Ron Swanson’s Gold Bars

Ron Swanson and his bad investments

If you watch Parks and Recreation you will know what I am talking about. If you don’t, you should get involved, it’s brilliant. Ron is cynical and old school and his idea of a savings plan is accumulating as many gold bars as possible and burying them in his back yard. Not the usual kind of strategies I recommend to my clients, that’s for sure.

So, what is the problem with this strategy then? Other than the insurance nightmare and the fact that you literally have all of your wealth buried in your back yard, there are two little things you are missing out on: the compound effect, and diversification.

Why are they important? One of them helps you get rich quicker, and the other one reduces your risk as you do.

Compounding is the process of reinvesting your earnings and then generating more earnings from a  larger base. Say you buy some shares, and hopefully twice a year they provide you with a dividend. If instead of taking the dividends and spending it, you use it to buy more shares, you are growing your wealth. The more you do this, the more you have, and as you can expect the longer you do it, the more beneficial it is.

Unless the gold bars are mating underground, I dare say Ron cannot count on the compounding effect.

Diversification on the other hand means that you are spreading your risk amongst an array of different  investments, sectors, locations, etc. The possibilities for diversification are almost endless. If Ron’s back yard is robbed, all his wealth is gone. The equivalent is having all your money in the share market, then it crashes, and so does the entirety of your wealth.

If you were diversified, you would probably hold shares, but when they are tanking, you could also have Term Deposits, Bonds, Property and other investments holding up their end of the bargain, so it isn’t so much of a blow to the guts.

Again Ron, no diversification with your gold bars strategy.

So, for those who are doing a Ron, and stashing gold and silver bars in your sock draw, you may want to reconsider this strategy.

If you still want to invest in gold, that’s ok, you can. There are certain Managed Funds, ETFs or listed investment companies that have a percentage asset allocation to gold. As the old adage goes, don’t put all your eggs in one basket.

– This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.

Posted in: Financial PlanningInvestments and Cara Brett

About the author: Cara Brett

Cara Brett proudly heads up Bounce Financial - founded in 2014 after a successful, decade-long career in the financial services industry. Cara’s experience encompasses both the financial product and financial advice sides. This gives her a comprehensive and holistic knowledge of all facets of financial planning.