Gold as Part of a Portfolio?

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rockthisworld
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Gold as Part of a Portfolio?

Post by rockthisworld »

https://goldiraguide.org/gold-price-pre ... -weigh-in/

I know it’s an article trying to push gold however is it true because it is limited in quantity that it will hold it value better than a fiat currency such as US Dollar which is being printed at an incredible rate.

People have been saying gold is bad but I also have a lot of sources that contradict each other. I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.

Is 10%-20% gold not worth the safety net? I’m curious of what you all think?
Robot Monster
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Re: Gold as Part of a Portfolio?

Post by Robot Monster »

Of possible interest, this article,

https://www.nytimes.com/2013/07/28/busi ... -gold.html

which concludes:

In the end, I abandoned my initial aversion to holding gold. A small sliver, such as the 2 percent weight in the world market portfolio, now makes sense to me as part of a long-term investment strategy. And with several gold bullion exchange-traded funds now available, investing in gold is easy and can be done at low cost.

N. Gregory Mankiw is a professor of economics at Harvard.
Last edited by Robot Monster on Thu Jul 09, 2020 1:53 pm, edited 1 time in total.
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Jack FFR1846
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Re: Gold as Part of a Portfolio?

Post by Jack FFR1846 »

2%? I think one of the very few things that most Bogleheads agree on (there are not many) is that anything less than 5% is meaningless. You could hold 2% gold if you want or 2% in coal in trailers in your back yard (Steve Martin reference) or 2% in pork bellies. It's sort of nonsense. Why complicate things? Gold continues to be mined. 60 minutes just did a bit on it over the weekend, going into a mine in South Africa.
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Nate79
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Re: Gold as Part of a Portfolio?

Post by Nate79 »

rockthisworld wrote: Thu Jul 09, 2020 8:57 am https://goldiraguide.org/gold-price-pre ... -weigh-in/

I know it’s an article trying to push gold however is it true because it is limited in quantity that it will hold it value better than a fiat currency such as US Dollar which is being printed at an incredible rate.

People have been saying gold is bad but I also have a lot of sources that contradict each other. I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.

Is 10%-20% gold not worth the safety net? I’m curious of what you all think?
You can chart the value of gold in the past and see if the thesis is correct that "it will hold it value better than a fiat currency." Gold is extremely volatile commodity and doesn't hold it's value well at all.
Willmunny
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Re: Gold as Part of a Portfolio?

Post by Willmunny »

Nate79 wrote: Thu Jul 09, 2020 9:34 am
rockthisworld wrote: Thu Jul 09, 2020 8:57 am https://goldiraguide.org/gold-price-pre ... -weigh-in/

I know it’s an article trying to push gold however is it true because it is limited in quantity that it will hold it value better than a fiat currency such as US Dollar which is being printed at an incredible rate.

People have been saying gold is bad but I also have a lot of sources that contradict each other. I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.

Is 10%-20% gold not worth the safety net? I’m curious of what you all think?
You can chart the value of gold in the past and see if the thesis is correct that "it will hold it value better than a fiat currency." Gold is extremely volatile commodity and doesn't hold it's value well at all.
What do you mean by the past? 20 years? 50 years? more? Also, which fiat currency? The US dollar? A broad basket of domestic and foreign currencies?
UpperNwGuy
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Re: Gold as Part of a Portfolio?

Post by UpperNwGuy »

rockthisworld wrote: Thu Jul 09, 2020 8:57 am it is limited in quantity that it will hold it value better than a fiat currency such as US Dollar which is being printed at an incredible rate.
If the US dollar is a fiat currency, gold is an arbitrary metal. It has no inherent value.
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Re: Gold as Part of a Portfolio?

Post by Jack FFR1846 »

Also, be very careful with Gold Bug sites and articles that tout gold's rise from 1971 or 72 to today. They all seem to focus on these dates even though gold could not be legally owned in the US until 1975. The events of the 70's will never happen again, so I'd certainly give a wide margin of years. The removal of ties to the US dollar, then the ability of ownership by US citizens were big events and gold values reflect these.
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GRP
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Re: Gold as Part of a Portfolio?

Post by GRP »

You have the right idea, OP. Start with a 10% allocation to gold and go from there. You will have a much more well diversified portfolio than a typical stock/bond investor.

Check out a forum that was an outgrowth of bogleheads for intelligent discussion on gold. www.gyroscopicinvesting.com.
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unclescrooge
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Re: Gold as Part of a Portfolio?

Post by unclescrooge »

rockthisworld wrote: Thu Jul 09, 2020 8:57 am https://goldiraguide.org/gold-price-pre ... -weigh-in/

I know it’s an article trying to push gold however is it true because it is limited in quantity that it will hold it value better than a fiat currency such as US Dollar which is being printed at an incredible rate.

People have been saying gold is bad but I also have a lot of sources that contradict each other. I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.

Is 10%-20% gold not worth the safety net? I’m curious of what you all think?
I posted a link very recently (will try to find it) that adding a small amount of gold to a portfolio has reduced volatility without sacrificing returns in the past.

However, you need to be able to rebalance it periodically, which I do.

I would never own gold inside a self directed IRA. That's an incredibly dumb idea, promoted only by custodians of such IRAs.

That being said, I bought 28oz of physical gold for about $600/oz, in case I ever need to flee the country. This was before I was a citizen...I would not do the same today. I'm looking to sell my collection in case you know anyone 😉
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arcticpineapplecorp.
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Re: Gold as Part of a Portfolio?

Post by arcticpineapplecorp. »

rockthisworld wrote: Thu Jul 09, 2020 8:57 am I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.
but are you assuming inflation is 0%?

because if inflation is >0% you'll need a higher return from gold than 0%, otherwise it will have lost value.

You may counter, sure, but if it loses LESS than cash isn't that better?

sure but cash always has a negative return after inflation. There's nothing new about that now. Would you have said in 1980, "Whoohee!! I'm getting 12% on my savings account!!" Not if inflation was 14% as it was:

Image

Also, a devaluation of currency through money printing is a type of inflation, right? Things are more expensive if each dollar is worth less. How has gold done during a period of high inflation (70s-80s)? Fine in the 70s, but not great in the 80s:

https://awealthofcommonsense.com/2015/0 ... d-returns/

I'll let Jeremy Siegel explain to you how gold has done since 1802:

Image

stocks for the long run!
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Blue456
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Re: Gold as Part of a Portfolio?

Post by Blue456 »

Robot Monster wrote: Thu Jul 09, 2020 9:09 am Of possible interest, this article,

https://www.nytimes.com/2013/07/28/busi ... -gold.html

which concludes:

In the end, I abandoned my initial aversion to holding gold. A small sliver, such as the 2 percent weight in the world market portfolio, now makes sense to me as part of a long-term investment strategy. And with several gold bullion exchange-traded funds now available, investing in gold is easy and can be done at low cost.

I will continue, however, to pass on the canned beans and ammo.

N. Gregory Mankiw is a professor of economics at Harvard.
I am unsure how you made connection between gold and canned food.
rich126
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Re: Gold as Part of a Portfolio?

Post by rich126 »

People here, while often helpful, are wildly inconsistent. They will say you should look at historical results or trust back tests and yet they constantly use them when it favors their viewpoint.

First of all, nothing in the 1800s is relevant to today's investing. And even things 50 years ago are only relevant in the sense of education, reading but not super useful in today's world. Now almost anyone can open a brokerage account and trade for $0. For most trading times the fees were huge to trade unless you had a sizable bankroll.

Back to gold. I've never been much of a gold investor (vast majority of the time, I've own zero) but about 18 months ago I started buying some gold ETFs. I won't go into much of the reasoning since this could be considered political but to me the world is in a difficult position and I think volatility would be higher than it has been and felt gold would help balance things out. Fortunately it has. That chart above doesn't show that gold has out performed the SP500 over 12 months and I believe 5 years. If I ever see things calming down and people acting more rationally I will likely sell it.

I've been tracking my version of the permanent portfolio (25% of VGLT, VGSH, GLD and SP500) since the market's peak just to see how it would do and so far it has been solid.

I'm not a fan of the blindly throw all the money in the US market and US bond market and think things will work out over the next decade or two. Too many issues facing us. Each person has to make their own decisions.
dukeblue219
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Re: Gold as Part of a Portfolio?

Post by dukeblue219 »

If one wants a 5% gold allocation, does taxable or Trad IRA make more sense?
Aleph
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Re: Gold as Part of a Portfolio?

Post by Aleph »

unclescrooge wrote: Thu Jul 09, 2020 10:16 am
I would never own gold inside a self directed IRA. That's an incredibly dumb idea, promoted only by custodians of such IRAs.
Would you mind explaining why that's dumb? I am mostly a non-US investor but have an IRA from when I lived stateside for a while. I don't know what would make owning gold in it stupid, which has me worried I don't know how my IRA works! (Currently it contains only a total world stock etf.)
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Re: Gold as Part of a Portfolio?

Post by flaccidsteele »

rockthisworld wrote: Thu Jul 09, 2020 8:57 am https://goldiraguide.org/gold-price-pre ... -weigh-in/

I know it’s an article trying to push gold however is it true because it is limited in quantity that it will hold it value better than a fiat currency such as US Dollar which is being printed at an incredible rate.

People have been saying gold is bad but I also have a lot of sources that contradict each other. I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.

Is 10%-20% gold not worth the safety net? I’m curious of what you all think?
I only invest in productive assets

No point exchanging fiat for gold when I can just exchange fiat for productive assets

CNBC gold silver and paper
Last edited by flaccidsteele on Thu Jul 09, 2020 11:36 am, edited 1 time in total.
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stuper1
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Re: Gold as Part of a Portfolio?

Post by stuper1 »

This site explains a lot about gold: portfoliocharts.com
RomeoMustDie
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Re: Gold as Part of a Portfolio?

Post by RomeoMustDie »

Precious metals commodity price is high right now because of inflation speculation. Vanguard just released a commodities index fund, may be interesting to look at with a small portion of your portfolio.

I've also thought about sector tilting to utilities and healthcare with the equity portion of the portfolio to limit volatility.

Long term, I don't like how Gold pays no dividend and the fact that there's no underlying company to push growth of the ETF outside of inflation speculation.
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Gold?

Post by Taylor Larimore »

Bogleheads:

arcticpineapplecorp has given us excellent graphs showing the miserable value of gold in the past. No one knows what it will do in the future.

Most Bogleheads understand the difference between speculation and investing. The financial industry tries with all its might to persuade us that they have products which will beat the market. Speculating in gold is one of them.

Lesson learned: We held Vanguard Gold Fund in my ignorant past. Never again.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Gold is largely a rank speculation, for its price is based solely on market expectations. Gold provides no internal rate of return. Unlike stocks and bonds, gold provides none of the intrinsic value that is created for stocks by earnings growth and dividend yields, and bonds by interest payments."
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unclescrooge
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Re: Gold as Part of a Portfolio?

Post by unclescrooge »

Aleph wrote: Thu Jul 09, 2020 11:31 am
unclescrooge wrote: Thu Jul 09, 2020 10:16 am
I would never own gold inside a self directed IRA. That's an incredibly dumb idea, promoted only by custodians of such IRAs.
Would you mind explaining why that's dumb? I am mostly a non-US investor but have an IRA from when I lived stateside for a while. I don't know what would make owning gold in it stupid, which has me worried I don't know how my IRA works! (Currently it contains only a total world stock etf.)
I didn't say owing gold in an IRA is bad, just a self-directed IRA.

If you want to buy a gold ETF, go for it.

Inside a self-directed IRA, the idea is you are owning physical gold. This will subject you to regular appraisal and high custodian fees. Transaction costs are also likely to be expensive. Rebalancing is also hard with physical gold.

In general, I'm not a fan of self-directed IRAs for holding precious metals or physical real estate. They generally appeal to conspiracy theorists and/or people bad at math.
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Re: Gold as Part of a Portfolio?

Post by Robot Monster »

Blue456 wrote: Thu Jul 09, 2020 10:38 am
Robot Monster wrote: Thu Jul 09, 2020 9:09 am Of possible interest, this article,

https://www.nytimes.com/2013/07/28/busi ... -gold.html

which concludes:

In the end, I abandoned my initial aversion to holding gold. A small sliver, such as the 2 percent weight in the world market portfolio, now makes sense to me as part of a long-term investment strategy. And with several gold bullion exchange-traded funds now available, investing in gold is easy and can be done at low cost.

I will continue, however, to pass on the canned beans and ammo.

N. Gregory Mankiw is a professor of economics at Harvard.
I am unsure how you made connection between gold and canned food.
Sorry, that was just the tail end of the article I inadvertently copied and pasted.
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unclescrooge
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Re: Gold?

Post by unclescrooge »

Taylor Larimore wrote: Thu Jul 09, 2020 12:07 pm Bogleheads:

arcticpineapplecorp has given us excellent graphs showing the miserable value of gold in the past. No one knows what it will do in the future.

Most Bogleheads understand the difference between speculation and investing. The financial industry tries with all its might to persuade us that they have products which will beat the market. Speculating in gold is one of them.

Lesson learned: We held Vanguard Gold Fund in my ignorant past. Never again.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Gold is largely a rank speculation, for its price is based solely on market expectations. Gold provides no internal rate of return. Unlike stocks and bonds, gold provides none of the intrinsic value that is created for stocks by earnings growth and dividend yields, and bonds by interest payments."
And yet, adding a small amount of gold to a portfolio has show to reduce volatility without sacrficing returns, despite it's own higher volatility and lower returns.

https://ofdollarsanddata.com/why-is-gold-valuable/

A portfolio can be designed to be larger than the sum of its parts.
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Re: Gold as Part of a Portfolio?

Post by 7eight9 »

I like gold. But don't make the mistake I made of buying a gold fund. I bought VGPMX in both my IRA and Roth IRA. It used to be called Vanguard Precious Metals and Mining Fund. Now it is Vanguard Global Capital Cycles Fund. Vanguard screwed me and every other investor in the fund by changing the investment strategy. Naturally gold has been on a tear ever since Vanguard did this. Bottom line - don't trust a Vanguard fund not to change course. If you want to invest in gold you want to own actual gold. Or invest directly in miners.
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Forester
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Re: Gold as Part of a Portfolio?

Post by Forester »

"Are bonds worth it?"
"yes of course you have to be diversified!"

"Are negative yielding bonds worth it?"
"yes, for the diversification value. Yield is not so important."

"Is gold worth it?"
"no, gold has no yield"

:oops:
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willthrill81
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Re: Gold as Part of a Portfolio?

Post by willthrill81 »

unclescrooge wrote: Thu Jul 09, 2020 10:16 am
rockthisworld wrote: Thu Jul 09, 2020 8:57 am https://goldiraguide.org/gold-price-pre ... -weigh-in/

I know it’s an article trying to push gold however is it true because it is limited in quantity that it will hold it value better than a fiat currency such as US Dollar which is being printed at an incredible rate.

People have been saying gold is bad but I also have a lot of sources that contradict each other. I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.

Is 10%-20% gold not worth the safety net? I’m curious of what you all think?
I posted a link very recently (will try to find it) that adding a small amount of gold to a portfolio has reduced volatility without sacrificing returns in the past.

However, you need to be able to rebalance it periodically, which I do.

I would never own gold inside a self directed IRA. That's an incredibly dumb idea, promoted only by custodians of such IRAs.

That being said, I bought 28oz of physical gold for about $600/oz, in case I ever need to flee the country. This was before I was a citizen...I would not do the same today. I'm looking to sell my collection in case you know anyone 😉
Very well rounded.

On the basis of gold's counter-balancing effect in portfolios over the last ~45 years, I personally think that a 5-20% allocation to it is perfectly logical.

The '0% expected return' theory may or may not be true. So far, the data are not in robust support of it. But even if that is true, its counter-balancing effect has been very real.

The only gold we own is physical and represents a tiny proportion of our net worth.
Forester wrote: Thu Jul 09, 2020 3:03 pm "Are bonds worth it?"
"yes of course you have to be diversified!"

"Are negative yielding bonds worth it?"
"yes, for the diversification value. Yield is not so important."

"Is gold worth it?"
"no, gold has no yield"

:oops:
It's very ironic.

Many claim that they won't own gold due to its volatility combined with its theoretically expected real return of zero. But then the same people go buy long-term Treasuries yielding 1.29% (i.e. VLGSX as of today). :shock:
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unclescrooge
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Re: Gold as Part of a Portfolio?

Post by unclescrooge »

Forester wrote: Thu Jul 09, 2020 3:03 pm "Are bonds worth it?"
"yes of course you have to be diversified!"

"Are negative yielding bonds worth it?"
"yes, for the diversification value. Yield is not so important."

"Is gold worth it?"
"no, gold has no yield"

:oops:
That's a classic!
:D
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unclescrooge
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Re: Gold as Part of a Portfolio?

Post by unclescrooge »

7eight9 wrote: Thu Jul 09, 2020 2:09 pm I like gold. But don't make the mistake I made of buying a gold fund. I bought VGPMX in both my IRA and Roth IRA. It used to be called Vanguard Precious Metals and Mining Fund. Now it is Vanguard Global Capital Cycles Fund. Vanguard screwed me and every other investor in the fund by changing the investment strategy. Naturally gold has been on a tear ever since Vanguard did this. Bottom line - don't trust a Vanguard fund not to change course. If you want to invest in gold you want to own actual gold. Or invest directly in miners.
A gold ETF is also a good substitute. Especially now that you can trade them commission-free.
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unclescrooge
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Re: Gold as Part of a Portfolio?

Post by unclescrooge »

willthrill81 wrote: Thu Jul 09, 2020 3:07 pm Many claim that they won't own gold due to its volatility combined with its theoretically expected real return of zero. But then the same people go buy long-term Treasuries yielding 1.29% (i.e. VLGSX as of today). :shock:
Indeed!

I wonder how a 3x leveraged gold fund would do in place of bonds in HedgeFundie's Adventure Portfolio?

(Someone needs to track that portfolio's performance on a monthly basis so we can live vicariously :mrgreen: )
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Re: Gold as Part of a Portfolio?

Post by DesertDiva »

Gold is good for jewelry. :twisted:
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unclescrooge
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Re: Gold as Part of a Portfolio?

Post by unclescrooge »

willthrill81 wrote: Thu Jul 09, 2020 3:07 pm Many claim that they won't own gold due to its volatility combined with its theoretically expected real return of zero. But then the same people go buy long-term Treasuries yielding 1.29% (i.e. VLGSX as of today). :shock:
unclescrooge wrote: Thu Jul 09, 2020 3:16 pm
7eight9 wrote: Thu Jul 09, 2020 2:09 pm I like gold. But don't make the mistake I made of buying a gold fund. I bought VGPMX in both my IRA and Roth IRA. It used to be called Vanguard Precious Metals and Mining Fund. Now it is Vanguard Global Capital Cycles Fund. Vanguard screwed me and every other investor in the fund by changing the investment strategy. Naturally gold has been on a tear ever since Vanguard did this. Bottom line - don't trust a Vanguard fund not to change course. If you want to invest in gold you want to own actual gold. Or invest directly in miners.
A gold ETF is also a good substitute. Especially now that you can trade them commission-free.
Actually, Gold Miners seem to be a better substitute than Gold.

From Morningstar, https://www.morningstar.com/articles/98 ... versifiers
My tentative conclusions:

If investing 10% in gold with a mainstream portfolio, use equities rather than bullion, because bullion lacks oomph. It is volatile by the standards of traditional investments but not enough to achieve the desired effect of diversification when used in a 10% dose.
If investing 20% in gold, use bullion unless your risk tolerance is unusually high. Gold equities may lead to higher returns, but most will find the ride to be unduly bumpy.
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Re: Gold?

Post by flaccidsteele »

unclescrooge wrote: Thu Jul 09, 2020 1:40 pm
Taylor Larimore wrote: Thu Jul 09, 2020 12:07 pm Bogleheads:

arcticpineapplecorp has given us excellent graphs showing the miserable value of gold in the past. No one knows what it will do in the future.

Most Bogleheads understand the difference between speculation and investing. The financial industry tries with all its might to persuade us that they have products which will beat the market. Speculating in gold is one of them.

Lesson learned: We held Vanguard Gold Fund in my ignorant past. Never again.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Gold is largely a rank speculation, for its price is based solely on market expectations. Gold provides no internal rate of return. Unlike stocks and bonds, gold provides none of the intrinsic value that is created for stocks by earnings growth and dividend yields, and bonds by interest payments."
And yet, adding a small amount of gold to a portfolio has show to reduce volatility without sacrficing returns, despite it's own higher volatility and lower returns.

https://ofdollarsanddata.com/why-is-gold-valuable/

A portfolio can be designed to be larger than the sum of its parts.
Confirms my reasons not to own gold

Don’t care about volatility + Gold doesn’t improve performance = no benefit to me in buying gold
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Gold as Part of a Portfolio?

Post by flaccidsteele »

Forester wrote: Thu Jul 09, 2020 3:03 pm "Are bonds worth it?"
"yes of course you have to be diversified!"

"Are negative yielding bonds worth it?"
"yes, for the diversification value. Yield is not so important."

"Is gold worth it?"
"no, gold has no yield"

:oops:
I have a solution for that: Neither bonds nor gold are worth it 👍
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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unclescrooge
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Re: Gold?

Post by unclescrooge »

flaccidsteele wrote: Thu Jul 09, 2020 4:23 pm
unclescrooge wrote: Thu Jul 09, 2020 1:40 pm
And yet, adding a small amount of gold to a portfolio has show to reduce volatility without sacrficing returns, despite it's own higher volatility and lower returns.

https://ofdollarsanddata.com/why-is-gold-valuable/

A portfolio can be designed to be larger than the sum of its parts.
Confirms my reasons not to own gold

Don’t care about volatility + Gold doesn’t improve performance = no benefit to me in buying gold
In the withdrawal phase, lower volatility increases your distribution percentage.

Of course, if your asset base is so large compared to your desired income, then 100% will work for you.

I wish we could all be so lucky!
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rockthisworld
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Re: Gold as Part of a Portfolio?

Post by rockthisworld »

arcticpineapplecorp. wrote: Thu Jul 09, 2020 10:22 am
rockthisworld wrote: Thu Jul 09, 2020 8:57 am I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.
but are you assuming inflation is 0%?

because if inflation is >0% you'll need a higher return from gold than 0%, otherwise it will have lost value.

You may counter, sure, but if it loses LESS than cash isn't that better?

sure but cash always has a negative return after inflation. There's nothing new about that now. Would you have said in 1980, "Whoohee!! I'm getting 12% on my savings account!!" Not if inflation was 14% as it was:

Image

Also, a devaluation of currency through money printing is a type of inflation, right? Things are more expensive if each dollar is worth less. How has gold done during a period of high inflation (70s-80s)? Fine in the 70s, but not great in the 80s:

https://awealthofcommonsense.com/2015/0 ... d-returns/

I'll let Jeremy Siegel explain to you how gold has done since 1802:

Image

stocks for the long run!
I’m fine with 0% real with gold in order to maintain wealth. Then keep rest in stocks but as long as my portfolio achieves a 1% real return over the long term I’ll be okay. That’s why I use that as a benchmark.
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Re: Gold as Part of a Portfolio?

Post by Blue456 »

rockthisworld wrote: Thu Jul 09, 2020 5:42 pm
arcticpineapplecorp. wrote: Thu Jul 09, 2020 10:22 am
rockthisworld wrote: Thu Jul 09, 2020 8:57 am I’m okay if gold returns 0% real it’s just a safe haven against the devaluation of currency.
but are you assuming inflation is 0%?

because if inflation is >0% you'll need a higher return from gold than 0%, otherwise it will have lost value.

You may counter, sure, but if it loses LESS than cash isn't that better?

sure but cash always has a negative return after inflation. There's nothing new about that now. Would you have said in 1980, "Whoohee!! I'm getting 12% on my savings account!!" Not if inflation was 14% as it was:

Image

Also, a devaluation of currency through money printing is a type of inflation, right? Things are more expensive if each dollar is worth less. How has gold done during a period of high inflation (70s-80s)? Fine in the 70s, but not great in the 80s:

https://awealthofcommonsense.com/2015/0 ... d-returns/

I'll let Jeremy Siegel explain to you how gold has done since 1802:

Image

stocks for the long run!
I’m fine with 0% real with gold in order to maintain wealth. Then keep rest in stocks but as long as my portfolio achieves a 1% real return over the long term I’ll be okay. That’s why I use that as a benchmark.
I am fine with that as well. The only problem is getting the 0% return. The numbers can fluctuate between -50% and +50% and stay negative or positive for many years.
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Re: Gold as Part of a Portfolio?

Post by nisiprius »

rockthisworld, before investing in gold, don't just listen to what people say gold does or does not do. Take a good long hard look for yourself at the actual data. After you look at it you may still want to buy gold, but at least walk in there not seeing only the things that people who sell it have pointed out to you.

You should reconcile for yourself several conflicting things about gold.

Image

1) Anyone who invested in gold at almost any time shown in the chart except the 2011 peak, who is still holding it now, has made a lot of money.

2) If you want it for steadiness, reliability, and reassurance, It had not been steady or reliable or reassuring. It has been bursty and variable and fluctuating.

3) Buying gold has not been risk-free, especially when it has been booming and making headlines. If you bought it any time around 1979-1981, it would have taken you twenty-five years to get back to even. If you bought it any time around 2010-2012, you were still underwater for six or seven or eight years, which can seem like a long time while you are waiting through it.

4) People make many statements about how gold behaves and what it "tends to" do. One is that gold spikes when there is inflation. But the price of gold grew fantastically from 2000-2012, a period of time with virtually no inflation. You may say "that's a problem I'd love to have," but it means that the model of how gold behaves is wrong. It has not behaved the way it is "supposed to" behave.
Last edited by nisiprius on Thu Jul 09, 2020 8:17 pm, edited 1 time in total.
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Re: Gold as Part of a Portfolio?

Post by YRT70 »

nisiprius wrote: Thu Jul 09, 2020 6:25 pm
Image

1) Anyone who invested in gold at any time shown in the chart, who is still holding it now, has made a lot of money.
Except the people who bought it at the peak around ~2011.
Last edited by YRT70 on Thu Jul 09, 2020 7:27 pm, edited 1 time in total.
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Re: Gold?

Post by flaccidsteele »

unclescrooge wrote: Thu Jul 09, 2020 4:46 pm
flaccidsteele wrote: Thu Jul 09, 2020 4:23 pm
unclescrooge wrote: Thu Jul 09, 2020 1:40 pm
And yet, adding a small amount of gold to a portfolio has show to reduce volatility without sacrficing returns, despite it's own higher volatility and lower returns.

https://ofdollarsanddata.com/why-is-gold-valuable/

A portfolio can be designed to be larger than the sum of its parts.
Confirms my reasons not to own gold

Don’t care about volatility + Gold doesn’t improve performance = no benefit to me in buying gold
In the withdrawal phase, lower volatility increases your distribution percentage.

Of course, if your asset base is so large compared to your desired income, then 100% will work for you.
Asset base is large because it wasn’t diluted with low growth low volatility assets

Correlation is not causation
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Gold?

Post by unclescrooge »

flaccidsteele wrote: Thu Jul 09, 2020 7:11 pm
unclescrooge wrote: Thu Jul 09, 2020 4:46 pm
flaccidsteele wrote: Thu Jul 09, 2020 4:23 pm
unclescrooge wrote: Thu Jul 09, 2020 1:40 pm
And yet, adding a small amount of gold to a portfolio has show to reduce volatility without sacrficing returns, despite it's own higher volatility and lower returns.

https://ofdollarsanddata.com/why-is-gold-valuable/

A portfolio can be designed to be larger than the sum of its parts.
Confirms my reasons not to own gold

Don’t care about volatility + Gold doesn’t improve performance = no benefit to me in buying gold
In the withdrawal phase, lower volatility increases your distribution percentage.

Of course, if your asset base is so large compared to your desired income, then 100% will work for you.
Asset base is large because it wasn’t diluted with low growth low volatility assets

Correlation is not causation
Did your asset base grow because you were invested in a period when stocks returned 15%+ for 15 years, or because you made large contributions to your investment accounts?
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Re: Gold as Part of a Portfolio?

Post by nisiprius »

YRT70 wrote: Thu Jul 09, 2020 7:08 pm
nisiprius wrote: Thu Jul 09, 2020 6:25 pm 1) Anyone who invested in gold at any time shown in the chart, who is still holding it now, has made a lot of money.
Except the people who bought it at the peak around ~2011.
:oops: Thanks. Corrected.
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Re: Gold as Part of a Portfolio?

Post by rockthisworld »

https://www.iwillteachyoutoberich.com/b ... portfolio/


Ray Dalio suggests holding 7.5% gold.
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Re: Gold as Part of a Portfolio?

Post by GRP »

Just to chime in with my thoughts regarding a previous post.

I would personally ignore complaints about gold not being legal to own prior to 1975. We need to think globally about investing here. The U.S. population is quite a small fraction of the world's population. Google says 4.25% currently. For the vast majority of the world gold has not been illegal to own, so this gripe about gold doesn't impact the investing world at large. It's just not a legitimate criticism of gold. It's really just a legitimate criticism of your government.

Gold not being legal for Americans to own prior to 1975 isn't a gold problem, it's an America problem. Many countries around the world in history have implemented capital controls that have banned various types of investments. Foreign stocks come to mind. Does that invalidate the idea of investing in foreign stocks?
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Re: Gold?

Post by flaccidsteele »

unclescrooge wrote: Thu Jul 09, 2020 7:25 pm
flaccidsteele wrote: Thu Jul 09, 2020 7:11 pm
unclescrooge wrote: Thu Jul 09, 2020 4:46 pm
flaccidsteele wrote: Thu Jul 09, 2020 4:23 pm
unclescrooge wrote: Thu Jul 09, 2020 1:40 pm
And yet, adding a small amount of gold to a portfolio has show to reduce volatility without sacrficing returns, despite it's own higher volatility and lower returns.

https://ofdollarsanddata.com/why-is-gold-valuable/

A portfolio can be designed to be larger than the sum of its parts.
Confirms my reasons not to own gold

Don’t care about volatility + Gold doesn’t improve performance = no benefit to me in buying gold
In the withdrawal phase, lower volatility increases your distribution percentage.

Of course, if your asset base is so large compared to your desired income, then 100% will work for you.
Asset base is large because it wasn’t diluted with low growth low volatility assets

Correlation is not causation
Did your asset base grow because you were invested in a period when stocks returned 15%+ for 15 years, or because you made large contributions to your investment accounts?
Yes
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Gold as Part of a Portfolio?

Post by Noobvestor »

I don't have hard data, but subjectively the gold threads do seem to show up when it's doing well (a decade ago, and now again ...)
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Re: Gold as Part of a Portfolio?

Post by GRP »

Noobvestor wrote: Thu Jul 09, 2020 9:15 pm I don't have hard data, but subjectively the gold threads do seem to show up when it's doing well (a decade ago, and now again ...)
Yes, it's funny. Same thing with international threads, value threads, and general factor threads.

Bogleheads are supposed to be above recency bias, performance chasing, anchoring bias, etc. The community really isn't though.
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Re: Gold as Part of a Portfolio?

Post by johnson_brothers »

Gold was legal to own in the USA prior to 1975 in the form of numismatic coins.
"Austria had been minting new gold coins with old dates that had been selling in the United States for several years, and gold in the form of these coins could be bought by paying an extremely small premium." (Gold, Money and the Law, edited by Henry G Manne and Roger Leroy Miller, University of Miami, 1975)
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Re: Gold as Part of a Portfolio?

Post by unclescrooge »

Noobvestor wrote: Thu Jul 09, 2020 9:15 pm I don't have hard data, but subjectively the gold threads do seem to show up when it's doing well (a decade ago, and now again ...)
As do the "why international" threads show up after a period of international under performance.

Who says we aren't subject to recency bias!
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Re: Gold as Part of a Portfolio?

Post by thermalfama »

arcticpineapplecorp. wrote: Thu Jul 09, 2020 10:22 am I'll let Jeremy Siegel explain to you how gold has done since 1802:

Image

stocks for the long run!
I love Siegel's book, but splashing that 2-century chart to try to prove the point that one should never own any gold doesn't make much sense. The chart says that bills returned 2.6% real over that time span. Have you checked the real yield of t-bills these days? How would 0.1% nominal square with that? I wouldn't hold my breath for 2.6% real from t-bills any time soon, much less so 2.6% real on average over the next 2 centuries.
You also would presumably not recommend that everyone hold a 100% stocks portfolio at all times, just because stocks have had the highest historical return.
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Re: Gold as Part of a Portfolio?

Post by garlandwhizzer »

Gold is not a great and reliable inflation hedge historically. Its price has been going up for 4 years in the absence of signifiant inflation as measured by the CPI which assures us that inflation is low. On the other hand I would argue that we do have inflation and lots of it in asset prices. Stocks are very generously priced IMO relative to the large degree of uncertainty that remains about future corporate profits. PE ratios have been gradually, sometimes not so gradually, climbing for years. Prior long term PE averages of 15 or 16 are now a joke. We're not likely to see those again in our lifetimes. Current S&P 500 PE is 23.2 and that's with the knowledge that we may be headed back into quarantine which will have negative impacts on corporate profits. PEs like now relative to near term future earnings prospects suggests some irrational exuberance to me. TSLA's price action suggests the same. I've seen it before to an even greater extent (late 1990s) and it's starting to remind me of that. Stocks go up solely because they've been going up.

Bonds are at all time low returns in both the short end which the FED controls and the long end where their control is considerably less. Lowest yields in history means highest prices in history. If we get inflation this will be called the greatest Treasury bond bubble in history. Real estate is likewise generously (some would say outrageously) priced in places where economic growth is robust and jobs pay well--big cities, tech centers, West Coast where the information economy resides.

So it's not a big surprise that gold is also going up in price in spite of low inflation as measured by CPI. All investment assets are IMO currently at inflated prices except perhaps for value stocks, especially SCV, but they have their own problems, concentrated in the wrong sectors that have gone nowhere for a long time. For equity and real estate and especially value stocks to prosper the economy also needs to prosper. That does not appear to be on the near term horizon IMO and there is considerable uncertainty about the intermediate term.

For gold to prosper, no such robust economic growth is necessary. There is a limited supply of it and lots of investment dollars looking for places to go in a world where all quality investment assets seem to be richly priced and all world economies continue to struggle. If the economy remains stagnant and repeated fiscal stimulus in the future ignites moderate inflation, we may arrive at a very unpleasant place, stagflation. That will be the end of low rates and great bond returns for a good while. Equity will also suffer. Gold is uniquely positioned in that situation because its value its simply due to supply and demand. There is an immense amount of money concentrated in the investing class and a lot of it might head toward gold in that situation. Gold does not require supportive FED policy, zero interest rates, or a good economy in order to hold its real value or even increase in real value which is rare in stagflation. It merely requires positive sentiment and when everything else tanks it tends to thrive.

I believe some investors are talking positions in precious metals or PM miners which have also been on a tear for this reason. I make no predictions about the future now. I do believe that recent gold and PME price inflation may be telling us that some investors are preparing for the odd chance of modest stagflation in the future, not the severe variety of the 1970s, but enough to negatively impact returns of traditional assets like bonds and stocks. Maybe not, maybe it's all just MOM day traders. Time will tell.

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Re: Gold as Part of a Portfolio?

Post by Fortune Seeker »

I actually had small part of my portfolio in gold initially but replaced it with treasury bonds.

Mostly because I felt that right now gold is "expensive", even comparing to other precious metals/commodities, and had doubts about it being a good hedge even in case of some inflation spike.

I also felt that at high stock allocation uniform treasury bond hedge is good enough and I do not need to worry about yet another portfolio component.
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