In Australia we have compulsory Superannuation. In the US they have the 401k which is conceptually very similar. The idea is that when you are working and earning a wage, you put away some funds to pay for your retirement so that you don’t become reliant on state-funded welfare in your old age. The state gives some tax incentives along the way but you really don’t have a lot of say in it. I’m just going to call it Forced Savings for the purpose of this post because that’s what it is.
I won’t go into whether I think this is right or not and while it is tempting to delve into the rorts and commissions you pay to a bunch of bean-counters in the process, I will resist. Up until recently you only really got to choose which fund you were going to use for your Forced Savings, then some of these funds started offering you different products like “High Growth” or “Diversified” or “Fixed Interest” which gave you a bit more choice as to how much risk you were taking with your Forced Savings. But when the GFC hit in 2008 they pretty much all got decimated because the people making the decisions were all crowded into the same investments (as they do) and they all went down together. A lot of people lost 40-50% of their Forced Savings in Australia. While the US Stockmarket has recovered, over here in the magical Land of Oz we still haven’t got back to our 2007 highs.
After the GFC a lot more people in Australia started setting up their own Self-Managed-Super-Funds, which although they are still heavily regulated they give a bit more freedom to invest directly in things like Precious Metals that might be a more effective way to hedge against crisis like the GFC in 2008. But SMSF can be expensive to set up, cumbersome to manage and painful to report on at tax time.
In recent years I’ve come across an option somewhere in the middle. Some of these Superfunds now let you choose specific shares and investments from an “Approved List”. While they still take their fees, they look after all the compliance issues and tax reporting so you can just focus on picking your investments. This is what I have done and among other things, my Superfund lets me choose from the ASX300 as well as several Exchange Traded Funds (ETFs).
Here is a way for me to allocate some of my Forced Savings into Paper Precious Metals and hedge against future problems with the financial system like a repeat of the GFC. Not only can I invest directly in the big Gold Mining shares (which are effectively a leveraged Gold investment) but there are some ETFs which are specific to Precious Metals and are tied to the respective Spot Prices.
Here are some of the ETFs on offer (listed by ASX code) :-
GOLD and PMGOLD – 100% Gold
- PMGOLD is managed by the Perth Mint and has slightly lower management fees. It also is supposed to facilitate conversion of ETF holdings into physical metal if you show up at the Perth Mint vault and want to redeem your holdings.
ETPMAG – 100% Silver
ETPMPT – 100% Platinum
ETPMPD – 100% Palladium
ETPMPM – Mixed Basket
- ETPMPM is a mixed basket of Precious Metals and at time of writing includes approximately Gold 50%, Silver 19%, Platinum 10%, Palladium 21% by valuation.
I am holding a few of these ETFs personally and if the banking system goes kaput they will probably go kaput along with them, but since I can’t really get access to my own Forced Savings these ETFs will at least let me hedge against a few of the financial crisis scenarios. If we get inflation and more money printing with fiat currencies getting trashed then they will hold value as long as the current financial system otherwise remains intact. As things stand I think it’s unlikely I will ever see my Forced Savings because the system needs to hold up for a couple more decades, but at least with these ETFs I have a chance of preserving my wealth long enough to enjoy it during retirement.