Any thoughts on the role of Gold in your portfolio?

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ericcohen
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Any thoughts on the role of Gold in your portfolio?

Post by ericcohen » Sat Jan 12, 2019 2:41 pm

I've been fooling trying to come up with an optimal asset allocation --back testing various portfolios through many different periods. I've noticed my results are almost always improved when I include Gold in my asset allocation at around 5%. By improved I mean less volatility, with almost equivalent performance, fewer draw downs, higher sharp and sortino ratios etc

Thoughts? Anyone actually do this?

Go easy on me. I'm new here. :wink:

dbr
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Re: Any thoughts on the role of Gold in your portfolio?

Post by dbr » Sat Jan 12, 2019 2:43 pm

There is a lot of reading to be had: https://www.google.com/search?sitesearc ... org&q=gold

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ericcohen
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Re: Any thoughts on the role of Gold in your portfolio?

Post by ericcohen » Sat Jan 12, 2019 2:48 pm

dbr wrote:
Sat Jan 12, 2019 2:43 pm
There is a lot of reading to be had: https://www.google.com/search?sitesearc ... org&q=gold
A list of every time the word "gold" has been used on this site doesn't really address my questions though.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Whakamole » Sat Jan 12, 2019 2:53 pm

ericcohen wrote:
Sat Jan 12, 2019 2:48 pm
dbr wrote:
Sat Jan 12, 2019 2:43 pm
There is a lot of reading to be had: https://www.google.com/search?sitesearc ... org&q=gold
A list of every time the word "gold" has been used on this site doesn't really address my questions though.
I clicked on the link, and most of the threads are discussing the very question you are asking.

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Watty
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Re: Any thoughts on the role of Gold in your portfolio?

Post by Watty » Sat Jan 12, 2019 2:59 pm

dbr wrote:
Sat Jan 12, 2019 2:43 pm
There is a lot of reading to be had: https://www.google.com/search?sitesearc ... org&q=gold
+1

That is a good way to start researching gold.

Two quick points;

1) Owning some gold for the zombie apocalypse is one thing but that is not what you are talking about. Owning gold as a diversiver is little different than owning some other commodity as a diversifier, except gold is "sexier". I have not done any in depth research but my index funds already have a lot of exposure to commodities, especially oil, so that is good enough for me.

2) Be very careful in backtesting involving gold ownership. Owning Gold in the US was not legal until 1974 so any data from before that is not very useful and could be reflecting a totally different investing environment. 45 years of history, starting during high inflation years, is not enough data for good backtesting.

dbr
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Re: Any thoughts on the role of Gold in your portfolio?

Post by dbr » Sat Jan 12, 2019 3:03 pm

OK The answer is that people do indeed hold gold. Maybe some of them will answer.

A serious approach to holding gold as part of a portfolio would be the Permanent Portfolio. https://www.investopedia.com/terms/p/pe ... tfolio.asp You can find lots of discussion of that on this forum as well if you search for it. But in that case the gold holding is 25%. It is very difficult to have much of an effect on a portfolio at 5% of any holding even if some statistic is marginally improved. You could list your results for comment perhaps.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Artsdoctor » Sat Jan 12, 2019 3:04 pm

Personally, I view gold as a speculative play. It has no earnings and I do not invest in anything which would have no hope of earnings. There are commodities traders who would disagree, of course.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by willthrill81 » Sat Jan 12, 2019 3:13 pm

Portfolios with a 10-20% allocation to gold over the last 48 years have done well. Whether this will play out in the future is a different matter.

That being said, I hold no gold in my investment portfolio. We do hold some physical precious metals as an insurance policy against the unknown. There are plenty of folks in Venezuela right now who wish they had some.
Venezuelans sell gold and silver chains, bracelets, earrings — including pieces that have belonged to their families for decades or generations — so they can walk out the door of the pawnshop with enough money simply to eat, at least for a while.
https://www.miamiherald.com/news/nation ... 99935.html
Years ago, you’d give a gold ring for Christmas or a graduation, but now these are your savings, for when you need medicine.
https://www.caracaschronicles.com/2018/ ... nd-silver/
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Any thoughts on the role of Gold in your portfolio?

Post by staythecourse » Sat Jan 12, 2019 4:55 pm

I think there is a role for gold as long as you are not expecting to be fooled and expect what I have always called looking for the "holy grail of investing", i.e. equity like returns for low to no correlation to equities. Like CCF and many other alternatives... yes it adds a more efficient, less volatile portfolio AT TIMES then an all stock and a stock/ bond portfolio, BUT in exchange for lower returns. This is why I have always advocated gold and CCF IF one is going to add them to a lower equity portfolio (heavier in bonds with lower expected returns) then a higher equity portfolio.

Also, keep in mind gold seems to act more like a DIVERSIFIER then a HEDGE. The difference is diversifiers move randomly to each other vs. hedges which move opposite to each other. The latter are looked for as a good complement to stocks, i.e. it will go up when the equity market goes down. Think it was Erb and Harvey or Cambell and Harvey or some combination who wrote an article a few years ago that looked at monthly returns (I believe) and showed gold was up 50% of the time when stocks were down and 50% when they were up. Great diversifier, but not a hedge where you expect the asset goes up when stocks are down (for me I would expect at least 80% of time).

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Any thoughts on the role of Gold in your portfolio?

Post by GRP » Sat Jan 12, 2019 5:16 pm

Good luck with this thread. You'll need it. :D

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Pu239 » Sat Jan 12, 2019 5:22 pm

OP - A small gold allocation seems reasonable to me if you are wealthy and have other assets to protect although a small allocation might not be enough to weather a Venezuela-like event. I'd forgo gold, however, if you're new to investments and have small to modest savings. Better to favor equities in the first decade or so, then consider branching out to alternatives like gold.
willthrill81 wrote:
Sat Jan 12, 2019 3:13 pm
That being said, I hold no gold in my investment portfolio. We do hold some physical precious metals as an insurance policy against the unknown. There are plenty of folks in Venezuela right now who wish they had some.
Seems like semantics to call it insurance rather than an investment. Precious metals share elements of both. For an unknown event like Venezuela, the amount of precious metals required would make-up a meaningful portion of a portfolio thus worth tracking.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Call_Me_Op » Sat Jan 12, 2019 5:37 pm

It's a pure speculation (it's a shiny metal that just sits there), but holding 5% can't do much harm. Beware of backtesting, as it may include the huge run-up after the US went off the gold standard in 1971.
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Re: Any thoughts on the role of Gold in your portfolio?

Post by dbr » Sat Jan 12, 2019 5:54 pm

Pu239 wrote:
Sat Jan 12, 2019 5:22 pm


Seems like semantics to call it insurance rather than an investment. Precious metals share elements of both. For an unknown event like Venezuela, the amount of precious metals required would make-up a meaningful portion of a portfolio thus worth tracking.
A person who is really serious about the safety of gold when the political and economic system is crashing is engaged in something completely different from investing. If Venezuela is intended as an illustration then probably the fraction of the portfolio that is gold is the whole portfolio because everything else is worthless; certainly anything in the form of money is worthless. It might be land still has value if it is not confiscated.

The original question of gold as an alternative investment in an ordinary economy with stock and bonds is a fair question but asked and answered many times. Another resource would be Swedroe's book on alternative investments.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by hdas » Sat Jan 12, 2019 7:20 pm

"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Any thoughts on the role of Gold in your portfolio?

Post by blahblahsunshine » Sat Jan 12, 2019 7:59 pm

I did it; I am at about 5%. I figured that it was part of the fair weather portfolio and having 5% couldn't much hurt. When there is a change in the market who knows what people are going to gravitate to. Best to cover all the bases I say. Concentration is risky.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by UpperNwGuy » Sat Jan 12, 2019 8:15 pm

My portfolio does not include gold. I doubt it ever will. I just don't see the benefit.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by stimulacra » Sat Jan 12, 2019 8:19 pm

I hold 5% gold in my portfolio. I might increase it to 7.5% in 2020. I don't think about it too much.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by willthrill81 » Sat Jan 12, 2019 8:24 pm

Pu239 wrote:
Sat Jan 12, 2019 5:22 pm
willthrill81 wrote:
Sat Jan 12, 2019 3:13 pm
That being said, I hold no gold in my investment portfolio. We do hold some physical precious metals as an insurance policy against the unknown. There are plenty of folks in Venezuela right now who wish they had some.
Seems like semantics to call it insurance rather than an investment.
I don't own term life insurance because the expected value is positive as I would of an investment; on the contrary, the expected value is negative. But I own it to prevent what would be a catastrophic financial event. Similarly, I don't hold physical precious metals because I believe their expected value is positive; I do so as a hedge against major economic woes.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Any thoughts on the role of Gold in your portfolio?

Post by willthrill81 » Sat Jan 12, 2019 8:24 pm

stimulacra wrote:
Sat Jan 12, 2019 8:19 pm
I hold 5% gold in my portfolio. I might increase it to 7.5% in 2020. I don't think about it too much.
How do you hold it? Physical, GLD, or something else?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Any thoughts on the role of Gold in your portfolio?

Post by bhsince87 » Sat Jan 12, 2019 9:09 pm

Gold made a lot of sense as a currency hedge prior to 1971.

Now? I don't think it can hurt much if you keep it less than 5% of your net worth.

But IMO, lead and brass are more valuable as an insurance policy today.
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Re: Any thoughts on the role of Gold in your portfolio?

Post by Nissanzx1 » Sat Jan 12, 2019 9:23 pm

The only Gold we have is jewelry and watches. Certainly we enjoy them but we wouldn't consider owning gold as an investment.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by stimulacra » Sat Jan 12, 2019 9:49 pm

willthrill81 wrote:
Sat Jan 12, 2019 8:24 pm
stimulacra wrote:
Sat Jan 12, 2019 8:19 pm
I hold 5% gold in my portfolio. I might increase it to 7.5% in 2020. I don't think about it too much.
How do you hold it? Physical, GLD, or something else?
Half and half; GLD and bullion.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by willthrill81 » Sat Jan 12, 2019 10:28 pm

bhsince87 wrote:
Sat Jan 12, 2019 9:09 pm
But IMO, lead and brass are more valuable as an insurance policy today.
Who said they were mutually exclusive?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Pu239 » Sat Jan 12, 2019 10:31 pm

willthrill81 wrote:
Sat Jan 12, 2019 8:24 pm

I don't own term life insurance because the expected value is positive as I would of an investment; on the contrary, the expected value is negative. But I own it to prevent what would be a catastrophic financial event. Similarly, I don't hold physical precious metals because I believe their expected value is positive; I do so as a hedge against major economic woes.
Yes, I understand but how does one determine the amount of metal to hold as insurance for periods of extreme economic duress? Is a 5% allocation suggested by the OP enough to cover this type of contingency or is a smaller "insurance" amount sufficient? More? Should purchases be methodical or driven by price, market conditions, etc.? It seems easier to me to decide on an allocation and maintain it as part of a regular investment portfolio.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by willthrill81 » Sat Jan 12, 2019 10:45 pm

Pu239 wrote:
Sat Jan 12, 2019 10:31 pm
willthrill81 wrote:
Sat Jan 12, 2019 8:24 pm

I don't own term life insurance because the expected value is positive as I would of an investment; on the contrary, the expected value is negative. But I own it to prevent what would be a catastrophic financial event. Similarly, I don't hold physical precious metals because I believe their expected value is positive; I do so as a hedge against major economic woes.
Yes, I understand but how does one determine the amount of metal to hold as insurance for periods of extreme economic duress? Is a 5% allocation suggested by the OP enough to cover this type of contingency or is a smaller "insurance" amount sufficient? More? Should purchases be methodical or driven by price, market conditions, etc.? It seems easier to me to decide on an allocation and maintain it as part of a regular investment portfolio.
That's a very good question, and the only answer is that no one knows because we cannot foresee all of the factors involved in such situations, nor are we allowed to really discuss them on this forum.

I'm personally comfortable with the 5% number. I doubt that that would be adequate 'insurance' to protect the other 95%, but it might protect 30%. And I would be far happier with 30% protected than 0%. This is a situation where I believe that regret minimization may be the optimal strategy.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Any thoughts on the role of Gold in your portfolio?

Post by TVD » Sat Jan 12, 2019 11:08 pm

Hmmm...I don't think people need to invoke Venezulea as support for gold. Rather DB, GS and the entire 1st world financial system should be reason enough. If I recall correctly, a dollar is more coveted than gold in Venezuela. The benefit of gold is not necessarily an inflation hedge but rather an asset without counterparty risk.

Also good to differentiate between physical gold and "paper" gold. One is a store of value, the other is just speculation on price volatility.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Willmunny » Sat Jan 12, 2019 11:22 pm

dbr wrote:
Sat Jan 12, 2019 5:54 pm
Pu239 wrote:
Sat Jan 12, 2019 5:22 pm


Seems like semantics to call it insurance rather than an investment. Precious metals share elements of both. For an unknown event like Venezuela, the amount of precious metals required would make-up a meaningful portion of a portfolio thus worth tracking.
A person who is really serious about the safety of gold when the political and economic system is crashing is engaged in something completely different from investing. If Venezuela is intended as an illustration then probably the fraction of the portfolio that is gold is the whole portfolio because everything else is worthless; certainly anything in the form of money is worthless. It might be land still has value if it is not confiscated.

The original question of gold as an alternative investment in an ordinary economy with stock and bonds is a fair question but asked and answered many times. Another resource would be Swedroe's book on alternative investments.
I am not trying to make an argument for or against ownership of this asset. But I think the member's reference to Venezuela was meant to be illustrative of the broader point that an "ordinary economy" can become not so ordinary in a hurry. History has taught us that this lesson is not confined to small countries in South America.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Pu239 » Sat Jan 12, 2019 11:23 pm

willthrill81 wrote:
Sat Jan 12, 2019 10:45 pm
Pu239 wrote:
Sat Jan 12, 2019 10:31 pm
willthrill81 wrote:
Sat Jan 12, 2019 8:24 pm

I don't own term life insurance because the expected value is positive as I would of an investment; on the contrary, the expected value is negative. But I own it to prevent what would be a catastrophic financial event. Similarly, I don't hold physical precious metals because I believe their expected value is positive; I do so as a hedge against major economic woes.
Yes, I understand but how does one determine the amount of metal to hold as insurance for periods of extreme economic duress? Is a 5% allocation suggested by the OP enough to cover this type of contingency or is a smaller "insurance" amount sufficient? More? Should purchases be methodical or driven by price, market conditions, etc.? It seems easier to me to decide on an allocation and maintain it as part of a regular investment portfolio.
That's a very good question, and the only answer is that no one knows because we cannot foresee all of the factors involved in such situations, nor are we allowed to really discuss them on this forum.

I'm personally comfortable with the 5% number. I doubt that that would be adequate 'insurance' to protect the other 95%, but it might protect 30%. And I would be far happier with 30% protected than 0%. This is a situation where I believe that regret minimization may be the optimal strategy.
I suppose the insurance analogy could be extended to buying some sterling silver flatware for general use but also as a store of wealth in case of hard times. We own gold in the form of old coins minted in birth years of several generations of family members. Times would have to be hard indeed to sell "Dad", "Uncle Bill" or "Aunt Molly". Gold in our portfolio has elements of investment and family history just to make it more interesting with the first gold coin bought in 1968. Non-numismatists should stick with bullion or GLD for their investments.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Pu239 » Sun Jan 13, 2019 12:01 am

Willmunny wrote:
Sat Jan 12, 2019 11:22 pm
I am not trying to make an argument for or against ownership of this asset. But I think the member's reference to Venezuela was meant to be illustrative of the broader point that an "ordinary economy" can become not so ordinary in a hurry. History has taught us that this lesson is not confined to small countries in South America.
Actually, I was trying to flesh out the investment versus insurance distinction used by another member. I gather that gold is an investment when owned in anticipation of normal market and economic cycles but is insurance when owned mainly for black swan events. Either way, it serves both functions so I don't see the advantage of omitting it from portfolio calculations if already owned. Actual accounting vs. mental accounting?

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Willmunny » Sun Jan 13, 2019 12:05 am

Pu239 wrote:
Sun Jan 13, 2019 12:01 am
Willmunny wrote:
Sat Jan 12, 2019 11:22 pm
I am not trying to make an argument for or against ownership of this asset. But I think the member's reference to Venezuela was meant to be illustrative of the broader point that an "ordinary economy" can become not so ordinary in a hurry. History has taught us that this lesson is not confined to small countries in South America.
Actually, I was trying to flesh out the investment versus insurance distinction used by another member. I gather that gold is an investment when owned in anticipation of normal market and economic cycles but is insurance when owned mainly for black swan events. Either way, it serves both functions so I don't see the advantage of omitting it from portfolio calculations if already owned. Actual accounting vs. mental accounting?
That makes sense. I agree with you that if one chooses to own it, it should be viewed as a component of an overall investment portfolio.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by grayfox » Sun Jan 13, 2019 8:13 am

ericcohen wrote:
Sat Jan 12, 2019 2:41 pm
I've been fooling trying to come up with an optimal asset allocation --back testing various portfolios through many different periods. I've noticed my results are almost always improved when I include Gold in my asset allocation at around 5%. By improved I mean less volatility, with almost equivalent performance, fewer draw downs, higher sharp and sortino ratios etc

Thoughts? Anyone actually do this?

Go easy on me. I'm new here. :wink:
In the past, gold and long-term (LT) bonds have been good diversifiers for U.S. stocks.

So back on 2013 I ran some minimum variance portfolio calculations using historical data.

For two asset portfolios, I looked at stocks/gold and stocks/LT bonds.
US-stock:gold ratio of about 1.3:1 and US-stock:LT-bond ratio of about 1:2.1 had minimum variances.

Then I looked at 3-Asset Global Minimum Variance portfolio with US Stocks, Gold and LT Bonds
Over the period Nov-2004 to Feb-2013 was 37% VTSMX, 13% GLD and 49% TLT

The Tangency Portfolio (maximum Sharpe ratio) was 20% VTSMX, 40% GLD and 40% TLT.
Last edited by grayfox on Sun Jan 13, 2019 8:21 am, edited 1 time in total.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by lifeisinmirrors » Sun Jan 13, 2019 8:21 am

Pass. Gold prices may not be correlated to stocks and bonds, but the expected real return is zero or close to zero.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by Jack FFR1846 » Sun Jan 13, 2019 8:22 am

Gold is just a commodity. If a national catastrophe occurs, my cans of peaches will keep my family fed. Show up at my door with a pound of gold and you're going to get a couple shots of 12 gauge in the face. I hedge with coal. Once the country's infrastructure goes away and we have no gas, oil, electricity, we'll need to heat. Coal can do that. I've got a few hundred tons buried in my back yard and know that when times get dire, I'll have the commodity that nobody thought of and with 15 degree winter days (like today), people are going to want something better than just wood to keep warm.
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Re: Any thoughts on the role of Gold in your portfolio?

Post by staythecourse » Sun Jan 13, 2019 8:58 am

Pu239 wrote:
Sun Jan 13, 2019 12:01 am
Actually, I was trying to flesh out the investment versus insurance distinction used by another member. I gather that gold is an investment when owned in anticipation of normal market and economic cycles but is insurance when owned mainly for black swan events.
I am not sure where these urban legends come from, but the data does NOT support it. As I mentioned on my posts several up the data shows gold goes up 50% of the time when stocks go up and down 50% of the time. It is a great diversifier, but not a hedge. It also is not an insurance product. If you peaked closer into the numbers it may (mind you I said may) be is a currency hedge against the U.S. dollar.

Am I missing some landmark article with data showing it is a hedge against black swans? If so, hope you or others can cite some data.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Any thoughts on the role of Gold in your portfolio?

Post by midareff » Sun Jan 13, 2019 9:11 am

The purpose of gold in my portfolio is to not be in it. Gold is something you wear and is called jewelry, not investments.
Last edited by midareff on Mon Jan 14, 2019 8:25 am, edited 1 time in total.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by danielc » Sun Jan 13, 2019 9:55 am

Artsdoctor wrote:
Sat Jan 12, 2019 3:04 pm
Personally, I view gold as a speculative play. It has no earnings and I do not invest in anything which would have no hope of earnings. There are commodities traders who would disagree, of course.
+1

Gold has no cashflows. A present value calculation of future cashflows will show that its fair market price of gold as an investment is $0. Thus, any money you make will be entirely due to speculation. I'm not interested in speculation.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by grayfox » Sun Jan 13, 2019 9:58 am

In the last post I showed minimum variance portfolios using historical data from 2004-2013. But you don't get past returns. So I ran the mean-variance optimization using Expected Returns. This was about c. 2012.

I used four assets that matched the Harry Browne permanent Portfolio: Gold (GLD), US Stocks (VTI), LT Government Bonds (VGLT) and ST Government Bonds (VGSH). Expected return of bonds was SEC Yield. US Stocks was 1/CAPE. Gold's expected return was inflation rate.

Code: Select all

                       GLD     VTI    VGLT    VGSH
Harry Browne PP        25       25       25     25
Min Variance          1.39     27.34    34.48  36.79
Max Sharpe            7.55     38.88    53.58   0.00
For the Minimum Variance, about 1/4 stock and only 1 or 2 percent gold. The other 3/4's divided about evenly between LT and ST Treasuries. With zero real return, not much allocation to Gold.

:arrow: My conclusion was that, for Minimum Variance Portfolio, Gold is not very important. You might as well skip it.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by BoglePaul » Sun Jan 13, 2019 10:24 am

Any thoughts of real estate in your portfolio instead? In the zombie apocalypse at least you can live on the land.

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Re: Any thoughts on the role of Gold in your portfolio?

Post by sf_tech_saver » Sun Jan 13, 2019 10:28 am

The phrase is "invest we must" not "prep we must" ....
VTI is a modern marvel

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Re: Any thoughts on the role of Gold in your portfolio?

Post by bertilak » Sun Jan 13, 2019 10:51 am

Artsdoctor wrote:
Sat Jan 12, 2019 3:04 pm
Personally, I view gold as a speculative play. It has no earnings and I do not invest in anything which would have no hope of earnings. There are commodities traders who would disagree, of course.
+1

There is a difference between investing and speculating, although there is a bit of each in the other. Gold is a speculation and should play no role in an investment portfolio. I am sure some will disagree and I accept that, but I have given MY thoughts!

That is not to say one cannot both invest and speculate. Just be aware of the difference and consider carefully what is the best practice for reliably preparing for the future.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

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willthrill81
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Re: Any thoughts on the role of Gold in your portfolio?

Post by willthrill81 » Sun Jan 13, 2019 11:04 am

Jack FFR1846 wrote:
Sun Jan 13, 2019 8:22 am
Gold is just a commodity. If a national catastrophe occurs, my cans of peaches will keep my family fed. Show up at my door with a pound of gold and you're going to get a couple shots of 12 gauge in the face. I hedge with coal. Once the country's infrastructure goes away and we have no gas, oil, electricity, we'll need to heat. Coal can do that. I've got a few hundred tons buried in my back yard and know that when times get dire, I'll have the commodity that nobody thought of and with 15 degree winter days (like today), people are going to want something better than just wood to keep warm.
This is a common type of response to the suggestion to possibly hold some physical gold for economic catastrophes, and it is correct in some ways but short-sighted. Do you think that if the scenario you describe came about that the state of affairs would remain that way forever, even for your lifetime? That seems highly doubtful. Having a store of wealth that you could hang on to throughout the catastrophe and use on the other side is where the value of physical gold would be.

Diversification is key here.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Broken Man 1999
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Re: Any thoughts on the role of Gold in your portfolio?

Post by Broken Man 1999 » Sun Jan 13, 2019 11:11 am

I have zero interest in having gold in our portfolio. I think over very long periods of time, gold might be OK. Honestly, I don't think a single lifespan would necessarily work out so well. Over a few generations gold might work fine.

I do collect coins, so I have 6, one-ounce proof gold coins. I'll need to get 2 more so I can dole them out equally to our grandchildren. That activity will conclude my only involvement with gold, except for jewelry, perhaps. Certainly the grandchildren will benefit far more than I have with my gold. And, that is OK.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

sabtastic
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Re: Any thoughts on the role of Gold in your portfolio?

Post by sabtastic » Sun Jan 13, 2019 1:03 pm

We seem to have a thread on this every week or so.

Generally, gold is not a good investment, as it produces no wealth. It will hold value, but over long periods of time, gold has not produced a higher return than a diversified group of stocks or bonds. It is, however, the most preferred commodity for use as currency by human beings for many reasons I won't go into here which is why you see a lot of enthusiasm for owning gold and gold stocks. Many believe this enthusiasm is misplaced as once we came off the gold standard, gold essentially became just another commodity, and therefore trades like any other commodity which is essentially market timing and not buy and hold. There are many who believe that gold is currently in a bubble driven by lost faith in central banks and is probably worth 1/3 less than it is now. Others say it will take off once the fed goes back to 0% interest rates. The future for gold is anyone's guess and almost guaranteed to be extremely volatile. So by investing in gold, you are investing in an extremely volatile commodity.

That being said, over time it will hold value better than cash in drawer which is why there is so much enthusiasm for gold coins. This is as much a function of gold as it is a function of the worthless fiat paper we are forced to use as money. It should surprise no one that the new york fed has vaults full of gold and not $100 bills. One of those items holds value and the other only a fool would hold on to any longer than he had to.

So, long story short if you intend to hold gold instead of cash in a drawer will probably be a better "investment". If you intend to invest in gold at the expense of your bond or stock investments, it is probably a bad idea...

Jack FFR1846
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Re: Any thoughts on the role of Gold in your portfolio?

Post by Jack FFR1846 » Sun Jan 13, 2019 1:22 pm

willthrill81 wrote:
Sun Jan 13, 2019 11:04 am
Jack FFR1846 wrote:
Sun Jan 13, 2019 8:22 am
Gold is just a commodity. If a national catastrophe occurs, my cans of peaches will keep my family fed. Show up at my door with a pound of gold and you're going to get a couple shots of 12 gauge in the face. I hedge with coal. Once the country's infrastructure goes away and we have no gas, oil, electricity, we'll need to heat. Coal can do that. I've got a few hundred tons buried in my back yard and know that when times get dire, I'll have the commodity that nobody thought of and with 15 degree winter days (like today), people are going to want something better than just wood to keep warm.
This is a common type of response to the suggestion to possibly hold some physical gold for economic catastrophes, and it is correct in some ways but short-sighted. Do you think that if the scenario you describe came about that the state of affairs would remain that way forever, even for your lifetime? That seems highly doubtful. Having a store of wealth that you could hang on to throughout the catastrophe and use on the other side is where the value of physical gold would be.

Diversification is key here.
Obviously, I'm being deliberately facetious while at the same time showing that an alternative ridiculous commodity would actually be more useful in the zombie apocalypse. Substitute something else. Gasoline. You can drive Mad Max vehicle with gasoline. What do you do with gold? Throw it at zombies? How about fresh orange juice? You can drink it. Hard to eat or drink gold. Pork bellies....you can eat them.
Bogle: Smart Beta is stupid

Pu239
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Re: Any thoughts on the role of Gold in your portfolio?

Post by Pu239 » Sun Jan 13, 2019 2:11 pm

sabtastic wrote:
Sun Jan 13, 2019 1:03 pm
We seem to have a thread on this every week or so.

Generally, gold is not a good investment, as it produces no wealth. It will hold value, but over long periods of time, gold has not produced a higher return than a diversified group of stocks or bonds. It is, however, the most preferred commodity for use as currency by human beings for many reasons I won't go into here which is why you see a lot of enthusiasm for owning gold and gold stocks. Many believe this enthusiasm is misplaced as once we came off the gold standard, gold essentially became just another commodity, and therefore trades like any other commodity which is essentially market timing and not buy and hold. There are many who believe that gold is currently in a bubble driven by lost faith in central banks and is probably worth 1/3 less than it is now. Others say it will take off once the fed goes back to 0% interest rates. The future for gold is anyone's guess and almost guaranteed to be extremely volatile. So by investing in gold, you are investing in an extremely volatile commodity.

That being said, over time it will hold value better than cash in drawer which is why there is so much enthusiasm for gold coins. This is as much a function of gold as it is a function of the worthless fiat paper we are forced to use as money. It should surprise no one that the new york fed has vaults full of gold and not $100 bills. One of those items holds value and the other only a fool would hold on to any longer than he had to.

So, long story short if you intend to hold gold instead of cash in a drawer will probably be a better "investment". If you intend to invest in gold at the expense of your bond or stock investments, it is probably a bad idea...
+1

For me, coin are a hobby that has elements of an investment or, perhaps more accurately, store of wealth. I would sell them to pay bills along with other household items if necessary. Individual fortunes sometimes fall regardless of world events. Diversification into precious metals may yield lower returns but fulfills an entertainment and psychological need.

Fruition15
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Re: Any thoughts on the role of Gold in your portfolio?

Post by Fruition15 » Sun Jan 13, 2019 3:24 pm

Of all the perspectives on gold I've come across, I appreciate Tyler's the most. Takehome: just because gold, by itself, is a terrible "investment" doesn't mean it can't improve portfolio efficiency.

"People often like to talk about the very long term average returns of individual assets just like they do with portfolios. Since 1972 the real CAGR of the total stock market is about 5.9% and for gold it’s a measly 2.9%. Looking only at the long-term averages, a reasonable investor might bust out their calculator and estimate that a portfolio with 60% stocks and 40% gold would have generated a long-term real return of about 4.7% a year over the same timeframe.

So owning gold must be a bad idea, right? The reality is quite a bit more interesting, and to uncover why we first have to reevaluate an old metric that too many people take for granted and don’t really understand..."

https://portfoliocharts.com/2016/01/25/ ... at-a-time/

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grayfox
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Re: Any thoughts on the role of Gold in your portfolio?

Post by grayfox » Mon Jan 14, 2019 7:25 am

Buying Gold does not meet the Economic definition of Investing. In Economics, Savings is Income minus Expenditures, and Investing means using Savings to produce Capital Goods, which are Goods used to produce other Goods, e.g. Factories or Machine Tools. If you use Savings to build a new plant, that is Investing. Buying shares in a company which will eventually produce profit is also Investing.

Gold is not a Capital Good. Gold is a commodity. The only way to have a gain buying and selling a commodity is if the price increases. To make money, you would have to predict future Gold prices. Nobody has done that consistently. It's pure speculation and luck. Gambling.

Gold has some industrial uses, like electrical connectors. Gold has some unique properties that lend itself to various purposes. E.g. Gold is the second least reactive metal. Platinum is the least reactive. See Reactivity series. That means it is very stable. You can store Gold somewhere and come back centuries or millennia later and it will be more or less unchanged. E.g. Kit Tut's Death Mask c. 1300 BC. Gold would probably be used more widely, except for its great expense.

Image

:arrow: Bottom line, buying Gold is not investing, at least according to Classical Economics.

:idea: BTW, if you want to speculate in Gold prices, the Gold ETFs like GLD are better than physical Gold because the Bid-Ask spread is narrower. Pennies, versus 3% or higher for physical Gold.

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MEA
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Re: Any thoughts on the role of Gold in your portfolio?

Post by MEA » Mon Jan 14, 2019 12:43 pm

ericcohen wrote:
Sat Jan 12, 2019 2:41 pm
I've been fooling trying to come up with an optimal asset allocation --back testing various portfolios through many different periods. I've noticed my results are almost always improved when I include Gold in my asset allocation at around 5%. By improved I mean less volatility, with almost equivalent performance, fewer draw downs, higher sharp and sortino ratios etc

Thoughts? Anyone actually do this?

Go easy on me. I'm new here. :wink:
Yup. Mr. Bogle does this.

https://youtu.be/3uJbHREmUs4

Around 56 minutes into the interview Mr. Bogle recommends 5% gold.
“Stay the course is the most important piece of advice I can give you.”-Bogle

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grayfox
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Re: Any thoughts on the role of Gold in your portfolio?

Post by grayfox » Mon Jan 14, 2019 12:51 pm

MEA wrote:
Mon Jan 14, 2019 12:43 pm


Yup. Mr. Bogle does this.

https://youtu.be/3uJbHREmUs4

Around 56 minutes into the interview Mr. Bogle recommends 5% gold.
57:00 "And then, against two contingencies, just in case, I put 5% in Emerging Market Index, and, I hope your sitting down, 5% in Gold... a 5% hedge against some kind of catastrophe..." :shock: :o :D

There you go, from the man himself. Put 5% in Gold.

All Seasons
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Re: Any thoughts on the role of Gold in your portfolio?

Post by All Seasons » Mon Jan 14, 2019 1:04 pm

grayfox wrote:
Mon Jan 14, 2019 12:51 pm
MEA wrote:
Mon Jan 14, 2019 12:43 pm


Yup. Mr. Bogle does this.

https://youtu.be/3uJbHREmUs4

Around 56 minutes into the interview Mr. Bogle recommends 5% gold.
57:00 "And then, against two contingencies, just in case, I put 5% in Emerging Market Index, and, I hope your sitting down, 5% in Gold... a 5% hedge against some kind of catastrophe..." :shock: :o :D

There you go, from the man himself. Put 5% in Gold.
Holy $#%t! :shock:

I think Bogleheads in general then have to concede the legitimacy of having a small slice of gold. :twisted:
The market portfolio is always a legitimate portfolio.

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