The Gun Safe as an Investment

In this bad economy, I've heard a lot of people suggest that various commodities make good investments. You only have to turn on the TV to hear the talking heads advertising "Gold!" And lots of people are insinuating that their guns, musical instruments, vehicles, or other durable goods will hold value better than the US dollar. They may hold their value better than the dollar, but the problem is that guns, precious metals, or other such commodities are not really "investments." They are solely repositories of wealth. They don't produce anything of value. I don't close up my gun safe and expect my full size M&P to spawn a baby subcompact overnight.

If 1 oz of gold -- or a nice rifle, or a quality musical instrument -- could be traded for a really nice suit back in 1902, it still can only be traded for a really nice suit today. Its real purchasing power doesn't tend to increase a whole lot (other than if prices in general go down due to increased supply). The only thing you can get with commodities is capital appreciation or capital gains (from inflation). Often, those inflation-based gains are taxed at 28% as collectibles. Now, this isn't always a bad thing; commodities are a good way to protect your current wealth. Just don't expect it to grow a whole lot, unless you are timing the markets and taking advantage of short-term price swings (which statistically most people cannot pull off).

In my opinion, an investment, on the other hand, generates some sort of positive revenue stream because it is actually productive and creates wealth. For example, money in a savings account is used by the fractional reserve banking system to generate profits for the bank, so the bank pays you some interest. Stock in Pepsi pays dividends because the company adds value to soda water and sells it for profit. A property can be rented to tenants.

Unlike the aforementioned investments, buying gold or guns as "investments" is only one step removed from shoving cash under a mattress. That money is not working for you at all. It also lacks liquidity. Commodities are basically resources shoved under a mattress that lack liquidity but have greater protection from inflation.

If you want to invest but are leery of traditional financial investments, then try to find a way to put your savings to work. For example, investing in a local small business that you feel has a good, recession-proof business model could be an option. A rental property can create an income stream. Purchasing tools and training for a viable home-based small business of your own is a revenue-bearing investment. However, most of these sorts of options may have even higher risk than traditional investments; over 80% of small businesses fail. While we may see inflation in the future, I think the chance of hyperinflation wiping out the value of my CDs in the next 12 months is less than the risk that a small business will fail.

I'm not suggesting that you ditch all of your commodities. But, I'd suggest seeing them as insurance or hedges, not as growing investments. Money tied up in a 10/22 target rifle in the safe is not producing more baby 10/22 carbines that increase wealth. Money tied up in Ruger stock is.

Plus, those commodities in the vast majority of likely situations are less useful than a fistful of cash; they are much less liquid; the main advantage is that they preserve wealth in inflationary times. Additionally, you incur storage costs (insurance on physical cash, musical instruments, gold, firearms, etc runs ~1-2% of their value every year). People who hope for massive capital appreciation are basically hoping that demand will go up dramatically (hyperinflation, or a situation where gold/guns/musical instruments rapidly become widely popular) or supply will go down dramatically (for example, a new AWB).

Even if we did have an unlikely situation such as skyrocketing overnight hyperinflation with no warning, I'm pretty sure that trading in commodities like gold and guns would rapidly become highly restricted (i.e., difficult and with high transaction costs). For example, even under current law, you'd be responsible for that 28% collectibles tax to the IRS, and I'd think that the IRS would crack down hard on "under the table" barter if we did see hyperinflation. Trading in illicit/restricted goods tends to make a few dealers and smugglers wealthy. Just because you have a safe full of "ballistic wampum" or gold rounds does not mean that you'll be able to trade them to Uncle Vinnie the Smuggler for a fair price.

I think a lot of people like to see their gun safe as an "investment." They say, "Oh, it is ok I didn't max out my Roth IRA this year because I invested in some new guns." But they don't think one step further and realize that their gun safe is not creating new wealth for them; at best, it is merely safeguarding wealth they've already acquired and more likely its an excuse to justify buying more toys. Many of the commodities are really liabilities in that they take money out of your pocket every month (insurance, maintenance, storage costs), not assets that put money into your pocket every month. I'm not saying don't buy guns; I'm just saying don't kid yourself about their value as an investment or as an asset.

Commodities = Insurance to protect wealth
Investments = Wealth working to create more wealth