Of late, you can’t watch cable news for a day without seeing more advertisements about owning gold than you used to see in a year. That should tell you something. Because whenever an “investment” concept or idea gets so hot that it pays vendors to spend hugely increased advertising budgets—to get while the getting is good, as it were—you can be pretty sure that concept is in full-on bubble mode.

You will not have failed to notice that you never see wall-to-wall ads for something which is deeply out of fashion, with its price falling and therefore its long-term potential value increasing sharply. Last March, for example, you saw not one ad trumpeting a “50%-off sale on the great companies in America! Buy now—this sale can’t last!” That would have been (a) true, and therefore (b) a total waste of advertising dollars, as equities were so cheap precisely because they were universally considered an instant, fast-acting carcinogen at that time. That’s why they were such a good buy. Ad dollars are best spent on the easiest sale; the easiest sale is always whatever is most in vogue; in investing, the phrase “in vogue” is always interchangeable with the phrase “too late.”

Gold is quite wildly in vogue these days, as the apocalypse du jour—the next crisis which is sure to envelop us all—is popularly held to be inflation: literally, the depreciation of paper currency, and a concomitant rise in the price of hard assets like precious metals. And, like all possibilities that get spun into cataclysmic certainty in the mainstream media, there is even some basis in fact for this.

The United States, in running unprecedented deficits, does indeed threaten the debasement of the dollar, and in fact the dollar’s trend has been down against the other major world currencies—and against commodities—for some time. What’s astonishing is not this premise, but the conclusion that people draw from it: that because an increase in inflation may happen, it will certainly happen. And that gold—making “new historic highs” every day—is the sure bet to get inflation working for you instead of against you.

There is a certain childlike quality to this “reasoning”—as indeed there is to all investment bubbles. It’s a sweet, logical little story that anyone can understand. And all you have to do in order to subscribe to it is completely to ignore the entirety of the historical record.

Let’s begin with the notion of gold as an inflation hedge. In a very long-term sense, gold has, in fact, been a mildly efficient antidote to the erosion of purchasing power. It is axiomatic that an ounce of gold has historically bought a good men’s suit. It did so in London in 1700 and 1800, and in New York and London in 1900 and 2000. I checked the bespoke suit department at Barney’s here in New York over the Christmas shopping season, and found this relationship to be holding, though just barely.

But the idea that gold has a good record in more recent periods—and that equities have a bad record—is simply ludicrous.

Return with me now to that thrilling day of yesteryear: January 21, 1980—very nearly thirty years to the day before you read this. (You want to start training yourself to think in thirty-year clips, by the way, because that’s about the length of the average two-person American retirement that’s starting around now.) That was the day gold hit its previous bubble peak—its “record new historic high,” as journalism likes to call it—the last time around. It topped out at $850 an ounce.

Now here’s the really fascinating part. If gold had functioned as an efficient inflation hedge in the interim—that is, if its nominal dollar price had risen in lock-step with Consumer Price Index inflation, thereby offsetting it—it would have to be selling today at about $2266 per ounce.

It isn’t. As I write, a few days before Christmas, it’s $1110, and the “all-time record new historic high” of recent headlines was about $100 an ounce higher than it is now. Just to give gold the benefit of the doubt, do you want to call it $1250 an ounce?

Fine. At $1250 an ounce, the real price of gold, adjusted for CPI inflation, has fallen about 45% in the last thirty years. At $1110, of course, it’s down over half. (If you want to perform this calculation for yourself, go to the wonderful website www.measuringworth.com/uscompare. It lets you calculate by calendar year, so I did 1980 through 2008, and then added two percent as a plug number for 2009 CPI inflation.) Classics Illustrated comic books were a far better inflation hedge than that.

As were—hold on to your hat—common stocks. On January 21, 1980, the S&P 500 closed at 112. To have hedged against inflation—to have gone up in lock-step with the CPI, thereby offsetting inflation—the S&P 500 would have needed to rise to a tad more than 300 by year-end 2009. As I write, it’s 1100. That is, the real price of equities, adjusted for CPI inflation, has risen something like three and a half times in the last thirty years.

And of course, equities paid dividends. You had to pay to store gold.

What does any of this prove? Probably nothing, in the sense that the past—and especially any thirty-year clip of the past—doesn’t prove anything about the future. But it is highly suggestive of a couple of important truths. The first is that, if you’re going to invest in something that’s supposed to be a near-perfect inflation hedge, you’d better make real sure that it has, in fact, hedged inflation with some consistent efficiency. And the other is that there’s nothing like buying into investment fads to insure wildly substandard returns for years, and even decades, to come.

Next time you see six different ads for gold in one broadcasting day, these might be two really good things to bear in mind.

© 2010 Nick Murray. All rights reserved. Reprinted by permission.

Though grandparents are among the millions who have taken a big hit to their portfolios in recent years, careful planning can ensure a healthy contribution to the education and financial future of their grandchildren.

The first step involves a talk between grandchildren and their adult children. According to 2008 research from The Hartford Financial Services Group, 65 percent of grandparents surveyed reported that they plan to contribute financially to their grandchildren’s college education, but that less than one third of all survey participants talked with their adult children about those plans.

Statistics show the amount of money that changes hands between grandparents and their grandchildren is substantial even before the kids head off to college. Hartford reports that more than 40 percent of grandparents spend more than $2,000 annually on their grandchildren before they reach 18 years old. And once it’s time for the kids to head off to school, over half of grandparents who plan to contribute will give more than $10,000, with a quarter of those planning to give more than $30,000.

A visit to a CERTIFIED FINANCIAL PLANNER™ professional can help grandparents and their adult children coordinate a gifting strategy that makes sense. In the meantime, there are several options to consider:

Talk: Adult children and their parents might find it difficult to talk about money issues in general, but discussing a positive goal like funding a child’s future can pave the way to make discussions later about the grandparents’ estate issues and end-of-life care a little easier to handle. But initially, these discussions will hopefully deliver a reality check. The Hartford survey points out that 60 percent of the grandparents surveyed believe that financial aid will be the most likely way their grandchildren will pay for college in an era where federal aid is declining and grants and scholarship cover only an estimated 15 percent of total college costs.

Start early: While many families don’t turn to relatives for help until there’s an immediate need, earlier planning almost always produces better results. Grandparents already know that saving for a child’s college education is easier if it starts at birth. The same is true for the next generation, so grandparents or adult children need to set a plan in place as early as possible for maximum benefit.

Coordinate college support with overall estate planning: Grandparents should look at their support for their adult children and grandchildren as an overall part of their estate strategy. A CFP® professional, in concert with estate and tax experts, can help grandparents and their adult children settle a series of estate issues at one time, saving time, money and worry later.

Consider the 529 plan option: A 529 college savings plan is an investment vehicle operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Service Code, which created these plans in 1996. If parents have set up a 529 plan for their child, grandparents can contribute to that plan or they can set up their own 529 plan account with their grandchild as the beneficiary.

Watch the fees: No matter what savings or investment options you choose, make sure you’re not overpaying fees. A stock mutual fund may charge in excess of 1 percent of assets; you can certainly find quality mutual funds that charge less. Two good resources: Morningstar.com can provide you a general review of most mutual funds you might be considering. The second is the Security and Exchange Commission’s online Mutual Fund Cost Calculator () which can help you determine how the fees and other costs associated with the fund will add up over time.

Offer some investing training wheels: Grandparents have a unique relationship with their grandchildren. They can teach without “lecturing” like their parents, and for that reason, they might consider setting up an investment account with a small balance that the kids can monitor and discuss under the supervision of the grandparent.

Make the grandkids beneficiaries: Naming your grandchild as the beneficiary of a retirement account or insurance policy can be a tax-smart way to provide financial support for college or possibly a first home.

October 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V Higgins, CFP, ALU, AEP, a local member of FPA.