What's the best hedge against a falling dollar considering taxes?
This post is not intended as a inflation/deflation discussion. Let's assume that in terms of gold (or other real stuff, not U.S. dollars) that the price of food, energy, etc. remain constant.
It's hard for me to imagine the dollar not continuing it's long term free fall. For the most part, other countries are done buying US debt. It's only a matter of time for the dollar to be replaced as the world's reserve currency, and does anyone really believe the US can make good on paying all of it's debt? We are going to struggle just making the interest payment....Hmm, that sound's familiar.
The quickest answer I hear to the best hedge against a falling dollar is buying commodities, particularly gold & silver. The problem is that gold/silver are taxed as collectibles, and not as longterm capital gains. I really don't know much about other commodities as long term investments. Real estate typically pops up as a hedge, but I think deflation in the housing market has a ways to go yet.
I wouldn't say I think the sky will fall, but I do think there is a small, but very real risk for a "hyper decline in the dollar". I would hate to be heavily invested in something like a gold etf & think I'm insulated from the decline, only to find out I'm only partially insulated. For example, I buy $10,000 in gold. It goes up to $100,000 only because of a reciprocal dollar decline. I then have to pay the corrupt government 1/3 (more in the future?) of my "profits" . So in the end, I've lost 1/3 of the original buying power of the $10,000. I win, but yet I still lose.
There's another thread on the best way to beat inflation.
Diversify. Hold some Dollars, some Euros, some Yen. Hold some gold, some silver. Hold some real estate in non-bubble markets. Own a reliable used car. Own an even older reliable used car that doesn't rely on advanced computers and electronics to run. Invest in oil changes and maintenance for both. Own a shotgun and a few emergency rations to hedge your bets. Own some acreage 15 miles outside of a major city. Do that and you'll be alright.
nevus said: What's the best hedge against a falling dollar considering taxes? It is hard to avoid taxes, but I would look into ETFs of some of the more socialist countries' currencies, like the Canadian dollar.
LH2004
Frivolous Member
posted: Jul. 15, 2009 @ 12:39p
Stocks, especially foreign markets.
Swivelguy
Senior Member
posted: Jul. 15, 2009 @ 12:44p
If you really think the dollar is going to fall that hard, buy all of the food you'll need for the rest of your life now. Nobody is going to tax you when you eat it.
P.S. You're clearly taking some sensationalist propaganda way too seriously.
The dollar has been losing value on a downward trend since the 80's. All the trillions in new government spending guarantees it will go lower, just like it has for the last 25 years. The people claiming the dollar won't lose value are the ones making an outrageous claim.
Swivelguy said: If you really think the dollar is going to fall that hard, buy all of the food you'll need for the rest of your life now. Nobody is going to tax you when you eat it.
P.S. You're clearly taking some sensationalist propaganda way too seriously. What an idiot you are... USD index lost almost %1 today. It's down 10% in the last 3 months. Get a clue.
nevus said: I wouldn't say I think the sky will fall, but I do think there is a small, but very real risk for a "hyper decline in the dollar". I would hate to be heavily invested in something like a gold etf & think I'm insulated from the decline, only to find out I'm only partially insulated. For example, I buy $10,000 in gold. It goes up to $100,000 only because of a reciprocal dollar decline.
1. If you think there is a very real risk of hyperinflation, you probably won't feel comfortable without owning some actual physical gold/silver.
2. Equities (stocks), priced in $US are somewhat of a hedge against hyperinflation of $US. All the capital that one of those companies owns will still be worth something, even if hyperinflation ravages their business.
3. Stocks of companies that produce commodities can also do well in an inflationary environment. Think oil companies and mining companies.
4. One potential way to hedge against inflation is to hoard your cash as pre-1982 copper pennies or nickels (any year). The pennies currently are worth more in melt value than 1 penny. And the nickels are currently worth something like 75% of face value in melt value. Of course, there currently are laws against melting them, but that may change. Even if it doesn't, people will pull them out of circulation if they become worth much more in melt value than face value and eventually will buy and sell them for something much higher than face value. If we don't have inflation, nickels are still worth 5 cents and pennies are worth 1 cent. That's my "outside the box" contribution.
dk240t said: nevus said: I wouldn't say I think the sky will fall, but I do think there is a small, but very real risk for a "hyper decline in the dollar"...
2. Equities (stocks), priced in $US are somewhat of a hedge against hyperinflation of $US. All the capital that one of those companies owns will still be worth something, even if hyperinflation ravages their business.In a mildly high inflation, maybe. In a real hyper inflation, no way. 5. Hockey Stick Chart seems appropriate for this thread.Necessary, not sufficient for inflation. One can even say the hockey stick chart is a result of deflation.
Instead of owning Gold/silver that gets taxed heavily, you can invest in CEF which is 55% gold + 45% silver. It gets taxed as mutual fund.
vxmike
Member
posted: Jul. 15, 2009 @ 10:36p
Most if not all currencies will lose value over time.
Best bet is to own good stocks that pay a dividend. This way you own something tangible (part of a profitable company) that will always have value regardless of which currencies are doing well. For example if the Dollar goes into the crapper Pepsi and Coke will still sell soft drinks either in other currencies and/or in inflated dollar prices. Your dividend income and share value will increase over time with a profitable company.
If it happens the population is screwed and it is the end of the story. If it comes down to gold to buy food, you better have the BBB supply of guns to fend for the food.
ILikeDollars
Greedy Member
posted: Jul. 15, 2009 @ 11:01p
dk240t said: 3. Stocks of companies that produce commodities can also do well in an inflationary environment. Think oil companies and mining companies.
Mining companies have historically underperformed their corresponding commodities. Better to buy the gold/etc itself, even after considering the tax consequences.
A few other strategies you can implement if you are absolutely convinced of a future decline in the USDollar:
1. Use leverage. I'm using this strategy myself, borrowing a considerable amount of money at low-interest fixed-for-life rates and holding it as gold. Obvious disadvantage: As with all leveraged investments, if you're wrong, you're really wrong. Also, with credit tightening up, this is becoming more difficult. (Someone is going to suggest one of the leveraged gold ETFs instead. Remember that these are daytraders' toys and will not work well for long-term investing.)
2. Buy things you want now instead of waiting. As antithetical as this is to the frugal fatwallet mindset, it may be a reasonable choice. I'm not suggesting that you use an impending dollar decline as an excuse to buy a dozen flatscreen TVs, but if you were planning to make any large purchases in the next few years, it may be prudent to consider moving those up a bit.
3. Hold your gold offshore, using a service such as Bullionvault (or even better, a more private arrangement, if your net worth if high enough to justify the additional expense). This is a good tactic if you expect punitively high gold taxes to be enacted, which is entirely possible if the dollar experiences a rapid decline. Of course, at that point, you'll need to decide if your wealth is worth enough to a) renounce your citizenship and live abroad or b) become a tax cheat.
Consider also that pretty much every reasonably prosperous country in the world has strong ties to the US. If the US Dollar goes down, so does everyone else. Things will likely get messy. (I'll stop there before I wander into TinFoilHatVille and destroy my credibility. )
anakinskywalker
Senior Member - 1K
posted: Jul. 16, 2009 @ 12:24a
ILikeDollars said: dk240t said: 3. Stocks of companies that produce commodities can also do well in an inflationary environment. Think oil companies and mining companies.
Mining companies have historically underperformed their corresponding commodities. Better to buy the gold/etc itself, even after considering the tax consequences.
A few other strategies you can implement if you are absolutely convinced of a future decline in the USDollar:
1. Use leverage. I'm using this strategy myself, borrowing a considerable amount of money at low-interest fixed-for-life rates and holding it as gold. Obvious disadvantage: As with all leveraged investments, if you're wrong, you're really wrong. Also, with credit tightening up, this is becoming more difficult. (Someone is going to suggest one of the leveraged gold ETFs instead. Remember that these are daytraders' toys and will not work well for long-term investing.)
2. Buy things you want now instead of waiting. As antithetical as this is to the frugal fatwallet mindset, it may be a reasonable choice. I'm not suggesting that you use an impending dollar decline as an excuse to buy a dozen flatscreen TVs, but if you were planning to make any large purchases in the next few years, it may be prudent to consider moving those up a bit.
3. Hold your gold offshore, using a service such as Bullionvault (or even better, a more private arrangement, if your net worth if high enough to justify the additional expense). This is a good tactic if you expect punitively high gold taxes to be enacted, which is entirely possible if the dollar experiences a rapid decline. Of course, at that point, you'll need to decide if your wealth is worth enough to a) renounce your citizenship and live abroad or b) become a tax cheat.
Consider also that pretty much every reasonably prosperous country in the world has strong ties to the US. If the US Dollar goes down, so does everyone else. Things will likely get messy. (I'll stop there before I wander into TinFoilHatVille and destroy my credibility. )
so, do you like dollars or not?
Method72
Member
posted: Jul. 16, 2009 @ 7:10a
The best thing to do is move money you have now into small denomination 1oz silver rounds.. Its a small denomination, to me its currently undervalued and when and if a hyper inflation ever comes to be. Then you can sell your coins for whatever currency you want and buy what you need. So preserve your "wealth" into things like that but don't neglect the system will move on. If you get all gold/silver then you will screw yourself, carefully leverage yourself with current US debt buy buying cashflowing rental properties. So bottom line protect your savings/wealth through small denominations of silver/gold, buy cash flowing properties and start a business that generates cash flow.. Oh yeah buy a lot of guns and a big safe..
As much as the dollar is going to goto crap, life does move on one way or another... Just be realistic and read those doom and gloom reports with a grain of salt. There is truth to both sides but be your own judge.
BTW is it illegal to sell your scrap gold/silver to a jeweler? Did you report a profit from the sale... I think not, get 1 oz rounds and don't worry.. 1000 oz bars is a different story
nevus said: What's the best hedge against a falling dollar considering taxes?
This post is not intended as a inflation/deflation discussion. Let's assume that in terms of gold (or other real stuff, not U.S. dollars) that the price of food, energy, etc. remain constant.
It's hard for me to imagine the dollar not continuing it's long term free fall. For the most part, other countries are done buying US debt. It's only a matter of time for the dollar to be replaced as the world's reserve currency, and does anyone really believe the US can make good on paying all of it's debt? We are going to struggle just making the interest payment....Hmm, that sound's familiar.
The quickest answer I hear to the best hedge against a falling dollar is buying commodities, particularly gold & silver. The problem is that gold/silver are taxed as collectibles, and not as longterm capital gains. I really don't know much about other commodities as long term investments. Real estate typically pops up as a hedge, but I think deflation in the housing market has a ways to go yet.
I wouldn't say I think the sky will fall, but I do think there is a small, but very real risk for a "hyper decline in the dollar". I would hate to be heavily invested in something like a gold etf & think I'm insulated from the decline, only to find out I'm only partially insulated. For example, I buy $10,000 in gold. It goes up to $100,000 only because of a reciprocal dollar decline. I then have to pay the corrupt government 1/3 (more in the future?) of my "profits" . So in the end, I've lost 1/3 of the original buying power of the $10,000. I win, but yet I still lose.
There's another thread on the best way to beat inflation.
I too am a fan of physical bullion, especially in small denomination gold/silver. I generally put 3-6% of savings into them... Try and buy from some yocal on eBay, or a local in case things for all 1933 again.
Here's an interesting strategy a quick google brought up: Now we have all ingredients for a conservative strategy of an interest-bearing investment in physical gold using forex:
1. Buy and store as much physical gold bullion as you see fit. This will be your long crisis-proof and inflation-protected position. 2. Open a forex account with a reputable broker that offers several gold crosses and an adjustable position size. 3. Devise a signal to short gold. When the signal goes off, short gold in your forex account against a high-interest currency in the amount of your physical holding or less. Put a tight stop on it. Move the stop to a no-loss point as soon as possible. 4. Collect the swaps. 5. Either take profit in the forex position, or let it expire at no loss, keeping the swaps.
Why the need for physical bullion? Simple. Gold is not to be shorted, and gold loses its most attractive qualities if not in bullion form. This strategy is a cheap hedge, allowing to quickly go from full to no exposure at very low transaction costs, while maintaining possession of bullion. Same result can be accomplished with other instruments, but a forex account is perhaps the most flexible way of hedging the downside of gold.
Deleted: same, was trying to figure out what words in my earlier posts were grounds for censorship. This "message pending appruval" garbage is getting out of hand.
nevus said: What's the best hedge against a falling dollar considering taxes? ... I then have to pay the corrupt government 1/3 (more in the future?) of my "profits" . So in the end, I've lost 1/3 of the original buying power of the $10,000. I win, but yet I still lose.
I started answering this question and like many other folks here began diverging away from the central part about taxes. I will just add that I don't think anyone has mentioned a short dollar fund like UDN as a vehicle to hedging.
Getting back to the tax question, I haven't seen a good answer yet. The best one is moving out, but that doesn't seem like a good possibility for many and it's not clear the destination is any better. One thing to separate is hedging versus speculating. Some moves have tones of the latter and that may be a matter of degree rather than vehicle.
TIPS are supposed to be hedging against inflation, but they're still taxed, so is the hedge designed to be before or after taxation? I suspect you're partially hedged, but still suffer from the tax leakage.
Let's say I have $50k in my pocket, and there is inflation. 50 years from now, I'll have less purchasing power. If I buy TIPS, I'll get my purchasing power in interest, but the tax paid will decrease my purchasing power. To offset (hedge) the inflation problem I'm likely to buy SP500 (or other diversified equity), but whatever gains are also taxed. I can also buy some government or corporate bonds that might beat inflation, but again, the gains are taxed.
If instead I convert the $50k to Euros, and the dollar depreciates, I will make dollars and taxes will reduce the "profit". If I buy gold and make money, it gets taxed. If I buy oil or other commodities, and make money, it gets taxed.
In all cases I am "investing" or "speculating" in order to try to beat inflation. Depending on inflation and tax leakage, I may have increased or decreased in purchasing power.
There seems to be no escaping the tax leakage, and changing risk class, even if taxed at a higher rate may be the only winning strategy.
As far as hedging against currency risk, assuming I put $35k into SP500 fund, I can take $15k and buy RYWBX (note frequent lack of correlation), I have partially hedged against inflation as well as currency, but taxes are still paid (assuming gains). I am still taking risk, so this can be debated whether it's investment versus speculation.
but frankly speaking invest in anything make sure you buy cheap and low !!!
ILikeDollars
Greedy Member
posted: Jul. 16, 2009 @ 2:32p
anakinskywalker said: so, do you like dollars or not?
I do still like them and will gladly accept any that you are throwing away.
What I like most about them right now is that they can be used to buy gold.
chimeer
Cranky Member
posted: Jul. 16, 2009 @ 2:44p
JTFH said: Deleted: same, was trying to figure out what words in my earlier posts were grounds for censorship. This "message pending appruval" garbage is getting out of hand.
Yeah the censorship is getting a little overboard, we are all adults here (I think).
Aside from the small percentage of physical gold and silver I have to suggest guns and liquor at least as much on those as on the metals. Pratcial guns in common calibers would be adviseable. half dozen 9mm and 12Ga shotguns + some .22's will be worth something just don't get the top shelf collectable but the reliable practical. As for booze I would suggest something fair but in a good volume or amount but in a pinch people will pay for whatever. Have at least a few cases put away. I think the Equities as another hedge makes good sense as well.
Depends on how bad you really think things will get.
Scenario 1 - High-ish inflation but you've still got a job and society functions as normal: Take advantage of the time value of money by getting into manageable but high debt now. Your salary should increase with inflation and you'll be paying off your house, car, whatever with cheaper dollars. No taxes due on your "gain" because it doesn't exist. What you should really try to do is by hard assests which will hold their actual value. Opinions vary on what that actually means.
Scenario 2 - Reversion to a third world country: Learn to defend yourself, gain as many skills as possible, and have some really good friends to watch your back.
Squeezer99 said: based upon all of the different opinions in this thread, i don't think anyone really knows what to do.At least nobody pretended otherwise. Oh wait...
Squeezer99 said: based upon all of the different opinions in this thread, i don't think anyone really knows what to do. Usually the thing to do is not a consensus opinion. Furthermore, everyone has their own situation to optimize for (amount of assets, timelines, goals, taxation etc).
Here's a word of advice related to all the suggestions regarding gold/silver.
It may be tempting to buy gold bars and silver rounds because they are the cheapest but there is a reason why they are the cheapest. It has to do with the confidence in their purity. when you go to sell a generic (and even a name brand) silver round, you may get dealers challenging the purity and offering you less than you expected for your silver.
Your best bet is to buy Actual Gold Eagles or Silver Eagles. That way, when you go to sell, you just call every dealer within 20 miles and get a verbal quote over the phone. Since the quote is based on melt value, you can have a greater confidence that you will get the quoted price when you show up with the coins to sell. With generics, you may not even be able to get a verbal quote over the phone and even if you do, when you show up they may try to lower the quote based on the "purity" of the silver round.
Since all of my assets are in dollars (house, car, bank account, etc.), I have all my investments in Non-US equities. REITs, Crude, and a blend of international and emerging market stocks.
gatzdon said: Your best bet is to buy Actual Gold Eagles or Silver Eagles. I can't disagree more. When you invest in coins with high premium you're investing in said premium. Let's say you pay $20 for an ASE at $15/oz spot and the value of the silver quadruples over your holding period. Now you will very likely be able to sell it for $65, but if you invested in just about any low premium form you would get $80. Dealers have no problems dealing with generic silver rounds, at least at sub $25 spot prices (I know, because I've dealt and talked with them). That said, if the price shoots up considerably assay may be required, which is very cheap in significant investment quantities.
My personal choice is junk silver (90% US pre 65 coins) because even at $50 silver realistic fake quarters are likely uneconomic (not to mention how quickly distribution channels would be routed by the SS, FBI, etc, unlike for simple fraud). Dimes should be safe well above $100/oz. These denominations also spend easily because they are much smaller quantity than an ounce, low risk, and easily identified.
That said, I recommend to not buy 100oz or 1000oz bars unless you 1) have overwhelming reasons to think they're pure 2) are planning to assay in bulk at sale. But if you really want them anyway, buy poured bars which have a pattern hard to match. There are thousands of drilled and filled Engelhards and the like floating around out there.
staci86
Senior Member
posted: Jul. 17, 2009 @ 5:13p
If hyperinflation (or other economic upheaval) becomes a reality, your bullion funds may become worthless.
If you want to speculate on commodity prices, these funds have their place. If you are looking to retain your wealth amidst economic chaos and potential confiscation or punitive taxation of precious metals, then you need to have physical control of your bullion, and it better be hidden and secret.
Gold confiscation is not speculation or tinfoil hat conspiracy material. It has happened before, in the US, and if bullion is your plan to survive economic chaos, then you need to be prepared should it happen again.
Skipping 6 Messages...
ILikeDollars
Greedy Member
posted: Jul. 22, 2009 @ 9:20p
h2sammo said: i try to listen to what the guys who had it right all along say regarding hedging against inflation. some i found are jim rogers, peter schiff, marc faber.
I'll take this opportunity once again to recommend Eric Janszen of Itulip.com. He presents some very good, fact-driven analysis with a lot of data to back it up. He has been making good calls since before the tech bubble burst, and has been right on almost everything EXCEPT he thought oil at $140 was not a bubble (though in his defense he never recommended buying it).
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