I had to laugh last night as I was making dinner for the kids.
Caleb, my 7-year-old, walked in with an odd question.
“Dad, how do we know that we all see the same color? I mean, does the red that I see look the same as the red that you see?”
I was stumped!
Then my 11-year-old piped up and said, “Nope, some people are color blind. So science has proven that some of us see colors differently.”
Whew — I was off the hook!
If you’re a parent, you probably know that the job comes with a lot of questions. And there are some questions that I don’t always have answers to.
Still, it’s my job to answer what I can and figure out the answers to questions I don’t know.
The same is true for our Rich Retirement Letter mailbag issue each Friday.
For most retirement-related questions, my team and I have an answer. But if we don’t, we’ll roll up our sleeves and get our research done to find your answer!
For now, let’s rip open this week’s mailbag and take a look at what’s on our Rich Retirement family’s mind!
The Best Ways to Profit From Precious Metals
Gold and silver prices have taken a bit of a breather over the last few weeks. But the outlook is still very strong!
Our first question today comes from Shauna R.
“What do you think about buying physical silver vs silver stocks?”
Investing in precious metals like silver and gold is a great way to protect the value of your wealth.
If inflation causes the value of the U.S. dollar to drop, owning hard assets like gold and silver can help you continue to afford the things you need to buy during retirement.
When deciding between physical silver and gold — or stocks of silver and gold miners — it depends on what you’re trying to accomplish.
If you’re looking to lock in profits from a rise in gold or silver prices, I love investing in gold and silver mining stocks.
These stocks will naturally trade higher as the value of their underground reserves increases. And selling the gold and silver being mined will naturally lead to higher profits and potentially bigger dividend payments.
Down the road, you can sell your shares of these stocks and use the gains to reinvest in other opportunities or to pay for your retirement spending.
But if you’re concerned about bigger structural challenges like the potential breakdown of our financial system, physical gold and silver might make more sense.
Even if you can’t access your brokerage or checking account, you can still get your hands on gold or silver you own. From there, you could use gold or silver to barter for the things you and your family need.
I’m not expecting a total breakdown of our financial system, at least not any time soon.
But I still think it’s a good idea to have a mix of physical and publicly traded precious metal investments. That way you can benefit from higher prices and still have the safety from physical gold and silver.
What About Taxes?
Shauna also had a follow-up question that I think is important for us to discuss…
“Also, are you taxed the same when you sell physical silver as you are on silver or gold stocks?”
The technical answer is yes. If you buy an ounce of silver at $20 and sell it at $40, you’ll have to pay taxes on your profits.
My view is that everyone has a moral responsibility to pay their fair share of taxes. So I would never advocate using physical gold or silver as a way to avoid them.
However, there are some grey areas with physical precious metals. Here’s one example…
If you buy a bar of gold in Switzerland, hold it in a safety deposit box outside of the United States and sell it at a profit without moving it into a U.S. bank account, does the U.S. have any right to tax that profit?
When you get into situations like this, it’s a good idea to consult with a tax specialist. Obviously, this would be a unique example.
Generally speaking, U.S. residents are required to pay capital gains taxes on precious metal profits.
Activity Is Picking Up!
I enjoyed getting this personal observation from Jim G.
“I live in central Wisconsin and I know people who work for the railroad. They said they used to send 1 train a month to Pennsylvania full of iron ore. They are now sending 3 trains a month. Is it time to look at U.S. Steel?”
Great research, Jim! I love hearing about investors who take their unique knowledge and use it to make wise market decisions.
Jim’s observation syncs with a lot of the research I’m seeing coming across my desk right now.
Manufacturing is picking up across the country right now. And we’re seeing more infrastructure projects kicking off as well.
That’s great news for our economy!
I’m a bit concerned with U.S. Steel Corp.’s (X) overall positioning. Right now, the company is generating quarterly losses and X had to cut its dividend.
So I still think there’s a good bit of risk here.
But there are other ways to profit from a rise in iron ore and manufacturing demand.
One stock I’ve been watching closely is Vulcan Materials Co. (VMC). This company mines materials needed for manufacturing and infrastructure projects.
I’m not sure about the specific rail line that Jim’s watching in Wisconsin, but VMC has been filling rail cars across the country with concrete, asphalt and other materials.
It’s a great way to play the growth in building, manufacturing and infrastructure right now.
Should I Invest in IPOs?
Now that markets have recovered from the initial coronavirus crisis pullback, new companies are listing their stock on the market and beginning to trade.
New stocks typically start trading through a process called an initial public offering, or IPO. Here’s a question from Sandra B. about these deals…
“I’ve been hearing a lot about IPO’s. What is your thought & advice on them? Do they normally turn a high value depending on the amount you buy in at?”
Thanks for writing in, Sandra!
I had a lot of experience with IPOs back when I was a hedge fund manager. I even started my own fund focused on trading these special new stocks.
Unfortunately, individual investors are at a huge disadvantage when it comes to how IPOs start trading. That’s because the big Wall Street investment banks in charge of IPO transactions typically give new shares of their best deals to their favorite clients.
So if you’re not a pension, endowment or an active hedge fund manager, you’ll have a hard time getting shares at the initial offering price.
Once an IPO stock starts trading, the most popular ones will immediately jump in price. And that’s when everyone else has a chance to buy — at the inflated price.
As you can see, most of the initial profits go to the well-connected institutional firms and not to individual investors like you and me.
Instead of buying exciting IPOs right away, I prefer to wait a few weeks or even a few months. These stocks often pullback after the initial excitement wears off. Then, you can buy the same great company at a discount.
You may want to research when share lockups expire.
Typically when a new IPO begins trading, insiders will hold tens of thousands of shares that can’t be sold right away. But a few months after the deal is complete, these insiders can sell.
Sometimes these lockup dates lead to a pullback in the stock simply because insiders sell when they can. And that selling leads to a buying opportunity for you!
I Prefer Reading to Watching a Video
Here’s a topic we’ve covered in the past, but one I want to make sure you’re up to date on…
“I do not have time to watch videos. Is it possible to just receive info by email to read?” — Jeannine R.
Thanks, Jeannine! I understand your perspective.
Here at Rich Retirement Letter, we’ve tried to accommodate both readers who love learning through video and readers like Jeannine who get more out of reading.
For most of our video alerts, I’ve included my notes at the bottom of the page. So if you simply scroll down, you should be able to see the information that’s covered in the video.
I hope that helps!
Real-Life Lessons Teach Us the Most
Here’s a great email from our Rich Retirement Letter member P.L.
“Thank you for providing great lessons with examples from real life!
My goals were always geared towards learning and getting more experience. But as a result I was lacking long term strategy and felt that overall I was losing a bit more than I was winning. Now the tide is finally turning back.”
That’s great to hear, P.L.! I think that’s a common theme with many investors.
It makes sense to start small in the early days.
That’s because we might make more mistakes as our understanding of how the markets work evolves.
But as you gain knowledge and confidence over time, investing can become much more profitable — and enjoyable too!
Trusting the process and building your understanding is the most important goal to begin with. And if you accomplish that goal, the profits will naturally follow.
Thanks for sharing your experience!