Digital Money, Cash, Silver, and Gold
Copyright © July 13, 2015 by Robert Wayne Atkins, P.E.
All Rights Reserved.
Anyone who is attempting to prepare for hard times will eventually consider the question of what is the best way to preserve some of their income for the future?
The most common options are:
This article will review the advantages and the disadvantages of each of the above investment options.
- Digital Money, such as checking accounts and savings accounts.
- Cash, including paper money and coins.
- Silver, including minted coins, ingots, and sterling silver jewelry or tableware.
- Gold, including minted coins, ingots, and gold jewelry.
- Other Options, such as stocks and bonds, real estate, and precious jewels.
However, the author of this article does not know how the future will actually unfold and therefore the author will not tell you how you should invest your money. I am aware that there are a lot of other people who believe they do know how the future will unfold, and therefore they will tell you exactly what you should invest in and why. They may use sophisticated mathematical models, or charts, or they may claim to have insider knowledge or information from the most important decision makers in the financial world.
I do not use any mathematical equations, or charts of historical events, because they can only reveal what has happened in the past. These techniques cannot predict the future. On the other hand, it is relatively easy to look back on history and to show some type of pattern that has happened in the past. However, whether or not that pattern will repeat itself in the future is nothing but guesswork. If it were a reliable way to make money then the individuals who practice these techniques should have become independently wealthy by following their own advice. Many of these individuals make predictions about how the future will unfold at regular intervals throughout the year. After a few years have passed then it is relatively easy for every one of these people to carefully select a very limited number of their predictions that were correct and to loudly proclaim the accuracy of these predictions while simultaneously ignoring all of their predictions during this same time period that were completely and totally wrong.
I also do not have access to any insider knowledge or information from key individuals who make the most important decisions at the highest levels in finance. For more than forty years I have read advice from many individuals who claimed that they had this type of knowledge but I have not yet found any of these people to be correct in their predictions on a regular basis. Anyone can make several predictions during a year and the laws of probability will usually result in at least one or two of these predictions being reasonably correct. However, unless the person has an unblemished track record of making correct predictions consistently, then my suggestion is that you do not put much weight in these types of predictions.
Now that you know that I do not know how the future will unfold you can continue to read this article in the spirit in which it was written. The purpose of this article is to only review the pros and cons of several different types of investments. This article will not make any specific predictions about how these investments will do in the future.
In today's modern world it is extremely convenient to have access to some of your money in digital form, such as a checking account and a debit card. This allows you to pay for things without having to carry a lot of cash around with you. A digital money account also allows you to purchase things over the internet. Sometimes you can find the best price and the best quality on the internet from a seller who lives in another state. Therefore digital money is almost a necessity if you wish to maximize your options and minimize your costs.
The important question is how much digital money do you need? The minimum amount would be enough to pay your bills each month for things such as rent, transportation, utilities, food, and other necessities.
Advantages of Digital Money:
Disadvantages of Digital Money:
- Interest: Savings accounts and some checking accounts will earn a very small amount of interest if the minimum balance is maintained.
- Quick Purchase Transactions: Usually it is very easy and quick to purchase something with a debit card or a credit card, up to the amount limit per transaction that has been established by your financial institution.
- Identify Theft: It is becoming much more common for money to be stolen by means of digital theft where the money is simply digitally withdrawn from an account and moved someplace else.
- Temporary Point of Sale Malfunctions: Sometimes a store's credit card and debit card system is not working and the store cannot sell anything except for cash.
- Hacking Theft: Several major corporations have had their financial accounts hacked and the financial information on their customers stolen and then that information was used to steal from their customers.
- Withdrawal Limits: Financial institutions have the legal right to limit the total amount of money that you can remove from your account during a specified time period, such as per day, per week, and per month. They can also change these limits at any time without your permission.
In today's modern world it is also useful to have some cash in your pocket. This allows you to pay for relatively inexpensive things, such as an item out of a vending machine, or a meal at a fast food restaurant. Although many of these inexpensive items can be purchased with a debit card, it is easier to pay cash and avoid the record keeping issues of lots of small purchases and the need to balance your account at the end of each month when that account contains lots and lots of trivial transactions involving very small amounts of money.
Having some emergency cash in your pocket is also extremely prudent because you never know when your bank may "temporarily" freeze your account and your debit card will not work. The reason for the freeze may be because the bank has had some type of digital theft and they freeze everyone's account until they can determine what to do next.
The important question is how much cash should you keep in your pocket, or in a safe place inside your home?
Advantages of Cash:
Disadvantages of Cash:
- Accessibility: You have the cash in your possession and it is immediately available if you should need it.
- Acceptability: If the store's credit card and debit card system is not working, but the store's cash registers still work, then most stores will still accept cash for payment.
- No Interest: Cash does not earn any interest.
- Theft: Cash can be more easily stolen and it cannot be easily tracked or recovered.
- Fire: Cash will quickly perish if it is exposed to fire.
- Security: Small amounts of cash generally do not require any special security measures. However, large sums of cash will need to be safely concealed where it cannot be easily or quickly found by a thief.
- Value: The value of cash is based on its exchange rate in your economy. In other words, the small piece of paper on which the money is printed is of negligible value. However, the paper money itself does have value based on what it will purchase in your area. This is important because the purchasing power of paper money, and digital money, can change instantly if the government devalues its currency.
Silver may be an option you wish to consider if you plan to keep the silver for an extended period of time. The reason is simple. When you buy silver you will pay a premium over and above the current spot price of silver. When you sell silver you will usually only be offered the current spot price or a little less. Therefore silver is usually not a good short-term investment. Whether or not it is a good long-term investment depends on whether the price of silver goes up or down after you purchase it.
The price of silver is not constant and it changes with the passage of time. There is no way for the average person to predict whether the price of silver will go up or down as time passes. However, unlike paper money and digital money, silver does have value as a precious metal. This means that the value of silver cannot drop to zero, or close to zero. However, silver will gradually tarnish with the passage of time and therefore you will need to store it in a tarnish free environment, or you will need to invest some time and energy in removing the tarnish on a periodic basis.
Silver is relatively cheap when compared to gold. Therefore if you only have a small amount of money to invest then silver may be a reasonable option to consider because the total amount of silver that you purchase will probably fit into a relatively small storage space. And if you have to abandon your current location quickly for some reason, then the silver will probably not be too heavy or too bulky to take with you.
There are several ways to invest in silver:
- Silver Coins Minted by the Government:
- United States Silver Eagles: These coins contain one ounce of silver.
- Pre-1965 United States Silver Coins (dimes, quarters, half-dollars, and silver dollars): When these coins were minted and when they were first put into circulation they all contained approximately 0.723 ounces of silver per dollar of coins (dimes, quarters, and half-dollars). In other words, ten dimes equaled one dollar and ten dimes contained 0.723 ounces of silver. Four quarters equaled one dollar and the four quarters contained 0.723 ounces of silver. Two half-dollars contained 0.723 ounces of silver. However, the exception is that one silver dollar contained approximately 0.7735 ounces of silver. Therefore, if you add up the total dollar value of all of these old coins (except silver dollars), then you can multiply that dollar amount by 0.723 and you will know how much silver you would have had when the coins were brand knew. However, after these coins were put into circulation the outside surface of the coins were subject to the normal abrasion of coins in circulation and they lost a very small amount of their weight and therefore some of their silver. Therefore pre-1965 silver coins that have worn surfaces will probably only contain about 0.715 ounces of silver per dollar instead of 0.723 ounces of silver per dollar. The percent silver per pound of these coins has not changed but the number of coins per pound will have increased so each coin is now worth a little less than when it was new. (Note: These coins are commonly called "junk silver" because they are not investment grade coins. However, they do have real value and they are not junk.)
- Sterling Silver Jewelry or Tableware Made by a Reputable Name Brand Company: In order to be stamped "sterling silver" the item must contain 92.5 percent (0.925) of its mass in silver. However, this only applies to the sterling silver part of the item. Table knives only have a sterling silver handle and the cutting blade is not sterling silver. Candlesticks usually have additional weight in the base of the candlestick to keep it upright for safety reasons and the extra weight in its base is not sterling silver. Sterling silver jewelry is nice because the owner of the jewelry can wear it on a regular basis and receive some pleasure of ownership. Sterling silver tableware is nice because a family can use it on special occasions. The advantage of sterling silver tableware is that it can be passed on as a family heirloom to your children. The disadvantage of sterling silver is once it becomes known that a family has some nice sterling silver tableware in their home then the threat of their home being burglarized may increase.
- Silver Ingots Made by an Independent Organization (Rounds or Bars): Some companies sell silver with the weight of the silver stamped on the piece of silver along with their company logo. It is not easy to verify the purity of these items and therefore they are more difficult to sell for a fair price. Generally only a gold and silver dealer will be willing to purchase these items from you, and they will probably offer you a lower price because they know they are the only buyer you can sell to. Therefore I suggest that you do not invest in silver ingots.
- A Paper Receipt for Silver Stored in Some Company's Vault: Some companies will offer to sell you some silver and they will offer to keep it safe for you in their company's vault. They will send you a receipt for your purchase. In my opinion, this is not a reasonable way to invest in silver. You have no way of knowing if the company actually has your silver in its vault. The company may go bankrupt and you could lose your entire investment. Or an unethical person in the company may steal the silver from the vault and disappear to a foreign country. Therefore I strongly discourage this type of investment.
When you buy gold you will pay a premium over and above the current spot price of gold. When you sell gold you will usually only be offered the current spot price or a little less. Therefore gold is usually not a good short-term investment. Whether or not it is a good long-term investment depends on whether the price of gold goes up or down after you purchase it.
The price of gold is not constant and it changes with the passage of time. There is no way for the average person to predict whether the price of gold will go up or down as time passes. However, unlike paper money and digital money, gold does have value as a precious metal. This means that the value of gold cannot drop to zero, or close to zero. Gold will not tarnish, it is a good electrical conductor, and it looks really nice without having to polish it or keep it clean.
Gold is relatively expensive when compared to silver. Therefore if you have a lot of money to invest, then you could invest in gold coins and you could store a lot of money in a very small space when compared to the same amount of money invested in silver. And if you have to abandon your current location quickly for some reason, then the gold will probably not be too heavy or too bulky to take with you.
There are several ways to invest in gold:
- Gold Coins Minted by a Government: If your government mints gold coins then you may wish to buy your government's gold coins because they should be easier to buy and sell within your country.
- United States Gold Eagle Coins: These coins are available in 1/10 ounce, 1/4 ounce, 1/2 ounce, and 1 ounce coins (all troy ounces). Generally the 1 ounce coins sell for the lowest premium over the spot price of gold and the 1/10 ounce coins sell for the highest premium over spot. When you sell these coins you will usually be offered the spot price or a little less for the 1 ounce coins, but you will be offered proportionately less for the smaller denominations because the coin dealer will tell you that they are harder to sell. On the other hand, if you only need a little money and all you have are 1 ounce gold coins then your only option will be to sell one, two, or more of these coins regardless of how much money you may need. But if you needed less money and you had some 1/2 ounce or 1/4 ounce coins they you could sell the size coin that more closely matched the amount of money you needed at that particular time.
- Canadian Maple Leaf Gold Coins: These coins are available in 1/25 ounce, 1/20 ounce, 1/10 ounce, 1/4 ounce, 1/2 ounce, and 1 ounce coins (all troy ounces).
- South African Kruggerand Gold Coins: These coins are available in 1/10 ounce, 1/4 ounce, 1/2 ounce, and 1 ounce coins (all troy ounces).
- British Gold Sovereign Coins: These coins contain 0.23542 troy ounces of gold per coin, or a little less than 1/4 troy ounce.
- Old Gold Coins (Numismatic Coins): Old gold coins are usually purchased for their rarity and investment value and they are usually in very, very good condition. Therefore they usually sell at a good premium when compared to more recently minted gold coins. However, at the current time some coin dealers in the United States are offering some of these old coins for sale (minted in the late 1890s and early 1900s) at a very low premium when compared to more recently minted gold coins. Therefore you may wish to check with the coin shops in your area to see if any of them have these coins for sale and how much they cost in comparison to a more recently minted gold eagle. (Note: When the United States government confiscated all the gold owned by its citizens in 1933 these investment grade gold coins were exempt from confiscation. However, they may not be exempt from a future government confiscation of gold.)
- Gold Jewelry: Gold jewelry is nice because the owner of the jewelry can wear it on a regular basis and receive some pleasure of ownership. If hard times force the sale of that jewelry then it is usually easy to find someone who "Pays Cash for Gold." However, when your gold jewelry is weighed you will usually only be offered the price of 10K gold jewelry even if your jewelry is stamped 14K or 18K. If you have the more expensive 14K or 18K jewelry then you will probably need to find a gold dealer who can verify the gold content of your jewelry and who is also willing to pay the appropriate premium for that extra gold. Therefore if you are only buying gold jewelry as an investment then you should probably buy 10K gold jewelry that does not have any fancy designs or craftsmanship, such as simple gold rings or gold bracelets.
- Gold Ingots Made by an Independent Organization: This type of investment has the same disadvantages as Silver Ingots as explained above.
- A Paper Receipt for Gold Stored in Some Company's Vault: This type of investment has the same disadvantages as a Receipt for Silver as explained above.
Certificates of Deposit: A Certificate of Deposit (CD) is a financial agreement between you and a financial institution (bank, insurance company, etc.) where you agree to leave a specified amount of your money on deposit with the financial institution for a specified period of time, such as 1 year, or 2 years, or 5 years, and the financial institution agrees to pay you a specified amount of interest on your money. The interest rate on CDs is usually a little higher than the interest rate paid on a savings account. However, there is a substantial interest penalty if you withdraw your money before the time established on the CD. In my opinion a bank savings account that pays interest is a better choice for most people when compared to a CD. There is no interest penalty if you withdraw your money from your bank savings account if you should need it. However, if you believe that you need the marginally higher interest rate paid on a CD then may I suggest that you purchase several separate CDs instead of one large CD. For example, if you have $10,000 to invest, then you should consider purchasing ten $1,000 CDs instead of one $10,000 CD. If something should happen that you did not anticipate and you need some of your money then you could cash in one or two smaller CDs and you would lose the interest on those CDs but the other CDs would still continue to earn interest. But if you only have one $10,000 CD and you had to cash it in because you needed some of that money, then you would lose a significant amount of the interest on the entire $10,000. The financial institution may try to talk you out of several smaller CDs and into one or two larger CDs because this is to their advantage and not yours. Therefore I suggest that you consider several smaller denomination CDs instead of one or two larger denomination CDs. However, in my opinion, I think most people would be better advised to put their money into a bank savings account that pays interest instead of buying CDs.
Bonds: Bonds are usually relatively easy to buy and sell and therefore they can be converted into cash in a relatively short period of time. Bonds are a promise to repay the face value of the bond, such as $1,000, at some specified future date. The bond pays the owner of the bond a fixed amount of interest during this time period. This article will not discuss all the different types of bonds that are available. This article will also not discuss all the different factors that can influence the price of a bond. However, the current price of a bond is usually closely related to the interest rate paid by the bond. If the current market interest rate is higher than the interest rate paid by the bond, then that bond will sell at a discount. On the other hand, if the current market interest rate is lower than the interest rate paid by the bond, then that bond will sell at a premium. At the current time market interest rates are very close to the lowest they have been during my lifetime. Therefore the chance of the market interest rate going down is relatively low, whereas the chance that the market interest rate will go up is somewhat higher. If this is true then the price of bonds may decline in value in the near future.
Stocks: Stocks are usually relatively easy to buy and sell and therefore they can be converted into cash in a relatively short period of time. This article will not discus the different types of stocks that are available. However, when you buy a stock certificate you are buying partial ownership in some company. If the company does well then theoretically the price of the stock should increase. If the company does not do well then theoretically the price of the stock should decrease. There are a lot of other variables that impact the price of a company's stock that will not be discussed here. One of the many reasons the stock market indicators are so high in the year 2015 is because many very wealthy investors do not wish to keep their wealth in the form of cash, and they do not want to tie their money up for a long time in the form of real estate, so they are temporarily investing their money in stocks. Stocks do have value because they represent partial ownership of a company. However, at the current time stock prices are not being universally evaluated based on their Price Earnings Ratio or on their Dividend Yield. If these wealthy investors, and several major investment groups, become nervous about the direction in which stock prices may go, then they may sell off huge amounts of stock, unless they are stopped by the closure of the stock exchange. If the financial market should become unstable for any reason, then the stock exchanges will usually be closed until financial stability is reestablished. This usually does not take very long but nobody can predict what will happen in the future. At the current time (July 2015) the stock market is not very predictable.
Real Estate: The purchase of real estate as an investment is a very complex subject and it will not be discussed here. However, if you have the ability to purchase your own home, and you intend to live there for several years, and the area you are considering is safe and stable, and the real estate market is not overpriced, and you can qualify for a reasonable real estate loan, then a home is usually a good investment.
Precious Jewels: Diamonds, rubies, emeralds, and sapphires can make nice jewelry. However, the value of the jewelry and the precious stones are not easy to determine. Therefore it is not unusual for a person to pay a lot more for jewelry that contains precious stones than the price they are able to sell that jewelry for at a later date. Pawn shops will only pay a tiny fraction of the true value of the jewelry. Jewelry stores will usually offer you a little more than a pawn ship but they will not offer to pay you anywhere near the price you originally paid for that piece of jewelry.
There is no single best investment strategy that would be appropriate for all families. The reason is because of differences in age, health, income, and the total number of dependents, among other things. Therefore each family will need to create an investment strategy that would be the best option for them during hard times.
However, some specific issues that every family should consider would be the following:
This article has assumed that you have some "extra" money to invest, and that you already have enough food, water, and other supplies to last at least six months or longer. If you don't have these basic necessities of life then you should consider investing in these items instead of cash, silver, and gold.
- Digital Money: All families should have some type of checking account and a debit card, if the family can qualify for these items. These items will make it easier to pay bills and to purchase things. Any additional money that you will not need during the course of one month could be deposited into an interest bearing savings account.
- Cash: All families should have some cash in order to pay for the things they need when the total cost of those things is relatively low, such as five dollars or less. This simplifies the checkbook balancing task at the end of each month, and it can also help a family budget their money. If they see something they would like to have but they can't afford it unless they go into debt, then the family should not buy the item. (Note: The two primary exceptions where going into debt might be a reasonable option would be to purchase a home or a car.)
- Silver: If a family has very little money to invest, then that family would probably be better advised to keep their money in the form of cash and to put that cash in a safe place inside their home so they will not be tempted to spend it on an impulse. However, if the family has several hundred dollars that they know they will not need for a least a year or more, then that family may wish to consider the purchase of some pre-1965 silver coins, or the purchase of some sterling silver items for their home. Sterling silver items can be passed on to your children as a family heirloom.
- Gold: If a family has several thousand dollars or more to invest, then gold coins may be worth considering. Several thousand dollars of gold coins will fit inside a very small plastic zipper bag and that plastic bag could be safely hidden somewhere inside your home where it could not be found.
- Bonds: Unless the family has experience in the bond market, then the family would probably be better off investing their money in an interest bearing savings account.
- Stocks: In my opinion, most families should avoid the purchase of stocks.
- Real Estate: Other than a home for their family, most families should not speculate in the real estate market.
- Precious Jewels: Most families should avoid the purchase of precious jewels as a form of investment.
- Safe Deposit Boxes: During normal times a bank safe deposit box is a reasonable place to store some small items that you do not want to have stolen, or items you do not want other people to see. It is also a reasonable place for an older person to keep his or her will as long as another trustworthy family member has signature access to the safe deposit box. In my opinion, that signature access should be normal routine access to the safe deposit box and it should not be subject to the other person having to produce a death certificate to gain access to the safe deposit box. On the other hand, during hard times a safe deposit box may not be the best place to store your important documents or your valuables. For example, the bank could go bankrupt, or the banking system could declare a bank holiday for an unspecified period of time, or the bank may be in an area that experiences a significant bad weather event (hurricane, tornado, earthquake, etc.). Therefore during hard times it might be a better idea to find a really safe place inside your home where you could store your important items. If you give it a little thought you could probably think of a really safe place inside your home that nobody else, including a potential thief, would ever look.
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