What to do with Gold?

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happyyoda
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Joined: Mon Feb 20, 2017 9:02 pm

What to do with Gold?

Post by happyyoda »

Hello, I am new to posting in Bogleheads.

Back in 2011, I was interested in the Permanent Portfolio and invested 25% of my portfolio in Gold ETFs (GLD, IAU) over a period of 2011-2012.

I have been reading the Bogleheads forums and articles for the past several months. I am in the process of implementing a Three Fund Portfolio by rebalancing all the funds in my portfolio, excluding Gold.

Gold is now 20% of my portfolio and it has dropped in value by about 26%. What do I do with the Gold ETFs?
A. Wait for them to go up, sell when it breaks even to my purchase price and then add it to the Three Fund Portfolio?
B. Take a loss and sell them now (buy high, sell low?! :( ) and then add it to the Three Fund Portfolio?
C. Any other options to consider?

I feel like I am going through the anchoring behavior (Investors will tend to hang on to losing investments by waiting for the investment to break even at the price at which it was purchased).

I am confused and I could use some advice.

Thanks in advance.
beardsworth
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Joined: Fri Jun 15, 2007 4:02 pm

Re: What to do with Gold?

Post by beardsworth »

It looks like you just joined the forum today, so welcome.

It's nearly always a good idea to use that search box at the top right of the forum page to see what has previously been discussed about a subject before starting a new thread.

If you so searches for "gold" and "permanent portfolio," you'll find a vast number of previous discussions, in addition to your interest in the more standard three-fund portfolio.
Raabe34
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Joined: Tue Apr 14, 2009 9:58 am

Re: What to do with Gold?

Post by Raabe34 »

In holding that gold in an ETF you run into a problem called contango. Look that up and see if you still want to hold it in that manner.

I would feel different if you had physical gold but you can't win with etf's.
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Phineas J. Whoopee
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Re: What to do with Gold?

Post by Phineas J. Whoopee »

happyyoda wrote:Hello, I am new to posting in Bogleheads.
Welcome to the forum.
happyyoda wrote:Back in 2011, I was interested in the Permanent Portfolio and invested 25% of my portfolio in Gold ETFs (GLD, IAU) over a period of 2011-2012.
I see.
happyyoda wrote:I have been reading the Bogleheads forums and articles for the past several months. I am in the process of implementing a Three Fund Portfolio by rebalancing all the funds in my portfolio, excluding Gold.
The first response I have is are you convinced you're right now, and were wrong before? Changing strategy every few years is a losing proposition, as long as you keep costs low and stay the course, whatever the course is.
happyyoda wrote:Gold is now 20% of my portfolio and it has dropped in value by about 26%. What do I do with the Gold ETFs?
A. Wait for them to go up, sell when it breaks even to my purchase price and then add it to the Three Fund Portfolio?
B. Take a loss and sell them now (buy high, sell low?! :( ) and then add it to the Three Fund Portfolio?
C. Any other options to consider?
This is my opinion. Some posters disagree, although I don't understand why. If your present portfolio clearly is inappropriate for you, and another is clearly better, it makes no sense to linger in the wrong one rather than move expeditiously to the superior one, taking any tax consequences into account.
happyyoda wrote:I feel like I am going through the anchoring behavior (Investors will tend to hang on to losing investments by waiting for the investment to break even at the price at which it was purchased).
That's precisely what it sounds like.
happyyoda wrote:I am confused and I could use some advice. ...
In the popular press and informal conversation one often comes across never sell at a loss. It's hogwash anchoring, as you correctly identified. What if gold doesn't go back up, but what you want to buy now does? You can't tell what will happen, so implement a suitable portfolio for your needs and stick with it.

What was your reasoning to use the permanent portfolio, and what is your reasoning now to go to the three-fund one? I'm not saying I think it's a bad decision. I'm saying one big behavioral pitfall is convincing yourself to change strategies every few years. Why do you think you will stick with your new one? That's not a challenge, but a suggestion for self-reflection.

PJW
qwertyjazz
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Re: What to do with Gold?

Post by qwertyjazz »

IMO the PP is not bad nor is the 3 fund - chasing yield is though - bouncing back and forth will realize worse returns - you will always buy high and sell low looking for the next thing
FWIW I recommend take a few months and read - then write an IPS - if that has the 3 fund great - take your hit with selling whatever you need to - maybe time it a bit for tax purposes - then stay the course
YMMV
G.E. Box "All models are wrong, but some are useful."
AlohaJoe
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Re: What to do with Gold?

Post by AlohaJoe »

happyyoda wrote:I am confused and I could use some advice.
FWIW, most of your post isn't related to the heart of your question :) I find that stripping a question down to the barebones make it easier to search for previous questions & answers on the same topic. (While the specifics may vary from question to question they rarely matter since the underlying principles are what are important most of the time.)

"I bought a thing, now I want to sell a thing. Should I sell it at a loss or hold on and wait until it recovers?"

If you search the forum for "sell at a loss" you'll see hundreds of people who have been in the same situation and gotten advice from the forum.

Here are a few to get you started to see what kinds of replies the question usually gets:

Sell silver at a loss or hold on? viewtopic.php?t=205819
Sell stock options at a loss or hold on? viewtopic.php?t=162824
Sell high cost mutual fund at a loss or hold on? viewtopic.php?t=186083
randomguy
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Re: What to do with Gold?

Post by randomguy »

happyyoda wrote:.

Gold is now 20% of my portfolio and it has dropped in value by about 26%. What do I do with the Gold ETFs?
A. Wait for them to go up, sell when it breaks even to my purchase price and then add it to the Three Fund Portfolio?
B. Take a loss and sell them now (buy high, sell low?! :( ) and then add it to the Three Fund Portfolio?
C. Any other options to consider?

.
D) Stay the course. Hold the gold and hope that in 10-20 years it turns out to be a decent investment. You need to decide if you are just chasing performance (gold did well from 2000-2010, stocks have done well from 2010+) or if you have no decided that the portfolio you created isn't right. Staying the course is by far the hardest part of investing. There is pretty much always something performing better than what you are holding and the temptation to switch is large.


I don't recommend holding gold but I think that is a pretty personal choice and not one that is clearly right or wrong.
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Phineas J. Whoopee
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Re: What to do with Gold?

Post by Phineas J. Whoopee »

Raabe34 wrote:In holding that gold in an ETF you run into a problem called contango. Look that up and see if you still want to hold it in that manner.

I would feel different if you had physical gold but you can't win with etf's.
According to their websites, both ETFs OP mentions, the SPDR Gold Trust, GLD, and the iShares Gold Trust, IAU, hold allocated physical metal in vaults, not futures.

PJW
Raabe34
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Re: What to do with Gold?

Post by Raabe34 »

Phineas J. Whoopee wrote:
Raabe34 wrote:In holding that gold in an ETF you run into a problem called contango. Look that up and see if you still want to hold it in that manner.

I would feel different if you had physical gold but you can't win with etf's.
According to their websites, both ETFs OP mentions, the SPDR Gold Trust, GLD, and the iShares Gold Trust, IAU, hold allocated physical metal in vaults, not futures.

PJW
Interesting. Do you have any idea when they went to physical? I traded DBO a couple times years ago and learned I couldn't win even when I was picking good trade dates over a decade ago.
lack_ey
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Re: What to do with Gold?

Post by lack_ey »

Raabe34 wrote:
Phineas J. Whoopee wrote:
Raabe34 wrote:In holding that gold in an ETF you run into a problem called contango. Look that up and see if you still want to hold it in that manner.

I would feel different if you had physical gold but you can't win with etf's.
According to their websites, both ETFs OP mentions, the SPDR Gold Trust, GLD, and the iShares Gold Trust, IAU, hold allocated physical metal in vaults, not futures.

PJW
Interesting. Do you have any idea when they went to physical? I traded DBO a couple times years ago and learned I couldn't win even when I was picking good trade dates over a decade ago.
Should be since inception. Here's an article from 2007:
https://www.fool.com/investing/etf/2007 ... -etfs.aspx

It's different for the non-precious-metals funds/trusts/ETFs/ETNs/whatevers, which use futures. Many but not all of the precious metals funds/trusts/ETFs/ETNs/whatevers hold physical assets.

It's cheaper to store precious metals than most commodities.
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Phineas J. Whoopee
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Re: What to do with Gold?

Post by Phineas J. Whoopee »

Raabe34 wrote:
Phineas J. Whoopee wrote:
Raabe34 wrote:In holding that gold in an ETF you run into a problem called contango. Look that up and see if you still want to hold it in that manner.

I would feel different if you had physical gold but you can't win with etf's.
According to their websites, both ETFs OP mentions, the SPDR Gold Trust, GLD, and the iShares Gold Trust, IAU, hold allocated physical metal in vaults, not futures.

PJW
Interesting. Do you have any idea when they went to physical? I traded DBO a couple times years ago and learned I couldn't win even when I was picking good trade dates over a decade ago.
I wouldn't make a big deal out of this if it didn't illustrate a very important point.

The ETFs the OP specified invest in physical metal. The completely different one you specified, and it would be ever so much easier on the people trying to help you if you spelled out fund names as well as tickers, PowerShares DB Oil Fund, DBO, invests in futures and their collateral. It doesn't even aim at the same commodity. Why would it be similar?

It is not the case that each and every ETF uses the same investing approach, if that was the misunderstanding.

Here's' the very important point because of which I've responded: Before buying any ETF or mutual fund read the statutory prospectus and find out what it invests in, or risk losing your shirt when you least expect it.

PJW
Topic Author
happyyoda
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Re: What to do with Gold?

Post by happyyoda »

Thanks for all your replies, appreciate it.

BTW, my holdings are all in Tax Advantaged IRA accounts.
Phineas J. Whoopee wrote: What was your reasoning to use the permanent portfolio, and what is your reasoning now to go to the three-fund one? I'm not saying I think it's a bad decision. I'm saying one big behavioral pitfall is convincing yourself to change strategies every few years. Why do you think you will stick with your new one? That's not a challenge, but a suggestion for self-reflection.
PJW
I was introduced to Gold ETFs and the Permanent portfolio by a friend! :happy After seeing how my portfolio has performed and reading more in the bogleheads forums, I feel that holding Gold ETFs and Cash are not good investments to take me through my retirement.
Like qwertyjazz suggested below, I will complete my IPS to validate my strategy.
qwertyjazz wrote:IMO the PP is not bad nor is the 3 fund - chasing yield is though - bouncing back and forth will realize worse returns - you will always buy high and sell low looking for the next thing
FWIW I recommend take a few months and read - then write an IPS - if that has the 3 fund great - take your hit with selling whatever you need to - maybe time it a bit for tax purposes - then stay the course
YMMV
Thanks – I will do that and I will complete my IPS to validate my strategy.
AlohaJoe wrote: Here are a few to get you started to see what kinds of replies the question usually gets:

Sell silver at a loss or hold on? viewtopic.php?t=205819
Sell stock options at a loss or hold on? viewtopic.php?t=162824
Sell high cost mutual fund at a loss or hold on? viewtopic.php?t=186083
Thanks for the links – I will review them.
randomguy wrote: D) Stay the course. Hold the gold and hope that in 10-20 years it turns out to be a decent investment. You need to decide if you are just chasing performance (gold did well from 2000-2010, stocks have done well from 2010+) or if you have no decided that the portfolio you created isn't right. Staying the course is by far the hardest part of investing. There is pretty much always something performing better than what you are holding and the temptation to switch is large.
I don't recommend holding gold but I think that is a pretty personal choice and not one that is clearly right or wrong.
Thanks for your response.
Raabe34
Posts: 267
Joined: Tue Apr 14, 2009 9:58 am

Re: What to do with Gold?

Post by Raabe34 »

Phineas J. Whoopee wrote:
Raabe34 wrote:
Phineas J. Whoopee wrote:
Raabe34 wrote:In holding that gold in an ETF you run into a problem called contango. Look that up and see if you still want to hold it in that manner.

I would feel different if you had physical gold but you can't win with etf's.
According to their websites, both ETFs OP mentions, the SPDR Gold Trust, GLD, and the iShares Gold Trust, IAU, hold allocated physical metal in vaults, not futures.

PJW
Interesting. Do you have any idea when they went to physical? I traded DBO a couple times years ago and learned I couldn't win even when I was picking good trade dates over a decade ago.
I wouldn't make a big deal out of this if it didn't illustrate a very important point.

The ETFs the OP specified invest in physical metal. The completely different one you specified, and it would be ever so much easier on the people trying to help you if you spelled out fund names as well as tickers, PowerShares DB Oil Fund, DBO, invests in futures and their collateral. It doesn't even aim at the same commodity. Why would it be similar?

It is not the case that each and every ETF uses the same investing approach, if that was the misunderstanding.

Here's' the very important point because of which I've responded: Before buying any ETF or mutual fund read the statutory prospectus and find out what it invests in, or risk losing your shirt when you least expect it.

PJW
Yeah I assumed they all lived in futures as I really don't follow approach anymore since getting burned before those were created. I was wrong.
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Abel
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Re: What to do with Gold?

Post by Abel »

As you probably know, the Permanent Portfolio is designed to give good returns on the entire portfolio, and not on any individual component. So it's not doing the theory any justice by saying gold is down, so it's a loss, I can't sell it now. From the overall portfolio point of view the portfolio did well while you held it, so if you choose to use another portfolio, then when you go to sell the components of the Permanent Portfolio, just do it, since it achieved its goal. Don't fret about the individual components. Just make a clean break, i.e. switch completely to the new portfolio. And of course, then stay the course with it to get the best results.
mickroark
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Re: What to do with Gold?

Post by mickroark »

Gold always zooms higher when we go into a recession and the Fed lowers interest rates. So if your are like me, and you are a buy and hold investor, gold helps you hold on to those stocks when there is fear in on the street. So yes I own IAU, a small amount in this gold etf.
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oldcomputerguy
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Re: What to do with Gold?

Post by oldcomputerguy »

happyyoda wrote:Thanks for all your replies, appreciate it.

BTW, my holdings are all in Tax Advantaged IRA accounts.
Phineas J. Whoopee wrote: What was your reasoning to use the permanent portfolio, and what is your reasoning now to go to the three-fund one? I'm not saying I think it's a bad decision. I'm saying one big behavioral pitfall is convincing yourself to change strategies every few years. Why do you think you will stick with your new one? That's not a challenge, but a suggestion for self-reflection.
PJW
I was introduced to Gold ETFs and the Permanent portfolio by a friend! :happy After seeing how my portfolio has performed and reading more in the bogleheads forums, I feel that holding Gold ETFs and Cash are not good investments to take me through my retirement.
I'm not making any suggestion pro or con regarding investing in gold (there's adequate amounts of such here already), but your statement seems to me to be hinting at chasing performance.

Ask yourself this: why did I invest in the Permanent Portfolio? In other words, what about the PP convinced you that it would meet your investing needs? Think about each asset class in the PP, and about how it contributes to the overall portfolio. If you can't answer this question, then perhaps yes, it might be time to make a change in your allocation. Investing in something, anything, because "a friend told me to" is, in a word, bad. You need to be comfortable with your portfolio. all of it, and you need to understand why you invested the way you did. If you just invest because "XXXX told me to" (whether "XXXX" is a friend, a financial advisor, a trusted relative, or whoever) without understanding the implications, then the next time there's a serious downturn (or even a minor one), you'll doubt your choice and end up making changes where you should be staying the course. This is the hard part of investing.

That being said, if you carefully consider the PP and why you invested in it, and you conclude that it is indeed the right choice for you, then the answer to your initial question would be that you rebalance out of the holdings that have done better and into gold, in order to return your portfolio to the original proportions. Yes, it feels bad selling a winner and buying a loser, but that's how rebalancing works.

Personally, although there are pros and cons to investing in gold, I don't. I'm in three-fund, and I'm there after a year (more or less) of reading, considering, consulting the great guys here on Bogleheads, and understanding why the three-fund is a good choice for me (and why gold is not something I want to invest in). I sleep pretty well at night.
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)
Call_Me_Op
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Re: What to do with Gold?

Post by Call_Me_Op »

The Permanent Portfolio does not work well unless you stick with it. The same can be said of the 3 fund portfolio - or any portfolio. If you are abandoning the PP because gold has lost value, you did not understand it in the first place.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Tylenol Jones
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Re: What to do with Gold?

Post by Tylenol Jones »

Abel wrote:As you probably know, the Permanent Portfolio is designed to give good returns on the entire portfolio, and not on any individual component. So it's not doing the theory any justice by saying gold is down, so it's a loss, I can't sell it now. From the overall portfolio point of view the portfolio did well while you held it, so if you choose to use another portfolio, then when you go to sell the components of the Permanent Portfolio, just do it, since it achieved its goal. Don't fret about the individual components. Just make a clean break, i.e. switch completely to the new portfolio. And of course, then stay the course with it to get the best results.
This is right. Your whole portfolio has gained, so sell your whole portfolio and buy whatever new portfolio you want to buy.
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