buy he said what someone should do is go out, purchase a 100 oz bar, and when you wake up the next day ask yourself, do I have enough? If the answer is no, repeat the process. So he is basically saying is buy enough to make you happy.
 
Great thread. Good comments. Here's my take.

First - I have never made 100K/year so some of the amounts are a bit extreme in my opinion.

Second - I look at the Gold-Silver ration (about 50:1 now) and compare that to the historic ratio. I would buy silver at this time and convert to gold when the ratio goes down closer to 30:1. It is almost certain that the ratio will narrow in the future, so you can leverage your gold purchases by buying silver now, changing for gold later.

Third - (this may need its own thread), but I would like to see a discussion on what different folks here would suggest as a break down by percentages in overall personal wealth.
E.g. How much Gold, silver, cash.

Disclosure: I am out of the debt/credit/banking system, and have very strong leanings towards being a debt-free, cash-paying, non-credit card owning individual as a prerequisite for having real personal wealth.
 
Jetstream said:
Great thread. Good comments. Here's my take.

First - I have never made 100K/year so some of the amounts are a bit extreme in my opinion.

Second - I look at the Gold-Silver ration (about 50:1 now) and compare that to the historic ratio. I would buy silver at this time and convert to gold when the ratio goes down closer to 30:1. It is almost certain that the ratio will narrow in the future, so you can leverage your gold purchases by buying silver now, changing for gold later.

Third - (this may need its own thread), but I would like to see a discussion on what different folks here would suggest as a break down by percentages in overall personal wealth.
E.g. How much Gold, silver, cash.

Disclosure: I am out of the debt/credit/banking system, and have very strong leanings towards being a debt-free, cash-paying, non-credit card owning individual as a prerequisite for having real personal wealth.
Click to expand...

I strongly agree with most of your ideas Jetstream.

As far as a 100k income, think about your entire household's income. Primary job, side income, spouse income, stock dividend income, .....

Silver and probably platinum are better buys than gold right now, but I like to convert my holdings to gold so I can track my holdings.

As far as your third point, that would be an entire other thread! Why don't you start one? I am too lazy at the moment :rotflmbo:

Concerning debt free living, the older I get the more I believe you should never buy ANYTHING on credit!
 
I don't really have a goal. I just accumulate some cash then convert it to PMs. I have practically no savings acct, no CDs etc. Stocks? Are you kidding me?? My plan is to just convert fiat to PMs right or wrong. I'm mostly buying Pt and Pd lately as I think they have the best chance right now to rise.
 
My own goal is just to accumulate till I think I have enough. I really want to not have to sell any short of TSHTF kinds of things, or when I get so old I just want to spend it.

So, to not have to spend any in the short term, I avoid putting more into it at a time than I can really afford, keeping some emergency reserves in plain old cash or very liquid other things. This also somewhat avoids buying it high when the fervor is strong.

I like DoChen's just averaging in, and diversification. Saying that long term you can call Pt, Pd, Ag, Au as being the relatively lower price now vs what their ratios will be a very long time from now is not something I think I can predict well enough - I don't think anyone really can, but of course some will get lucky. You could just buy whatever seems best this week or month I suppose, but with an eye to not having it all in one basket, and spread it around some. Makes for a nicer looking pile anyway.
 
benjamen said:
Concerning debt free living, the older I get the more I believe you should never buy ANYTHING on credit!
Click to expand...

We went the route of no credit cards some time ago. Recently took a trip using cash only. There was only 1 night where a hotel was a bit fussy, but I have to admit I am sure some of the clerks at hotels have never seen someone pay cash for their stay.

Same goes for last time I bought a car. The poor salesman didn't know what to do with cash.

Statistics show that if you use credit cards you will spend anywhere from 5 - 20% more, even those who consider themselves 'frugal'! That alone is a major area in which most people will save.
 
Ditched all my CC's in '73 and haven't looked back. A few times, my neighbors have asked "how can you live like that" since I was staying inside my means - which haven't always been so extensive. Now the question is reversed, and I'm the "richest guy on the block" since they're in trouble with debt, and I'm debt free. How can they live like that?

Of course, money has little to do with true wealth, but staying out of debt does have a lot to do with it - feeling good, no worries - being able to help friends who deserve it when they need it - that's true wealth to me, or a bigger part than the mere money.

I found my local car dealership quite willing and able to take cash after only one try.
First time, they were nervous the check would cash. After that, it's hey MrC, is there anything at all we can do for you? This last time? I didn't have my checkbook on me, but drove off in the car anyway, with a promise to mail it in later. How about that? I did mail it in, of course, because of course, there might be a next time.

I was tempted to buy that last car with gold, would have been fun, and they'd have dug it, I'm sure - and promptly reported some sort of total loss damage on the car to not report the cash, or most of it. But it would have put too much hurt on my stack.

Remember, tax cheats always prefer to be paid in cash...or anything else hard to trace back as income. Those are the guys to make deals with.

What reeks is that most of us cash only types are also paying 3% more because we're funding the processing fee for those who use the cards. The card companies have a threat in their contracts/TOS that forbid merchants from giving a discount for cash, so they don't. Yeah, abuse of monopoly and all that, but it did get looked at and rejected by our fair regulatory bodies...who know where the campaign money comes from after all, and it ain't us cash types.
 
@ DCFusor - I like the saying of Dave Ramsey...
"Live like no one else today so you can live like no one else tomorrow"

IOW - stay out of debt and pay cash as you go now (i.e. don't try to keep up with all the Mr. Gadgets in the neighbourhood), and you will be far better off than those who didn't heed that advice.

Over the many years of counseling, I have found that growing wealth had more to do with staying debt-free than with how much a person earned.
Modest income with sound money principles will always win out over high income and unsound practices.
 
"All debt" is a good principle. I think a big part of other success is handling those debts not in money. I got a lot of help early on, homesteading here - a lot of "favors", which I hope I've paid back - but what the heck, at this point no one is counting anymore and we're all good-good and helping each other because it's fun. Truly debt free is a really hard but worthwhile state to be in indeed.

Around here, such things are often counted more important than things measured monetarily. And to be poor in that measure is much worse than not having any money...

My quote (dunno where from) is "It's the life in your hours, not the hours in your life".

How much fun can you have in a lifetime? I'm out to answer that one. If that's the goal, I think I'm mostly "winning". Even if it often doesn't take the first form that comes to mind. For example, pure hedonism is quite self-limiting. True fun is more work, if you call it that.

A really good goal-tree is complex...
 
DoChenRollingBearing said:
@ benjamen

YOU and a ZH-er inspired me to write my new blog piece:

http://robertmixblog.blogspot.com/2012/03/marginal-utility-and-gold.html

So, thanks!

I cover some rough terrain in my new article and I welcome criticism...
Click to expand...

Interesting piece on marginal utility (MU). Does your five hundred and twenty third ounce of gold mean as much to you as your first ounce?

Let me look at the components of MU (background in finanance, economics, mathematics, and statistics).

a) Initial cost, usually a negative number, is the price to purchase the item (IC). This value is either assumed to be static for every unit purchased, or if large quantities of units are aquired, slightly increasing. How much does it cost to buy one ounce of gold?

b) Owner cost, usually a negative number, is the cost to maintain, store, and keep the item (OC). This cost is assumed to increase as the number of units increase. How much does it cost to store, and keep safe, your gold?

c) Utility, usually a postitive number, is the incremental utility, satisfaction, pride, ect. that you gain from owning one more unit of an item (U). The basis of this theory is the is a decreasing number as the number of units increase. How much do you value that next ounce of gold?

d) Resale value (RV) is an interesting category concerning precious metals. Usually RV is less than IC, think buying a new car versus trying to sell it a year later. A reason some would suggest gold's marginal value never actually reaches zero is due to the fact that with precious metals RV = IC in theory. In other words, your purchasing power does not decrease over time.

In equation form:
MU = U (decreasing) - IC (static) - OC (increasing) + RV (static)

If our funds are unlimited we would, in theory, continue to purchase units as long as:
MU > 0

When MU = 0, and IC = RV, the equation can be rewritten as:
U = OC

Hence, you would stop purchasing ounces of gold when the Utility gained from the next ounce equals the storage/security cost increase of the next ounce of gold.

I would dive into why this equation and thought process reveals why gold is preferred over silver for wealth storage, but I should go do some work :wave:
 
tried to comment on yr blog Do Chen but the blogger website bounced me twice )-:
so its posted here -

" So, you decide to buy your wife as well! Smart move, she is likely to be very happy too "

was this an ebay purchase and did you experience an increase or decrease in utility ? (-;

Good article Do Chen
 
Stack size is relative to what sort of comfort you are shooting for when you begin to utilize it as trade/currency.

For my purposes, I buy some silver each and every week, irrespective of whether or not I can "afford to". This means that some weeks, I buy only one single war nickel, but other weeks I buy a hundred. I was in a position a couple of years ago that forced me to part with 500 oz., so I have been slowly buying those back, and have yet to return to the same size stack I used to have. However, I am getting close.
 
@ benjamen

My guess is that (not counting the vault costs you mentioned) that the MU of gold is indeed pretty close to "y = ln(x)" based on my personal experience. So that would mean the MU of each ounce is lower than before, but ever going up. And the total utility would go up "One Unit" (Y-Axis of my graphs there) for a percentage basis of growth of total ounces held.

I actually found the two graphs (500 ounces and 5000 ounces) of ln(x) to be the same, DCFusor has told us before that the e^x function looks the same at all scales, so its inverse should too. But, I did not understand that until I dropped the two graphs into the blog... Math is great!

@ rbelong2us

YES, spelling and grammar and similar errors plague my blog. I know, I know, I should write the things in MS Word or such, carefully edit each piece, etc. But, who's got time for that? I've got things to do! And who among us Fringe Bloggers hires a copy editor?
 
hey Do Chen

i dont mean to be all grammer police, its just that sometimes i see humor in quite minor errors.
The concept of increased or decreased utility from purchasing a wife, when it was obvious you meant purchasing for a wife, was just too funny.

little things please little minds then (-:
 
Assuming gold = money/wealth, this is a fascinating paradox that shows the marginal utility people attach to additional units of wealth/gold. Bernoulli assumed a logarithm relationship for utility.

http://en.wikipedia.org/wiki/St._Petersburg_paradox

Imagine the same game, but instead the game is played for ounces of gold. How much would you pay to enter the game? Obviously it can not be an infinite amount!
 
I'd buy that for a dollar.
 
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