GOLD DIGGER

Rick puts all his eggs into one shiny basket

RICK MORRIS GREW UP in the California high desert and has worked there his entire life.

A contractor on large jobs for NASA and area school districts, as well as on small jobs for neighbors, friends, and family, Rick is careful to protect himself from the punishing sun. He often wears long-sleeved T-shirts and a straw hat that partially covers his silver hair.

Rick, sixty, typically drives old clunkers around town while running errands, leaving his rarely driven Porsches in their temperature-controlled garage at home.

The rugged Californian, six feet tall with a back that’s straight as a board, is actually quite refined. He enjoys a great bottle of wine at fabulous restaurants. And he loves art. His collection includes pieces by the unique sculptor Bill Mack, paintings from Tom Everhart, and dishes by Izwin.

Rick also likes gold—a lot. He has 70 percent of his life savings invested in gold. The other 30 percent is in silver and he has a collection of $500 and $1,000 bills “in crisp, uncirculated condition.”

I believe strongly in diversifying your investments, and while the value of gold has soared in recent years as I write this, I think it’s unwise to have more than 5 percent to 10 percent of your investment portfolio in gold or other precious metals.

But one of the things I’ve enjoyed most about writing this book is meeting people who so fervently disagree with me.

Rick has almost all his money in gold and silver. The value of his gold alone is approximately $1.8 million.

Rick started investing in gold and silver in 1980, and he’s done very well with it. He estimates he’s invested a total of $400,000 and seen his holdings appreciate 600 percent.

“Gold and silver have been used as currency for thousands of years while paper currency is run through a printing press with ink slapped on it,” Rick said. “In addition, nothing has the same feel in your hand as a gold coin.”

Rick’s primary interest in gold is his concern about the stability of the U.S. dollar, which he feels will plunge in value.

“I don’t think the dollar will collapse completely, but I think it’s going to get close to it,” he said. “Just look at the exchange rate of the U.S. dollar to the Canadian dollar and the yen. I suspect the U.S. dollar will be devalued substantially to the point of even a new national currency. The one thing I know is that if there is a devaluation of the dollar and I need to buy a loaf of bread, I’m going to feel a lot better about paying for it with a one-ounce silver round than a U.S. dollar bill.”

I asked Rick if he’s concerned that the soaring price of gold has created an investment bubble, similar to the bubbles that saw technology stocks in the 1990s and housing prices in the early to mid-2000s soar and then crash.

He answered that gold and silver “are not in the same category” as tech stocks or housing.

“Those buying tech stocks are buying paper, while the housing market boom and crash was caused by the federal government lending money to basically anyone that could put breath on a mirror with little or no money to put down on a home. The federal government/lenders waved a carrot in the face of many people and they bought something beyond their ability to repay.”

While some investors buy gold funds to avoid the fees and security issues that come with owning gold, Rick has physical possession of his gold, which he keeps “in a secure location.”

Rick said he doesn’t get butterflies in his stomach worrying about potential volatility in gold and silver prices.

“No, I enjoy the movement in commodity prices. It keeps it very interesting,” he said. “Imagine if it just stayed at one price with no movement either way. How boring it would be. Besides, I bought a majority of my silver at $3.50 an ounce [it was more than $33 near the end of 2012] and most of my gold at $250 to $400 an ounce.”

Has he sold any of his gold or silver to take profits?

“Not at all,” he said. “Guess I’m really dumb or extremely brilliant.”

Rick, who was born in McPherson, Kansas, and raised in California since he was a year old, specializes in federal and state construction projects, as well as solar projects. He recently installed a full solar array on his home in Palm Desert, California, and added air-conditioning to the garage to keep those Porsches cool.

While he expects the dollar to plunge in value, he doesn’t have any fear of putting money in banks.

“It’s certainly the way we conduct our personal and business transactions. Not a big concern about my money in banks. I don’t keep too much in any one account, and if the banks closed tonight, I will surely be well prepared in many other ways.”

One thing Rick and I do agree on is that if you don’t already own gold, now is not a good time to start.

“Regardless of whose financial strategy you follow,” he said, “buying high is never a good idea.”

What lessons should you take away from hearing Rick’s story?

Question the hype surrounding investing manias.

• Humans are pack animals. We tend to go with the herd more often than not—even if we think we’re marching to the beat of our own drummer. Gold is just the latest example.
• For those who took economics in college, you might recall the Dutch Tulip Mania from almost four hundred years ago, when people speculatively bid up the price of tulip bulbs in the Netherlands, which they thought would appreciate sky-high. Unfortunately, generations of wealth got wiped out when the bubble burst.
• Manias happen in so many ways. In the late 1990s, it was the tech stocks. The “this time it’s different” mentality drove people who had resisted other manias to sink their hard-earned cash into the overvalued tech sector. Then the market collapsed and today the NASDAQ (an index of mostly tech stocks) has only a little more than half the value it did twelve years ago.
• Could it be the same with gold? It’s anybody’s guess.

Own gold the Clark Smart way.

• With worries about the weakening value of the dollar, people are continually asking me if they should take everything they’ve got and buy gold. In general, I only recommend putting 5 or 10 percent of your overall portfolio into gold or other precious metals.
• While Rick favors physical gold, my preferred way for you to own gold is through a gold exchange-traded fund (ETF). You buy ETFs exactly like you would a stock—preferably through a zero-commission broker—and you can sell your holdings at any time.
• See “Limit your investments in gold or precious metals” on page 196 of my last book, Clark Howard’s Living Large in Lean Times, for a rundown of my favorite gold ETFs.

Consider online pawning.

• Not everyone is sitting on nearly $2 million in gold like Rick. But a lot of people have some gold jewelry that they could bear to part with—if they desperately needed money and couldn’t get access to funds any other way.
• Enter online pawning. With pawning, you take something of value like, say, a ring that might be worth $500 and you hawk it at a pawnshop or online. The pawnshop lends you a fraction of the value, maybe $100, against that $500 ring, and they charge you an interest rate on the money.
• Meanwhile, while you’re paying back that loan, the pawnshop is holding your ring as collateral. Most people never quite get around to paying off the pawnshop loan, so it becomes the lender’s property to liquidate.
• Once confined to struggling blue-collar workers, pawning is now finding a new middle-class audience online. Sites like Pawntique.com and PawnGo.com are attracting customers who would never normally think about setting foot in a brick-and-mortar pawnshop.

Get the best value for your gold without getting ripped off.

• There’s an easy way to figure out the real intrinsic value of gold in your jewelry. Start by looking for the karat, stamped directly on the gold. Then use a kitchen scale to weigh the jewelry and an online calculator like Dendritics.com to convert the weight (based on karat) to determine the value at today’s market price.
• No one will pay you full retail market price because they’ve got to make a profit. But jewelry stores and pawnshops are typically the best places to sell a few loose pieces. Avoid those who won’t tell you how much they’re paying for gold over the phone. Chances are they want to lure you in to lowball you.

Determine the value of your gold coins and other collectibles.

• If you receive a collection of coins, stamps, or even autographs after a relative passes away, there’s a new game in town for getting a fair valuation.
• According to the Los Angeles Times, Collectors.com will give you an objective valuation of your gold coins and other collectibles based on third-party authentication and grading. Using Collectors.com is not cheap, but they only specialize in valuation, so they will not try to buy anything from you. You send in whatever you’ve got, they evaluate it, and then they give you a report and send your stuff back to you.
• In the past, I’ve talked about going to a coin show when it’s in town and going booth to booth to get quotes for individual coins, never for the whole collection. But that’s a very shoe-leather-intensive approach. Collectors.com makes it easy.