Gold Coins Can Add Extra Luster

02/20/2012 8:00 am EST

Focus: ALTERNATIVE INVESTMENTS

Michigan-based advisor David White has some tips for using gold, particularly collectible coins, to shine up your net worth. He also shares a couple of ideas about real-estate investing through REITs.

Kate Stalter: Today, I am speaking with advisor David White.

David, you have a bit of a different take on alternative investments in the volatile equity market that we have been experiencing recently. Tell us a little bit about that.

David White: Well, it’s based on the idea that we think that the stock market is going down. We think it is going as low as 7,000, the Dow is, which is about a 45% decrease. We are trying to protect our clients and make sure that they maintain their value and their investments, and actually increase them during the bad times.

The interesting thing is that it is actually easier to make money in a down market than it is in an up market, because the market always goes down faster than it climbs. So there are a variety of ways of doing that, such as buying puts or buying inverse accountsâ€"exchange traded funds with inverse accounts.

Another way we can do it, for our clients that are a risk-averse and they want to have income, is to buy things such as real estate investment trusts.

Kate Stalter: I understand that you have a few specifics or geographic areas, or even particular asset classes within REITs that you like. Tell us about those.

David White: Well, you know, the old standard line about what makes a good real estate investment is location, location, location, and that is certainly true not only in buying your house, but it is also true buying a real-estate investment.

First of all, their business plan should make sense to you. One of the ones that I really like is one that is located down in Texas, and the reason I like Texas is because they have got a cattle industry, they have got a shipping industry, they have got the oil and gas industry. And you have got a warm climate, so people are moving there.

And they have got a right-to-work state, so businesses are moving there that want to avoid excessive government regulations. They also have heavy spending from military. As a result, this is an area that is booming and doing very well, and that should continue to do well.

So one of the REITs that I like is one called Hartmanâ€"and again I should mention that I’m a registered representative for Centaurus, and that these are my opinions and not their opinions, and that past performance doesn’t guarantee future performance.

But Hartman is one of the ones that I have liked for a long time because I like their location and I like their business plan of staying in a winning area and of buying properties, fixing them up and renting them out, and they have a 25-year history of doing that.

Kate Stalter: Any other regions or particular REITs that you like right now?

David White: Well I also like, there is another one called Griffin, and Griffin is a little bit different in that it is not so directed by region, but it is directed by buying buildings that are mission-critical. So they will buy home offices of major corporations, and they will buy data centers, and they will buy shipping warehouses or distribution centers, where all the goods come in from overseas and then they are going to be distributed.

These are all buildings where millions of dollars have been spent on the equipment, and the tenant isn’t likely to move out because it is their home office or it is their data center or their distributing center.

[Hartman and Griffin are non-traded REITs, which means that they aren’t available quite as easily as publicly listed REITs. Contact your investment advisor for more informationâ€"Editor.]

Kate Stalter: As I understand it, you advise your clients about precious metals. Tell us how you believe people should get exposure to the precious metals.

David White: Well I do like the miners, especially some of the junior miners, because I think the bigger ones have already moved enough.

And just like a baby that goes from being born at 7 pounds, and then a year later being 14 pounds, smaller companies can grow faster than bigger companies. Yes, of course they have more risk, but they also have more upside, so the junior miners actually have way more chance to explode in value.

We also like a simple way to buy metals, gold or silver, which is to buy exchange traded funds, It’s a great way to do it.

Beyond that, a number of our clients are into collectible coins, and have done extremely well with collectible coins. As a matter of fact, a quick, funny story: One of my clients put about $100,000 into some collectible coins about six or seven years ago and he did a good job of choosing, and today they are worth over $1 million.

I had him explaining this in one of my client seminars, and his wife suddenly stood up and walked up next to him and whispered something in his ear. He turned to the audience and he said, “Just to let you know, Mary wants you to know that these collectible coins are not in our house…they are in a safety deposit box.” Which is obviously where you should keep your collectible coins. But that is another way to do it.

Again, there are advantages and disadvantages. The advantage is that collectible coins tend to increase in value faster than the actual metal itself. If you are just buying the bullion, that is going to probably go up in value too. The collectible coins are really commemorate things, and they have value to people that go beyond their intrinsic value, so they tend to go up faster.

There are things like, you can buy the American Eagles or you can buy the Australian Koala Bears or the Australian Kangaroos, or you can buy…China has the Pandas, and England has the Olympics coming up and they have got a set of gold coins that they have struck that are commemorating the 2012 Olympics.

I mean, there are a lot of things that kind of involve history. Or you can go back and you can buy Spanish doubloons if you want.

Kate Stalter: David, is this an area that people should be more self-directed in discovering the investments, or should they be working with their advisors on this?

David White: Because you should be well educated on everything you buy; you should never just trust somebody and say, “Whatever you say, I’m gonna do.”

It should make sense to you. If it doesn’t make sense, you shouldn’t do it, and it should be simple enough that it can be explained on a napkin. If I can’t explain something on a napkin to somebody over lunch, than it is too complicated and they shouldn’t go into it.

People are smart and if it doesn’t make sense to you, than you should run away from it. These complicated derivatives and all of this nonsense…how many people understand what a derivative is?

Kate Stalter: Right, even governments got into a lot of trouble with that a few years back.

David White: That is right. Collectible coins aren’t for everybody, and you are also paying a real premium when you buy collectible coins, because the value of goldâ€"if it is a one-ounce coin, it might be $700 and you might end up paying $10,000 for it if it is 70 proof or 69 proofâ€"so you are going to be paying more.

If you are just buying a regular one from the local gold shop, you might be paying a premium of 5 to 10% over if you are just buying the bullion. Again, they tend to appreciate.

The other thing is they are kind of fun to have. It is fun to hold a gold coin.

Another thing we are telling our clients is go out and don’t get some of these more expensive ones, but just go out and get an American Eagle. Get one for each of your grandkids or each of your kids, and stick it in a safety deposit box and do it every year and see what they have.

Another thing we like a lot is oil. One of my clients bought some Exxon Mobil (XOM) years ago for $5,000, and he ended up paying for his son’s college education and for his daughter’s college and her med school with that $5,000 investment.

It’s the same thing: Buy something good and stick it away, whether it is some shares of a quality company like an Exxonâ€"and I’m not recommending buying Exxon at this point, I’m just using that as an example of something that did workâ€"or buying some gold coins and sticking them away.

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