Investing

Has Gold Gotten too Valuable to Invest In?

With the stock market wavering from boom to crash, and banks offering interest rates on your money that cannot even keep up with inflation many investors have looked to commodities as a way to put their money to work. Among commodities the leader of the pack both historically and lately is gold.

gold bars

Gold has been through bubbles for thousands of years. At one time it was the mark of a king, then the sole currency of the land, and with the widespread use of paper money, gold was simply an “idea” tucked away in a bank somewhere. But of late, with the markets and world in turmoil, gold has seen its profile rise. In fact, gold has been on a steady climb for the past 10 years reaching a peak just under $2000 an ounce in early 2011. That is a remarkable climb from 2008 when the yellow metal was hovering around $800 an ounce. Lately, there has been a slight pull back and many investors are asking the question: Is the gold bubble bursting or is it just a pull back as gold refuels for another rise.

The recent rise in gold has been a result of numerous geo-political factors. From the European debt crisis, to the U.S. housing bubble to the conflicts in the Middle East all of these uncertainties have sent investors to so-called safety nets like commodities with gold deemed the safest. However, unlike when people carried a leather pouch full of gold coins, gold as currency is the same creation of the mind as paper money. Its only worth what people think its worth and in the end, in a true crisis, you can’t eat it. So, really as the currency of last resort, its not really much of a bastion should all other forms of money break down.

Next, is the theory from investors that “they’re not making anymore.” Well, unlike beach front property, they kind of are. As gold prices have soared, many companies are exploring old abandon mines, or digging deeper in existing mines in an effort to root out more ore. Much the way, fracking has become viable in the oil industry, reviving these once dead mines is enabling gold miners to find new sources that were once too costly to be profitable. That certainly alters the supply side of the equation.

Finally, ten years in and the world is changing. While turmoil still abounds, things seem to be settling in. The Middle East conflicts appear to be closer to reaching a result as opposed to winding up and the financial crisis in the West is now one of dealing with the results than the shock of discovering the debt crisis. So with uncertainty on the decline gold may likely follow.

While $400 an ounce gold may not be something that will be seen any time soon, I would not be so quick to assume $4000 an ounce is right around the corner.

Banks vs. Credit Unions

Before starting a savings account, making investments, and making your own financial plan, you have one choice to make. Should you put your trust in a bank or a credit union? From the outside, the two financial institutions appear the same. What you do not know, however, could be the difference between becoming a member of a local bank or the local credit union.

Charles Funk, president and chief executive officer of MidWestOne Bank in Iowa City, Iowa delves into the subject.

“From the outside, banks and credit unions look basically the same,” Funk says of the two financial institutions. However, there is one distinct difference. Credit unions were created with the goal and mission to serve the under served. Taking a quick look at how credit unions have grown into a large brand shows how the original goal has been strayed from.

Banks have common stock and shareholders, whereas credit unions have members instead of shareholders. This also means that, unlike banks, credit unions do not pay income taxes. This allows them to use more of the money the collect for profit.

Banks and credit unions both offer similar services, from checking to savings accounts but how they operate on the inside is not as similar as the outside appears.

When it comes down to it, the choice between using a bank or credit union is up to the student. The thing to remember is to check all available options and find the one that works best for you.

My First Certificate of Deposit

Certificate of deposits are basically similar to a savings account that earns interest. The interest rates are only fixed interest rates. These types of accounts can only be set up through a commercial bank. When a person gets a CD, they will generally have it for only 1 month to 5 years. CD accounts benefits anyone who gets it, because you cannot withdraw any funds from that CD account. If you do, you will have to incur a penalty.

CD

If you want to setup one of these accounts you will have to visit a bank branch. Some banks even let you open these CD accounts up online. For example, if you open up a CD account with Chase, you will have to choose from a 6 month account, and up. These accounts require a $1,000 opening balance. If you have that, you will be on your way to go. Some banks require a opening balance of $5,000, or more to get started with them. The same rules will apply if you visit the branch in person, as far as the opening balance and information needed.

You will need information as far as your social security number, driver’s license or state identification, and checking, savings, or brokerage account and routing number to make your initial deposit. Some of these banks let you pick a term for as long as 10 years, but as stated before, it depends what bank you open it through.

Depending on the length of the CD term that you choose, that will determine the interest rate. The higher the term, the higher the interest rate will be. It doesn’t matter which term you choose, the opening amount will still be the same. All you would have to do after you have all the required information, is fill out the application, whether online or in person. These applications will not take much of your time. The entire process is simple, and before you know it, your CD account will be open in no time. They are good accounts to have, if you are looking to save some money with interest. You will just need to make sure that you have that opening balance already so that you won’t have to worry about anything else. Let the interest start building.

What is a Cafeteria Plan?

A cafeteria plan is an employee benefit plan that allows an employee to choose where he wants his money to be invested. Also sometimes known as or a business plan, it is called a cafeteria plan because it allows the employs to have certain budget to spend in line with the facilities available or that the company has options in.

The benefits can vary; different forms include cash, health insurance, adoption assistance, paid leave and other benefits. The employee gets to choose between different types of benefits and to create a mix and match sort of plan that can include cash and/or a qualified benefit plan.

Most cafeteria plans today are operated through a salary reduction agreement. This enables the plan to be able to include a tax saving opportunity that can be enjoyed by both employer and employee.

The cafeteria plan is easy to set up; all that is needed to start a formal cafeteria plan is a document summary and a plan description.

This starts by reviewing a company’s cafeteria plan policy and helps to outline the expenses that are eligible for reimbursements. For instance if an employee is considering child daycare to cater for their child while they are at work, they can work out or estimate the daily out of pocket expenses which would usually help to cover up the daycare expenses. These are then multiplied by the weekly charge and by the number of weeks the child is the system, inclusive of holidays and vacations.

It is important to note that all the deductibles are exhausted during the year. After this, include the respected annual expenditure you believe you will claim and divide the final figure by the number of disbursement intervals that the company has planned for it’s financial year. This final figure will be taken out of your paycheck every period.

As long as you are in an eligible year, you then get to send the eligible expenses you incurred. These are filled in against a reimbursement claim form, after which a copy is made and then it can be sent either by fax or mail to the cafeteria plan provider for reimbursements.

While the cafeteria plan reduces on income tax payments for employees and employers, it is not a benefit that you will find typically with every firm. This is because it is not a federally enforced requirement for employers. As a result, not all companies offer a cafeteria plan or have a cafeteria plan policy but it is suitable for a wide range of businesses; even small business enterprises are eligible for this kind of policy.

However, it does pay to have one, apart from the usual tax savings advantages it offers; a job prospect certainly appears more competitive when a cafeteria plan is an option.

$100 Invested in Politics

Forever Stamps Investment
($100 invested in politics)
 

Investment Idea: $100 invested in Barack Obama for President.

Total Investment: $100

Total Time Cost: 00:05:00

Extra Costs: $0

Total Time Spent on Investment: Five minutes going to Barackobama.com and donating.

Research and Preparation:

To complete this investment I just had to find where I could donate to the Obama campaign. I typed in BarackObama.com. And was welcomed by a great splash page. Simple and to the point it asked for my email and zip code the two most crucial things to any political campaign.

BarackObama.com
(Clean and sleek if it had asked for my SS number I’d have given it)
Obama since 2008 has been great at the splash pages and the sign up forms. The little details matter. Note the green “Donate now” button. It isn’t red for a reason. If it were red people actually would not want to press it as often (Think stop signs and red lights).

Since I had found what I needed I went ahead and filled in my email and zip code and pressed donate now.

The next page I was taken to had all types of denominations you could chose from or enter your own. I chose $100

$100 donation selected
($100 donation selected)
Note again that my selected “$100” donation is highlighted in green not red. Also note that the lowest amount on the selectable donations was $15. $15 isn’t quite $20 so it seems like a bargain but at the same time it is still at least an amount of money that could make a difference in this campaign. The central amount on the selectable donations was $250. A nice round number not too outrageous but which could actually do some good in the scheme of the campaign.

The next steps were simple putting in my address and credit card information. Straightforward and simple. The last step was bit odd I had to put in my employer and job.

Enter employer
(Political donations require your employer and job information)
This step came with a note:
“If you are retired, please enter “retired” in both fields.

Federal law requires us to use our best efforts to collect and report the name, mailing address, occupation, and employer of individuals whose contributions exceed $200 in an election cycle.”

I wonder how many people wrote down Bain Capital as their employer.

And that was that. I had just invested $100 in the campaign for Barack Obama for president. Good luck Barack!

Reason for Investment:

With the upcoming presidential election just two weeks away and with the end of the debate series last night I decided it was finally time to take out my wallet and give to a cause I believed in. In this day of Super PAC’s and billion dollar campaigns its now more important to give what you can to make sure the outcome is what you want and what you think is best. Since an investment at its purest is a bet on risk and an attempt to make sure you are safest, I believe Barack Obama will keep this country safest. He will make sure this country continues to grow not just the wallets of Republican billionaire cronies.

Obama’s policies on education (cough student loans cough), ending of the middle east wars, tough on banks, and universal health care are the exact things we need most to grow and maintain our dominance as the worlds last super power.

We don’t need more ships in our navy, I’m not rich enough to benefit from any capital gains BS, and cuts to education sounds horrible.

Take a step FORWARD, binders full of women is so 1940’s.

Returns:

Super rare and collectible bumper sticker.

Forever Stamps Investment
($100 bumper sticker)
This investment also helps to provide peace of mind that I could help in some way to make sure this country doesn’t return to the Bush era war spending and tax cutting.

As well this is an investment in this country continuing its course of recovery over the next four years to make sure my other investments continue to grow.

To find an up to the minute price of this investment and my other investments click here!

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Should I Participate in My Companies Employee Stock Purchase Plan?

Employee Stock Purchase Plans, ESPP are frequently offered as a perk by many large-scale, publicly traded companies. With employee stock purchase plans, companies offer employees the chance to own a part of their future, as well as their place of employment through stocks. An employer will usually offer a discounted price for shares in the company. Often, companies will also allow the payment on the cost of the stock to be deducted directly from a paycheck, eliminating the hassle of paperwork, as well as spreading the cost over a span of time.

Stock purchase plans benefit everyone involved. The employer gets the boost in revenue shares through the employees buying stocks. This allows the company more assets to innovate and expand. The employer also gets to tout the fact that the company is employee owned thus attracting the best and brightest talent who are enticed by the possibility of owning a portfolio. The price of the employer’s stock may also rise if enough of the employees buy enough shares to force a price hike. The employee gets a discounted share in the company, a vote in the share-holders’ meeting, and the pride of owning a portfolio. There is also the distinct possibility that the stock may mature and grow which would net the employee a tidy little profit.

Of course, there are downsides to this form of employee compensation. As a stock can rise dramatically leading to exponential profit, it can also decline sharply eliminating your stock purchase or at the very least rendering them almost worthless. This is a continuing source of anxiety for investors. If your company’s CEO resigns and the stock that you just purchased drops, there is a real potential that you may instantly lose money. If that hypothetical were to happen your company could also lose much money in the blink of an eye as the price of their shares also drops.

This demonstrates the need to be conservative when playing the market, even when it comes to employee stock purchase programs. Only invest in the employee stock program if you truly believe in the company that you work for. If you really believe that they will not only be around in five years but also will be posting a profit, then by all means, invest in your workplace. If you think that management is incompetent and the products are shoddy, then don’t waste your time or money. Other red flag warnings to decline on an ESPP include recent scandals, deficits, and reduction of other benefits. These can be indicators that the company is not on stable financial ground and needs to raise funds.

A good rule of thumb to follow when it comes to the employee plans is this; Would I invest in this company even if I didn’t work for it? If the answer is yes, then go see Human Resources and fill out the paperwork. If the answer is no, then ignore the discount being offered and leave your money in your wallet.

$100 Invested in Collectible Coins

1993 United States Silver Proof Coin Set
($100 of Collectible Coins)
 

Investment Idea: $100 invested in collectible coins.

Total Investment: $100

Total Time Cost: 00:01:00

Extra Costs: $0

Total Time Spent on Investment: I spent over an hour talking to the owner of a local collectible’s store, as well as some time running to the ATM to withdrawal cash for the investment. This investment was bought at the same time as my investment in Morgan Silver Peace Dollars, which you can read about here.

Research and Preparation: As far as research goes, as a child I had been given mint sets of coins every year for Christmas by a family friend. I knew some coins were really collectible but I a lot weren’t, especially since most batches of mint coins were made in issues of millions making them worthless as far as rarity go, so a lot of the collectible coins value comes from the content of the coins i.e. what metal is in it. While I had stumbled into a collectible coin store in my town, I had offered a deal for four Morgan Stanley dollars for $25 (below their market price) but as a condition of the deal I would buy some other coins worth $100, so that way I would spend a total of $200 for two different investments.

The owner of the store Howard, when I told him what I wanted to do selected a couple of combinations of coins for me to pick from to get the value of $100 I needed.

He ended up putting in front of me a 1993 United States Silver Proof Coin Set. It was a pretty standard set of coins, containing a penny, a nickle, a half dollar, a quarter, and a dime. The special part of this set was the fact that the half dollar, quarter, and the dime were actually made of silver instead of their standard metals making them exceptionally shiny and worth more than a regular mint set. The whole set was then sealed in a case that comes in a box, see below.

1993 United States Silver Proof Coin Set Box
(1993 United States Silver Proof Coin Set Box)
As you can see the price tag on the box was $38. Howard then showed me in a price guide for the coins how this price was actually on the more whole sale “dealer” price end of the price spectrum for this piece.

1993 United States Silver Proof Coin Set Front
(Front of the 1993 United States Silver Proof Coin Set)
1993 United States Silver Proof Coin Set Back
(Back of the 1993 United States Silver Proof Coin Set)
Howard then also proceeded to take out a “graded” Morgan Silver Dollar coin from his case. I already was buying four Morgan dollars as an investment, but this one was different. This was a graded uncirculated mint Morgan dollar.

Uncirculated coins mean it was never used in my case Howard had taken out a graded 1883 Morgan Peace dollar. It had maintained an eerily perfect appearance even though it was over a hundred years old. The grading process costs about $15 per a coin, and makes the graded coins worth more than just the standard “melt” price I would get for my circulated Morgan peace dollars from my other coin investment.

1883 Graded Morgan Peace Silver Dollar Front
(Front of the Graded 1883 Morgan Peace Silver Dollar)
1883 Graded Morgan Peace Silver Dollar Back
(Back of the Graded 1883 Morgan Peace Silver Dollar)
The price tag for the graded 1883 Morgan Peace Dollar was $62. Add this to the $38 I would be paying for the silver coin set it would be come a perfectly round $100 price tag.

Reason for Investment:

As economic uncertainty continues and people flock to more physical investments the coin market has been booming. It is now a $5 Billion a year industry.

Returns:

To find an up to the minute price of this investment and my other investments click here!

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$100 Invested in Morgan Peace Silver Dollars

$100 Invested in Morgan Peace Silver Dollars
($100 of Morgan Silver Dollars)
 

Investment Idea: $100 invested in four Morgan Peace silver dollars.

Total Investment: $100

Total Time Cost: 01:00:00

Extra Costs: $0

Total Time Spent on Investment: Around an hour spent in a coin store talking to the owner and then running to the ATM to withdraw money to purchase the coins.

Research and Preparation:
In the weak economy we now live and a world rife with struggle and uncertainty. Many people like to flock to investments that they they believe will hold value even if they economy and world at large falters. This has caused the price of both gold and silver to sky rocket over the past few years. I wanted in on this action as an investment to hedge against my more immaterial stock investments I had already made.

For a while I had been talking about trying to buy gold and silver. I had even gone into a place that said “We Buy Gold,” only to find out that the display cases were filled with items for display only and that they did not actually sell anything in their store. I was a little distraught and even told my sister how annoying it was when she had come back to visit for a weekend. As she left I got a text, I thought maybe she was texting because she had forgotten something but instead it said this:

1879 Morgan Peace Silver Dollar
(A very helpful text)
Wow — this must have been a sign: a store had opened in my own town that claimed to sell gold, silver, and collectibles. A couple of weeks went by before I had enough time to actually stop in and visit the store but finally on a Saturday I went in.

The store was unassuming and barren of any items except for three display cases near the back and behind that a desk with a man reclining in a chair. His name was Howard. I said hi to him and told him I lived in the town and ran a website called Alt Investments, where I made $100 investments, and that I would like to buy $100 worth of gold if possible. Howard was nice and understanding and I think was happy to see such a young person interested in something as boring as gold and silver collecting. He had just recently opened his store in my town but made the bulk of his money from going to coin shows instead so he wasn’t too bothered yet by the limited foot traffic.

Over the next hour we talked about a lot of things: he discussed the importance of saving, how kids aren’t into it, how he had a plan to hand out little Indian pennies to all of the school children in town to get them interested, and perhaps get their parents to come to his store to buy more expensive items.

He mentioned how he too lived at home until he was twenty five and instead of moving out into an apartment went right on to buying his first house, something I wish I could do one day also. This led us to an in-depth discussion of the housing bubble and why the prices should have dropped at some point.

After talking for a while I broached the subject that I wanted $100 worth of gold, but unfortunately the smallest amount he could sell was a tiny speck of a coin, the size of a dime, and that was worth $250 on the spot price of gold, far outside of my $100 per investment cap. Howard also told me that the tax was a killer, since due to New York laws there is tax only on gold purchases of $1,000 or less. Meaning that the more gold bullion I bought the better off I would be.

So with gold being out of the question I asked about the rest of his wares. The sparsely filled cases had rolls of silver coins and a couple of coins in protective plastic cases. The big coins were Morgan Peace Silver Dollars. Howard took a couple out and placed them on the counter in front of me.

“This is a Morgan Peace dollar,” he said as he picked up one of the comically large coins. “They weigh 26.73 grams, and are made up of 90% silver and 10% copper.” Meaning 24.057 grams of silver. Since there are 31.10 grams in one troy ounce, that means that 24.057 grams of silver is equal to 77.345% of one ounce of silver. Take the price of an ounce of silver which on the day I went to Howard’s store was about $31.74 (August 31st 2012 closing price). So 77.345% of that is about $24.54. Each Morgan Peace Dollar had $24.54 worth of silver in it.

Also, each Morgan Peace Dollar contains 10% of its weight as copper. For a total of 2.673 grams. Since copper is sold in pounds we need to multiply it by .00220462262 to convert grams to pounds. The price of a pound of copper on the day I went to the store was $3.47. Meaning the total amount of copper was worth $0.0205025. An almost unnoticeable amount.

What is of note is that we had just calculated the MELT price. Which is the amount you could be paid based on the spot price of the metal in the coin if you melted the coin and sold the metal.

Howard explained that most coin stores buy the coins at about $2 below melt, and then sell them for $3 or $4 above the melt price. Meaning the Morgan Dollars he had in his case he would sell to me for about $28 or $29 each, and would be them from me for about $23.

Of course that is just the prices on circulated unrare Morgan silver dollars. On the rarer and uncirculated ones you get them rated by a third party service (PSG) and then they are sealed in plastic cases. Rated coins are priced by a buying and selling guide that coin merchants can subscribe to. They typically sell for $60 to $90 each. I ended up buying one. You can read more about that in my article on my investment in coins. (HERE)

While we continued to talk Howard gave me a quick history lesson on Morgan Peace Silver dollars. They were first minted back in 1878 and production continued 1904 and then they were on hiatus only coming back for one more year in 1921, to celebrate the end of World War I. The rarest issue of the coins came from the 1895 Philadelphia issue, which only minted 880 coins.

The design for the coins was by George T. Morgan, hence the name Morgan silver dollars.

On the front of the coins is the phrase “E PLURBUS UNUM,” meaning “out of many, one.” This is a reference to the original states coming together to form one nation. This was especially important since the Civil War had only just ended in 1865, and a Congressional Act from February 12th 1873, had required all coins to contain the phrase.

Also, the woman on the coin has a head band with the word “Liberty.” She also has cotton and grain stuck behind the head band, both of which reference the two cash crops of the North and the South respectively. What a lot of people may notice is the weird hat on top of the female’s head, this is actually a pileus. Or a symbol for Libertas, Latin for liberty. The pileus was a felt cap worn by freed Roman slaves. This too was a subtle reference to the just ended Civil War and the freeing of the slaves.

On the reverse of the Morgan silver dollar is an eagle clasping arrows and an olive branch in its talons. Symbols of war and peace respectively. Above the eagle is the famous “In God We Trust,” since as Howard mentioned “we are a religious country.”

After seeing the coins and holding the coins I wanted them. Unfortunately the retail price per a coin was $28, which would have made my total cost for four of them $112. However after talking to Howard for so long I got creative and offered him $200 for a total of two investments $100 for four of the Morgan dollars, and $100 for a coin set and a graded Morgan dollar. The other coins would become my investment in coins which you can read about here.

Howard agreed to the deal even though he meant he was selling me the coins at his dealer price, he was happy to help me out and he even ate the tax on the deal, so the total cost to me for both investments was just under $200.

So I ran to the closest ATM and withdrew $200 in cash to buy the coins.

Receipt from the coin store
(Receipt from the coin store)
Morgan Dollars Receipt
(Four Morgan dollars please)
If you aren’t as lucky to have some one at the store cut you a great price try buying your coins from a coin show. Howard said the majority of his business happened there. Also, don’t ever buy online, as they will charge you such a high premium that it would be almost impossible for you to ever profit from the coins.

Below are closeups of the four Morgan peace silver dollars I purchased.

1879 Morgan Peace Silver Dollar
(1879 Morgan Peace Silver Dollar Front and Back)
1881 Morgan Peace Silver Dollar
(1881 Morgan Peace Silver Dollar Front and Back)
1884 Morgan Peace Silver Dollar
(1884 Morgan Peace Silver Dollar Front and Back)
1904 Morgan Peace Silver Dollar
(1904 Morgan Peace Silver Dollar Front and Back)
Reason for Investment:
Chock full of history and composed of 90% silver, the Morgan peace dollar has become a highly collectible and in recent years valuable coin. With the price of silver per an ounce sky rocketing from $6 per, to $30 today, it has provided a great return to those who have owned it during the past risky and uncertain years. And with the economy still uncertain I decided to buy some of my own. I was able to buy four of them for $100 or $25 each. Around the MELT price. This investment provides a good balance to my other stock investments, since even if the market tanks silver and other precious metals should continue to go up.

Returns:
The return on this investment is a bet that the economy stays bad, and people continue to flock to precious metals and other material investments. This investment is valued at the current melt price of a Morgan silver dollar multiplied by four, for the four silver dollars I own.

To find an up to the minute price of this investment and my other investments click here!

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