Investing in Gold

nick1234

ETF's don't usually have a full physical backing as mentioned.  I personally hold physicals, sovereigns and 1/4oz or 1/2oz bullion coins - if you don't hold it you don't own it!  then Gold Mining funds such as GDXJ or Blackrock Gold + General
About 40% of my portfolio is in precious metals mixture of funds and physical. 

Sailtheworld

pioruns said:

Sailtheworld said:

I've just plotted the price of gold vs a total return index (Wilshire) and over 10, 30, 50 & 100 years gold has been trounced. Even if you didn't reinvest dividends and spent them you'd still be left with a bigger pot over 10, 30 & 100 years and had a better lifestyle in the interim.

I don't know where it's been shown that portfolios containing 10% gold perform better than those without but just a rudimentary check shows this would be a flawed analysis.

Can you please share the chart you plotted or point where we can create one?

https://www.longtermtrends.net/stocks-vs-gold-comparison/

Just from google. Other sites do the same thing

bowlhead99

Sailtheworld said:

You brush over clear evidence that a total return index trounces gold in almost all circumstances in favour of marketing research which uses suspect dates and a cherry picked portfolio. Beware of bias.

Of course there’s no argument that buying low and selling high and repeating is a good skill to have whether we’re talking about gold or any other asset. Don’t forget it’s a skill most don’t have.

Which reminds me you still haven’t shared the ratio of gold to equities when it should be bought and sold.

Selling high to buy low is an inherent part of a standard rebalancing technique in which portfolio components are brought back to their target allocations. E.g. aiming to have 10% gold and 90% other: when you get to the end of a year and your 'other' has grown to 95% you sell and buy 5% more gold to get back to your target allocation;  if your 'other' has shrunk to 85% because gold performed strongly you sell 5% gold and top up the other. It doesn't require any special knowledge of where the market is going next, or a 'skill most don't have':  just a deliberate move to maintain allocations rather than let them drift and end up facing the next year with too many eggs in one basket. In doing so, one is embracing the knowledge that a diversified portfolio made of uncorrelated assets can reduce volatility without significantly adversely impacting returns compared to investing solely in the assets that turned out to be the best.  

In other words, the relative improvement to volatility is worth the sacrifice of outright gain.  Of course if you only want outright gain over 80 years and don't care what happens from day to day or year to year, you would just go all out with equities, but most people are not like that because they don't want the occasional 50% drops.

Generally it's true that diversification in a portfolio is mainly to reduce volatility / standard deviation for the same level of returns (the concept of 'efficient frontier'), and if you are willing to simply accept greater volatility and go solely for assets with higher growth potential (such as equities over bonds or commodities) you will likely get better returns. However over some time periods the more diverse portfolio can outperform a more correlated one despite the only difference being the inclusion of assets which had a lower overall performance when held on their own.

This counter-intuitive absolute outperformance by adding a lower performing asset will not work over all time periods, so it's best not to assume that it will. However, the idea of adding something to improve volatility in the portfolio without giving up 'as much as you might have expected' on the performance side, is well understood by theorists.  So for that reason, simply plotting a portfolio of stocks (or a blend of stocks and bonds rebalanced) on the one hand vs gold held in isolation on the other hand, does not give you the picture of what happens when you add gold to the portfolio of stocks (or for most people, stocks and bonds).

I got my 'post of the month' badge about 5 years ago explaining why a rebalanced diverse portfolio can be better than just holding assets in isolation.
https://forums.moneysavingexpert.com/discussion/5208032/the-power-of-the-rebalance/p1

Sailtheworld

When I rebalance I have no idea whether I'm selling high and buying low - neither do you. All you know is that one asset has grown faster than another and you're taking steps to bring them back into line whether by buying more of the poorer performing asset and / or selling a better performing one. I rebalance on the 10th April - it's purely mechanical and based on past performance rather than a view on the future - it's risk that's being rebalanced because that's something we can manage.

Ed comes at this from a slightly different viewpoint because he doesn't really worry about how gold performs over the long term as, say, a 5% diversifier because he has a strategy which allows him to spot when gold is good value against shares and vice versa. This is a buying low selling high strategy - rebalancing isn't a requirement if you have this skill so let's not confuse the two.

He's also advocating gold in a portfolio as a diversifier because it improves returns - it doesn't. The 15 year study he offers as evidence is gold vs a portfolio containing 40% bonds with an end date of 31/03/2020. It's a bias obviously because the study is fundamentally flawed - pick a date three months before or 3 months after and the 'gain' would disappear or just pick a world tracker with dividends reinvested.

[Deleted User]

Sailtheworld said:

pioruns said:

Sailtheworld said:

I've just plotted the price of gold vs a total return index (Wilshire) and over 10, 30, 50 & 100 years gold has been trounced. Even if you didn't reinvest dividends and spent them you'd still be left with a bigger pot over 10, 30 & 100 years and had a better lifestyle in the interim.

I don't know where it's been shown that portfolios containing 10% gold perform better than those without but just a rudimentary check shows this would be a flawed analysis.

Can you please share the chart you plotted or point where we can create one?

https://www.longtermtrends.net/stocks-vs-gold-comparison/

Just from google. Other sites do the same thing

Thanks.

Gold turned out to be the WORST investment, right next to silver, when you look at broader timescale. S&P 500 and Dow Jones indices are tens of thousands of percent better. That's it for theory that gold is good inflation and/or markets crash protection.

Feel free to correct me if I am reading this chart wrong.

EdGasketTheSecond

Sailtheworld said:

pioruns said:

Sailtheworld said:

I've just plotted the price of gold vs a total return index (Wilshire) and over 10, 30, 50 & 100 years gold has been trounced. Even if you didn't reinvest dividends and spent them you'd still be left with a bigger pot over 10, 30 & 100 years and had a better lifestyle in the interim.

I don't know where it's been shown that portfolios containing 10% gold perform better than those without but just a rudimentary check shows this would be a flawed analysis.

Can you please share the chart you plotted or point where we can create one?

https://www.longtermtrends.net/stocks-vs-gold-comparison/

Just from google. Other sites do the same thing

Ah so you didn't plot anything; you just googled it; lazy boy and I thought you had done your homework.

Ref. Stocks vs gold you can google that too:

https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart

You can eyeball whether stocks are on the expensive side or not relative to gold; I'd say they are expensive relative to gold now, are expensive relative to GDP, and that gold is undervalued compared to fiat currency debasement going on now.

BTW you do not understand rebalancing or bowlhead99's post.

Sailtheworld

EdGasketTheSecond said:

Sailtheworld said:

pioruns said:

Sailtheworld said:

I've just plotted the price of gold vs a total return index (Wilshire) and over 10, 30, 50 & 100 years gold has been trounced. Even if you didn't reinvest dividends and spent them you'd still be left with a bigger pot over 10, 30 & 100 years and had a better lifestyle in the interim.

I don't know where it's been shown that portfolios containing 10% gold perform better than those without but just a rudimentary check shows this would be a flawed analysis.

Can you please share the chart you plotted or point where we can create one?

https://www.longtermtrends.net/stocks-vs-gold-comparison/

Just from google. Other sites do the same thing

Ah so you didn't plot anything; you just googled it; lazy boy and I thought you had done your homework.

Ref. Stocks vs gold you can google that too:

https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart

You can eyeball whether stocks are on the expensive side or not relative to gold; I'd say they are expensive relative to gold now, are expensive relative to GDP, and that gold is undervalued compared to fiat currency debasement going on now.

BTW you do not understand rebalancing or bowlhead99's post.

I didn't need to understand that there's a ratio of gold to S&P500 because I already knew that. It's also not much of a surprise that this ratio can change over time and you will see peaks and troughs. What I'm doubting is that this graph enables you to foretell the future. It's human nature to look for patterns to try and predict the future but I'm afraid the market just isn't that inefficient. You're guessing that graph is going to head downwards from here.

EdGasketTheSecond

Yes but not based on that chart alone; there are other factors as mentioned.

Sailtheworld

pioruns said:

Sailtheworld said:

pioruns said:

Sailtheworld said:

I've just plotted the price of gold vs a total return index (Wilshire) and over 10, 30, 50 & 100 years gold has been trounced. Even if you didn't reinvest dividends and spent them you'd still be left with a bigger pot over 10, 30 & 100 years and had a better lifestyle in the interim.

I don't know where it's been shown that portfolios containing 10% gold perform better than those without but just a rudimentary check shows this would be a flawed analysis.

Can you please share the chart you plotted or point where we can create one?

https://www.longtermtrends.net/stocks-vs-gold-comparison/

Just from google. Other sites do the same thing

Thanks.

Gold turned out to be the WORST investment, right next to silver, when you look at broader timescale. S&P 500 and Dow Jones indices are tens of thousands of percent better. That's it for theory that gold is good inflation and/or markets crash protection.

Feel free to correct me if I am reading this chart wrong.

Perhaps it has some value as crisis protection but it's an unreliable store of value and an unreliable hedge against inflation. The future won't be the same as the past so it may still have value as a diversifier. Depends how far you take it - I'm happy enough with the exposure to commodities inferred by a world tracker. 

Prism

I don't think there is anything wrong at all with the 'up to 10%' gold idea to protect against some inflation or a downturn in equities. Lots of popular wealth preservation trusts do it and lots of the sample portfolios e.g https://portfoliocharts.com/portfolios/ do it too. Retrospective rebalancing keeps it in order.

What I doubt works is the larger scale selling of equities and moving into gold (and out again) at times based on predictions of what might happen. That approach rarely works for value equity investors trying to skip between stocks, rarely works for those switching from bonds to equities and I see no reason it can reliably work for gold.