Gold is one of few things doing well in the bear market. What’s the best way for an individual to invest?-- Cindy Reed, Rockford, Ill.
Although some advisers dismiss gold for its association with perpetual doomsayers, there are perfectly respectable reasons to add some to your portfolio. Gold can provide a hedge against inflation and a falling dollar. Neither of those has been a problem of late, but both are likely to cause headaches long term. And gold prices tend to move in separate cycles from stocks. In 2008, U.S. stocks lost 37% while bullion gained 5.5%.
As of early March, gold, at $938 an ounce, was only an ingot's throw from its record-high price of $1,030, and bullish sentiment was running high. Gold prices may have peaked for the near term, but even if they haven't, expect a wild ride. "Many people are not aware of the enormous volatility of commodities," says Axel Merk, manager of the Merk Hard Currency fund. "So you need to either have a strong stomach or take a small position." A 5% stake, at most, is plenty.
Although several mutual funds have "gold" in their names, you won't find any with much more than 10% of assets invested in the metal itself. That's because mutual funds, by law, must earn at least 90% of their income from securities, and commodities don't fall into that net. So most "gold" or "precious metals" funds invest predominantly in the stocks of mining companies.The simplest way to get unadulterated exposure is through an exchange-traded product. SPDR Gold Trust (symbol GLD) looks and acts much like an exchange-traded fund, but it's set up as a trust because shares represent ownership of physical bars of gold stored in the vaults of HSBC Bank USA, the fund's custodian. Each share claims ownership of a bit less than one-tenth of an ounce of gold -- the Trust sells gold periodically to pay for expenses, so the actual amount each share owns shrinks by about 0.4% every year. From the fund's inception in November 2004 through March 6, Gold Trust gained 19% annualized.
If you want to buy gold in a more tangible form, you can buy bullion online -- just be sure to go through a reputable site, such as Blanchard's (www.blanchardonline.com). But you may face delivery delays because both companies have had trouble keeping up with heightened demand. Expect to pay 6% to 10% above spot market prices, which you can find at www.kitco.com.
The U.S. Mint lists dealers on its Web site at www.usmint.gov/bullion. However, none are affiliated or authorized by the Mint, so you'll have to do your own due diligence. You'll also need to worry about insurance and storage. But owning physical gold may have some nonmonetary rewards.
I've been seeing ads suggesting that the government will be sending people big checks, usually in amounts over $12,000, as part of the stimulus. Is the Treasury really going to be sending checks of this size? --Shepard C. Willner, Arlington, Va.
Nope. Scam artists started to devise stimulus-related schemes as soon as the law was passed. The Federal Trade Commission, Better Business Bureau and FBI are all warning people that these scams come in several varieties.
With the con you mention, the ad usually says that you can order a CD or access a special Web site that will show you how to get a $12,000 government grant -- if you make a small credit-card or debit-card payment. But read the fine print and you'll discover that you're also signing up for recurring charges on your card. The BBB, which has received hundreds of complaints about such sites, found that people who signed up for this advice were charged as much as $69.95 every month.
In another scheme, which surfaced when the first rebate checks were sent out last year, an e-mail claiming to be from the IRS warns that you need to respond promptly (often with your bank-account information) or you will forfeit your stimulus money. The IRS does not contact taxpayers by e-mail and never asks for personal-identification numbers, passwords, or secret access information for credit cards or bank accounts.
Just opening an attachment in one of these e-mails could cause problems -- potentially infecting your computer with a virus or malicious software. And clicking on a link in the message could direct you to a phishing site -- a phony Web site set up to collect personal information and steal your identity. For warnings about e-mail hoaxes and phishing scams, see the FBI's Cyber Investigations Web site.
Write off WaMu stock?
Is my Washington Mutual stock now considered worthless by the IRS? I have not yet sold my shares. Can I still claim the loss on my tax return? -- Mike Pappa, Bloomingdale, N.J.
In the eyes of the IRS, and in those of other investors, your WaMu shares still have value. For tax purposes, your shares won't be "worthless" until a bankruptcy court declares them so.
In September, after the Federal Deposit Insurance Corp. sold Washington Mutual Bank to JPMorgan Chase, the bank's parent, Washington Mutual Inc., filed for bankruptcy protection. After the filing, the New York Stock Exchange delisted Washington Mutual Inc., and its shares began trading under the symbol WAMUQ, in the over-the-counter market. The early-March price: 3 cents.
If a bankruptcy court declares the stock worthless in 2009, you'll need to use December 31 as your "sale date" on your 2009 tax returns and $0.00 as your "sale price." If the bankruptcy court has not yet declared the shares worthless as December 31 approaches, you can sell them as you would any other stock. You'll get to claim any fees you do pay for selling the shares as part of your capital loss when you file your 2009 return.
ID at check-in.
During a recent stay at a Best Western hotel in Florida, I paid with a credit card and was also asked for my driver's license so that the hotel could copy it. I was told it was "policy." Should I be concerned about identity theft? -- Vic Milani, Dickson City, Pa.
A Best Western spokesman says that more of its hotels are asking for proof of ID when taking a credit card, but any copies made should be destroyed after checkout. This practice isn't limited to Best Western -- many U.S. hotels now ask to make a copy of a driver's license at check-in, says Joe McInerney, of the American Hotel & Lodging Association. "They want to make sure the person on that reservation is the person who is staying there," he says.
In fact, some municipalities now require hotels to collect that information, which can help in case of a criminal investigation, says Paul Stephens, director of policy and advocacy at the Privacy Rights Clearinghouse. "I don't see it as being particularly risky," he says, especially if your Social Security number isn't on your license. Even so, you should ask for the copy of your ID back or watch the clerk shred it when you leave (which may be an option depending on local laws), says Jay Foley, executive director of the Identity Theft Resource Center.
One thing hotels can't do is require ID to verify ownership of a credit card. Both Visa and MasterCard have policies prohibiting merchants from refusing to complete a credit-card transaction solely because a cardholder does not provide additional identification.
My thanks to Elizabeth Ody and Manny Schiffres for their help this month.
Got a question? Ask Kim. Kimberly Lankford is the author of Ask Kim for Money Smart Solutions (Kaplan, $18.95).
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.