ORLANDO, Fla. -- Al Baker, 59, is a veteran financial adviser and vice president of Resource Group of Winter Park, Fla. He specializes in retirement planning, insurance and wealth management. He spoke recently with the Orlando Sentinel.
Q You're well-known for advising clients to include gold and precious-metals funds in their investment portfolios -- how have you handled the drop in prices this year?
A Well, we had a nice ride during the run-up in prices, and we took advantage of it. And, generally, we remain bullish on gold in the long-term. But clearly, you have to be willing to sell if it doesn't work the way it is suppose to work. Some people took the buy-and-hold approach, and they're losing money now. Most sold at the right time. Now we are buying back in.
Q How do you see it shaping up as a long-term strategy?
A Of course, you don't want to put all your money in gold funds or stocks; I advise about 5 percent to 10 percent, as a hedge against inflation and to boost your total return. That being said, I'd say now is a good time to buy back in and load up. Here's why: Though the dollar looks like it will go stronger for a little while longer -- and that will drive gold prices down some -- it is just a matter of time before the dollar falls back to its true value. And when that happens, even the people in Europe are going to run to gold. It has had an 11-year run-up in price; I don't think
Q Why have gold prices dropped this year?
A For one thing, big-money institutional investors sold out their positions. That often happens after there's a big price run-up. Now they are starting to go back in. Gold goes down when the dollar looks like a safe haven, and, at least for the moment, that is what has happened as the European debt crisis plays out and other currencies look like they're falling apart. Many countries are moving money to the dollar and U.S. Treasuries, but when Europe's debt situation gets under control, you'll see the dollar drop big time, which will boost the price of gold again.
Q How would you advise long-term investors if they are considering "adding gold" to their portfolios?
A If the dollar continues to go up for a long period of time, you have to sell out and take your profits. Don't just keep taking big losses. At the same time, if you're starting to get into gold, it is a good time to buy when prices are lower -- just scale into it gradually by making it 2 percent or 3 percent of your holdings. Consider gold-based exchange-traded funds that limit your exposure; even gold-mining stocks are worth a look. They didn't do well in the run-up, and they are more volatile, but they are still undervalued.
Q What is the biggest mistake you have seen gold investors make?
A Obviously, not selling at the right time, not knowing when it is time to take profits. Gold is like all hyped asset classes -- when there's a run-up, you have to take some money off the table. This is more of an art than a science. You have to rebalance your portfolio, which in a sense is just another name for market timing. Some clients don't want exposure to gold at all, while a few of them, all they want to trade in is gold. Last year, we had some accounts that almost doubled their money. Since then, it's been harder to make money. And once you've had big gains like that, sometimes you just need to cut your losses and walk away from it.
Q Speaking of hype, how did you advise clients during the recent Facebook IPO?
A Oh, sure, I had clients calling about that. I told them to stay away from it. Why? Because it's an $8 to $10 stock, based on their earnings-to-price ratio. And there's no reason those shares should go any higher than that unless they pull a rabbit out of the hat that we haven't seen yet. The IPO was over-hyped. No doubt about it.