Dr James, 0s:

As ever, you can claim your CPD for this episode within the official Dentists Who Invest Smart Money Members Club. Smart Money Members Club also includes multiple mini courses and webinar series on finance for dentists, including how to become as tax-efficient as possible, as well as understanding investing. All of this content comes as verifiable CPD, and you can download your certificates there and then on completion of each lesson. In addition to this, we also include a whopping 10% discount on your dental indemnity and a 5% discount on lab bills for dental principals, amongst other perks and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode that I get asked all the time, and that question is how can I gain some exposure to the gold markets? How can I diversify out of my current holdings and into gold? Well, actually, interestingly, there's four fundamental ways you can do this. But first of all, why would we diversify into gold? Well, actually, the reason why most people invest their money is to grow their capital at the greatest rate in a proven way. Now, here's the thing that that is a very operative thing to understand. We need to understand every component of that sentence. We have to grow our capital, obviously, that's a given. We want to outpace inflation. We have to grow it at the greatest rate because we want the greatest rate of appreciation. We want to show that it grows consistently and that the rate that it grows at outpaces inflation by the greatest amount possible. But here's the thing that would mean that we just potentially buy wacky things that grow at incredible rates, like 30, 40, 50% a year, all of this stuff consistently. Here's the thing: the next part of that definition is that it has to be consistent and invest in assets which have done this over huge amounts of time in a proven way. Therefore, we have to know that historical data would suggest that they're going to continue to grow, right? And as long as something satisfies all those things, then it is potentially a good long-term investment. Now, for most people, what they do is they invest in paper assets, they invest in the stock market. What are paper assets? Paper assets are assets that are traditionally recorded on paper. Obviously, if you hold a portion of a company that is not tangible, that is traditionally recorded on a piece of paper, alone nowadays it's digital and it's exchanged amongst other parties, it's exchanged amongst other individuals for a price. Traditionally, that's recorded on paper, therefore, it is a paper asset. It is not tangible, it's only worth as much as someone else will pay for you because of how much they believe the company to be worth, and also because of how much they expect the dividend on that particular stock to yield, in the example of stocks or in the example of bonds, the coupon, the coupon rate. But of course, all of these, as I say, are recorded on paper. They're only as good as the promise, they're only as good as the promise from that company to fulfill their obligations, or the promise from the entity that has created the bond. So therefore, should those companies or entities fail, then those paper assets are not worth anything. Whereas something like gold, which is tangible, will always be worth something because gold is the original form of money. It has always had value since ancient times. And the reason for that is pretty much fundamentally because it looks beautiful. That's pretty much why it's got an amazing luster and it does not tarnish. That is why, once upon a time, there was an agreement amongst society, not anything formal. We just accepted, or there was there was a pervading opinion that gold was worth something because it looked beautiful. There was consensus amongst others that it did, not for any other reason other than it looked good. The value of gold versus its actual practical usage is vastly, vastly, vastly mismatched. The value of any other material, any other metal, is pretty much determined by its practicality and its usage. In gold, it's obviously very valuable, however, it is not actually utilized in that many things, at least relative to its value, of course, because what that means is that basically because we all think it looks good, we deem it to be valuable, therefore the price is driven up. And this is literally why gold is worth more than any other metal, because it looks good. And there is consensus among society that we all think it looks beautiful, and obviously there's like a runaway effect there that as soon as a lot of people think it looks beautiful, other people jump on the bandwagon too. And that's actually a huge thing that drives the price of gold. But having said that, actually, traditionally, the historic rate of appreciation of gold is about 6%. 6% since the 1900s, whereas the stock market is about 10%. So, really, if we're going to invest in something that consistently appreciates at the greatest rate in a proven fashion with lots of historical data, then really the stock market is traditionally high that's done, which is a paper asset. So, why do people invest in gold if it doesn't appreciate at the same rate as the stock market? Well, the reason why they do that is because they want to diversify away from global capitalism. Because if the world's economy fails, if the world's government fails, then all our paper assets aren't worth anything because all those promises are broken. Those promises can't be fulfilled. But as long as there's human beings, there'll probably be consensus that gold is worth something. And that is why people buy gold. That is why people hedge against the failure of capitalism by purchasing some gold so that they have skin in the game should that situation arise. That's literally the reason why people do it. They're called gold bugs, is the technical terminology. But here's the thing: we don't have to believe in impending Armageddon to have some involvement in the gold market. We might just say, actually, I'm going to diversify. Actually, I'm going to have a little bit of this and a little bit of that. I'm going to have skin in both games. So, what that means is that I'm covered either way. And that's the main rationale that people do that. So, on that note, onwards, onto the four ways that you can gain a stake in the gold asset category. How you can diversify out of the global stock market and begin to have a portfolio that has also got gold as a constituent. But you must understand the four ways that you can own some gold in order to do that. So, first and foremost, let's talk about physically owning some gold. What does that entail? It entails purchasing quantities of gold from an online broker or an offline broker. Others fine. You get the gold in physically in your hand, you take it and you do what you like with it. Now, obviously that brings into consideration issues with custody, given that we now have to find somewhere to store gold. Do we store it in our house? Do we store it under our bed? Do we bet do we bury it in the garden? Do we put it in a pillowcase? Do we find some other place or location to store it inside our house? Well, we can. However, should someone catch wind of the fact that we have gold in our house, then really the buck ends with us. When, if they can come to the house and be able to take the gold. There's no other way that that gold can be retained. Because in accepting the gold, in purchasing it, and having it physically in our hand, we also accept responsibility for it. UK Dentists, Dentists Who Invest now has an official platform where you can learn about finance and obtain UK compliant, verifiable CBD at the same time. The only platform that exists on which you can do both. The Smart Money Members Club has hundreds of hours of mini courses, webinar series, and live day recordings on all things finance slash tax efficiency for UK dentists. This includes complete courses on how tax works for UK dentists, finance so that you can invest and grow your own money, business so you can improve your profitability as an associate or principal. And for those out there that want it, there's also a mini course and how you can responsibly enter the crypto space using measured amounts of capital. I've gathered this content from the best of the best I could find in each respective area so that you know that this is how people at the forefront of each field advise their clients. The Smart Money Members Club also contains discounts on common things that UK dentists need to pay for on a regular basis. This includes a whopping 10% discount on dental indemnity, the offer to beat your income protection deal no matter what you're paying, and for the principals out there, 5% discount on lab bills and 10% discount on practice insurance. These are designed to offer hundreds, if not thousands, in annual savings. The purpose of this members club is to not only boost your monthly income but also manage your outgoings as much as possible and therefore create more profit. To celebrate the launch of the Smart Money Members Club, and given that the CPD deadline is coming up soon, I've decided to offer the first month of this platform entirely for free. This offer will end in the coming weeks as soon as the current CPD cycle is up. To collect your CPD for this podcast episode using the Smart Money Members Club, feel free to use the link in the description of this podcast. And so, therefore, this is the thing that puts people off purchasing gold in this form. However, should there ever be this catastrophic scenario or Armageddon-like situation where the where world's the world society collapses, because remember, if paper assets are not worth anything, it's probably meant that the world's economy is collapsed at that point, in which case, then society has probably collapsed as well, because that's the thing that underpins society. So you've got your gold and you're storing it, and you want to be able to say that you're truly diversified away from the goals, the world's economy, truly diversified from the world's economy, then you must physically own your gold, because then you're staying true to the time-honored reasons or rationale as to one might purchase it. If we truly are a gold bug and we truly believe in that philosophy, we must accept the downside of the custody issues as well. So there's no real perfect situation, there's no real perfect scenario here, right? We own the gold and therefore we have to store it somewhere, therefore we have to retain it, right? And the second that we go and store it somewhere else and give it to another party, we're actually letting go of some of that custody, which is the whole rationale between the whole rationale of why which people purchase it in the first place. So here's the thing. We've got to understand this paradox or this duality and understand that actually there's this limitation either way, no matter what we do. So here's the thing: when you purchase your own gold, when you sell the gold on, naturally, if it's over a certain amount in terms of value, you'll be liable for capital gains tax. That'll either be 10 or 20% depending on your income tax bracket. However, it is worth knowing that you can purchase gold coins from the Royal Mint and when you sell them on, actually, you're not liable for any capital gains tax, which is a really, really, really cool thing at the time of recording, which is the 25th of April 2023. Worth knowing because that means that you can own gold and you can sell it on and you can participate in being diversified outside of the global capitalist system. And you have a perk and well, there's a huge perk in there, of course. Obviously, we still have to understand that custody is potentially an issue depending on how we store that gold. However, when we want to say we're a true gold bug, when we truly want to diversify away from the global economy, accept the fact that gold traditionally doesn't appreciate at the same rate as the stock market, then we have to store our gold physically. We have to own our gold physically and have it in our hand, in my opinion. What is the second way we can purchase some gold? Second way is to buy some physical gold in whatever quantity we like and have someone else up store it on our behalf. Now, there's many brokers online that do this. Actually, they often give you the option of being able to store it in different locations around the world. I've seen Singapore, I've seen New York, I've seen London. The reason why they give you a variety of governments to choose from is that it's not been unheard of entirely in the past that the government has requisitioned gold. So depending on how stable you think the government is in that particular locale, you will naturally have a proclivity towards storing your gold in that area if you believe the government to be strong, if you believe the government to be not likely to default on its debts and repossess everybody's gold. This has literally happened before. Not very common, not gonna say it's gonna happen tomorrow, but it has happened. There's been a historical precedent there, which is crazy. So here's the thing: you can purchase gold in this way, you can have someone else store it for you, they will charge you a holding fee. Normally, it's gonna vary based on the provider. The thing to be wary of is have you actually seen that gold with your own eyes? How do you know that whoever has sold you that gold is being fully honest that actually for every unit of gold they have sold, they actually have that exact same quantity of gold stored in a vault somewhere because nobody checks these things. Maybe they have 10 gigrams of gold in 10 in total, but they've sold 30 gram 30 kilograms worth of gold coupons or ownership to other people. They're banking on the fact that not everybody's gonna withdraw their gold all at once. Only some people will. Some people will just leave it there forever. This is the thing. This happens, okay? There's no way to prove this, there's no way to independently verify this. Okay, so this is something we've got to be aware of. So actually, if we buy gold in this way, are we contravening the true purpose, the true main, the main philosophy of purchasing gold in the first place, which is that we want to diversify out of global capitalism? Because the thing about it is, if that situation arises where the economy fails, then guess what? The company that holds our gold is also gonna go brook brook too. Where are their debtors gonna go in order for them to be remunerated, in order for them to be repaid? Where are their creditors gonna go in order for them to be remunerated? They're gonna go to the company's assets and sell those. And guess what? The really smart people, the really smart creditors, get present in terms of how much they get remunerated over Joe Blogs. They're way down the line. JoeBlogs is way down the line in terms of stakeholders in the company. And they're actually very clever because when they lend money to the companies, they make sure that they have that present. They make sure that they have that priority. Something to be aware of. Personally, I probably wouldn't purchase gold in this fashion because actually it's not aligned with the main reason why people buy it in the first place. In my opinion, the main philosophical argument for purchasing it was to say that you're diversified outside of the global economy and that you are, to a greater or lesser degree, a gold bug is the terminology. Third way we can buy gold. You can buy shares in gold companies. Naturally, as gold goes up in price, the main asset of the company, the main product of the company also goes up in price. Therefore, the companies become more profitable, therefore they make more money, therefore the share price goes up, therefore the dividends go up. Okay, and we can see now how we've got exposure to gold. However, we also have exposure to the global stock market, which is exactly the thing that we might be trying to avoid by purchasing the gold. But you just got to consider to yourself, do you want to do it in a convenient way or do we want to actually have custody of this gold? Now, the cool thing about buying gold stocks is that we can buy them in our ISAT or we can buy them in our SIP, potentially. Now, depending on if we've bought an individual company or an ETF, we might be subject to the risks involved of buying an individual company in that it can go bust because the global gold market is probably going to continue, but individual companies within that might fluctuate in and out of existence. So therefore, we have exposure to gold, yes, but we also might be overly exposed to we might be overly exposed to individual risk of one particular company. Therefore, we need to be wary of this, right? So this is when a little bit of an understanding of risk comes in. If we're exposed to, if we're purchasing a gold ETF, is it an active ETF with huge fees? Is it a really well-diversified active ETF? We have to consider all these things whenever we're purchasing gold in this means. Big pro is that if it's in an ISA and if it's in the SIP, then naturally all the all the appreciation is going to be tax-free, you know, on the money that's already within those tax wrappers. However, of course, we're not actually truly diversified in gold because we don't physically have it in our hand. And of course, should the world economy collapse, then naturally these are going to collapse too. Not that I'm going to say that's likely. All I'm saying is that if that is your philosophy, and if that is the reason why you purchase gold, which for me is the main argument in purchasing it, or for me is the main reason that someone might do it, then actually, if that is our belief, then it's actually at odds with purchasing gold in this way. Food for thought. But it is convenient though. Fourth one, spread betting. What is spread betting? It's in essence betting on whether or not the price of an asset will go up or down in value. When we bet in this way, then what it means is if we bet the asset will go up in value, then naturally we'll make money, and then we'll cut we'll close our position and we'll be up. We can bet on the price of gold going up and down. We can bet on the price of gold companies go up and going up and down. And what it means is we can get exposure to gold via this means. Of course, spread better is not for the faint of heart. The cool thing is it's tax-free in the UK. It's actually illegal in America, but it's legal in the UK. It's tax-free in the UK because the class is gambling. Winning from gambling is tax-free, uh, as you may or may not know. Um, however, of course, it's not for the faint of heart. There's got to be a lot of technical knowledge there in order to use these platforms. And also, in likelihood, it will require active management of your position because you're going to have to monitor whether or not it goes up or down. So, certainly, it's not something that we want to do, at least at the very beginning, to get some exposure to gold, but it may wish you may wish for it to be something that you consider with time whenever you're experienced at investing. The cool thing is that you now know it exists, so therefore you know that's out there. So, should you believe that you want to purchase some gold, should you believe that you want to get actively involved in owning gold as an asset, these are your four ways to do it. It's just about picking the one that's most aligned with the outcome that you desire. And so