Dear Sir,

Articles like this (“As We See It: Rogue Traders”) do very little to help people invest for their future and usually deter individuals from evaluating sensible financial plans. Quite frankly this article does a disservice to individuals on the island as it encourages them to ‘tuck their savings under their mattresses’ as opposed to putting their money to work for them in a plan that is consistent with their financial goals, time horizons, risk tolerances and return objectives.

To put it in perspective, gold as a commodity returned 4.44% from 1926 to 2007 using the average price of gold for each year. This is only slightly higher than the average inflation rate of 3.4% (from 1913 to 2008). Also, gold has significant volatility, take for example the years of 1979, 1980 and 1981. Gold’s average price doubled from 1979 to 1980, and then in 1981 the price declined in price by 25.2%.

In contrast, if an investor wanted to receive a similar return, they could have received a return of 3.7% from 1926 to 2007 (the same time period) by investing in US Government T-Bills. This return would have been achieved with significantly less risk and sleepless nights. Further, large stocks as represented by the S&P 500 index returned 10.4% over the same time period from 1926 to 2007.

Commodities may or may not have a place in an individual’s portfolio, this depends on the financial plan that each individual develops with trusted advisors; whether the advisors are family members, mentors, investment advisors or financial professionals. Gold may be right for you as an investor or large stocks or US T-Bills may be right, or some combination of the above. This can only be determined by sitting down with a financial professional and developing a plan that takes into account your current life situation and your goals.

Yes, there are rogue traders, and yes banks and companies do fail. However, the blanket statement, ‘At least 25 to 30 percent of stock funds should be in things like gold, silver or any of the commodities that never seem to lose value.’ is egregious and misleading. Please before making any decision, consult with a professional advisor. Knowledge is power and by exploring various alternatives you will be able to educate yourself properly.

Please do not listen to rogue reporters.

Jason Zomok, CFA