Alternative To Holding Cash in SIPP?

Aminatidi

bowlhead99 said:

When you have built your diverse portfolio you just need to hold it and look after it. Looking after it generally doesn't mean dumping something that has lost value, because that's the opposite of 'looking after it' - like kicking a child out of class for doing badly, you are waving byebye to the potential of them helping you in future.  So, if it has done relatively less well than other things, you can top it up instead.

That was what I was getting at with my comments on the price of gold.

I mentioned earlier that I have a fair amount in PNL and it's around 10% in gold bullion.

I know some of my own psychology and if I had that same amount directly in a physical gold ETF I could perhaps see myself being unsettled and doing something daft if it shed 30% or 40% of its value even if it was doing so because equities had risen dramatically.

Ditto bonds.

My own psychology is I just don't like seeing red in my portfolio so I try to avoid it (don't we all )

I find the multi-asset approach means I can shield myself from some of that emotion.

83705628

Aminatidi said:

bowlhead99 said:

When you have built your diverse portfolio you just need to hold it and look after it. Looking after it generally doesn't mean dumping something that has lost value, because that's the opposite of 'looking after it' - like kicking a child out of class for doing badly, you are waving byebye to the potential of them helping you in future.  So, if it has done relatively less well than other things, you can top it up instead.

That was what I was getting at with my comments on the price of gold.

I mentioned earlier that I have a fair amount in PNL and it's around 10% in gold bullion.

I know some of my own psychology and if I had that same amount directly in a physical gold ETF I could perhaps see myself being unsettled and doing something daft if it shed 30% or 40% of its value even if it was doing so because equities had risen dramatically.

Ditto bonds.

My own psychology is I just don't like seeing red in my portfolio so I try to avoid it (don't we all )

I find the multi-asset approach means I can shield myself from some of that emotion.

/
Bonds don't shed 30-40% of their value... Or at least in future they probably won't do that quickly.

bowlhead99

tcallaghan93 said:

bowlhead99 said:

Aminatidi said:

DiggerUK said:

You would be well served with Gold backed ETF's/ETC's, especially on the timescale you mention..._

Gold fascinates me.

I'm wondering if I'd have held my nerve if I was in it heavily enough and "preservation of wealth" was my intention?
[Chart]

Generally the people who like it a lot would have been buying it not just on day one of the chart for 100 or late the following year at 150, but at the various points in between, and also on the journey back down to 90 in 2015, and so on. Then when it recently surged from 120% to 180% of summer 2010's value in a little over a year, they would feel very happy and vindicated for sticking with it through the huge losses off the previous peak.

Stable, it is not. And the 'keep buying to get an average long term price' is a concept that could be applied to any other long term better-performing asset such as equities, and not very easy if you are talking about a retirement portfolio like OP's which won't be having new money coming in to buy the ups and downs if you don't have other things that you are looking to exit.

So really the addition of gold would be something just to consider as a 'diversifier' - it could be of use due to the fact that its value isn't very correlated with equities and bonds, so it can help reduce overall volatility of a portfolio if you add it to the equities and bonds you hold.

If, as in OP's case, you were looking for inflation proofing and low risk over the timescale you were drawing from the portfolio, it would be a bad thing to hold on its own to do those jobs, as evidenced by the chart from summer 2011 to the first half of 2019 when it had lost a good proportion of its value in both nominal and real terms.

Whereas by adding some of it to a diverse multi asset portfolio and periodically rebalancing, it could reduce the volatility without necessarily hurting the ability to preserve real terms value over the very long term (ie not as bad at holding large unused cash reserves for that purpose).

/
Gold has no utility as an investment. It doesn't do any of the things people think it does.

So as a commodity with speculative value, its value hasn't generally increased over time while moving in a way that's significantly less than fully correlated with the day to day returns from equities, bonds and property? As explained in the post you're quoting, that's why people hold it as a diversifier: 

"could be of use due to the fact that its value isn't very correlated with equities and bonds, so it can help reduce overall volatility of a portfolio if you add it to the equities and bonds you hold...
... periodically rebalancing, it could reduce the volatility without necessarily hurting the ability to preserve real terms value over the very long term (ie not as bad at holding large unused cash reserves for that purpose)."

csgohan4 said:

Why not consider ETC's which include gold as well as other commodities so if the price of gold drops, other things can reduce the down turn, much like a fund in some ways

I suppose the main reason not to use a product that dampens the return from gold (i.e., like you say: if it drops, other things can reduce the impact) is that if you were adding gold to your existing portfolio as a diversifier, you don't want its up and down performance to be dampened or subdued - because its whole function as a diversifier is predicated on the fact that it will be going up and down at times when other parts of your portfolio are moving down and up; extreme movements are to be embraced rather than feared.

Having said that, it's difficult to know with foresight whether gold or other precious metals such as platinum or silver will have better outright performances over particular time periods (the demand for the others being more industrial led, but still somewhat diversified from mainstream equities). So back in 2015 I mentioned holding Wisdom Tree's physical precious metals basket ETC (half gold, half other) rather than their gold ETC. 

The five year chart for PHPP (the mixed metals one) shows 111% vs 102% for PHGP (gold only). So its value change was a tenth better which would have been welcomed if you were holding it for outright performance. However, if you ran the chart back to late 2007 instead of 2015, the gold one did a fifth better and would have been preferred if you were holding it for outright performance.

 But a key thing in the context of portfolio construction is that the overall value change of such holdings over the long time frame is not the be-all and end-all because you wouldn't be wise to hold either of those ETCs as your whole portfolio. Instead, you would be looking for them to have an acceptable return while being non-correlated with the rest of your portfolio.

So if they both delivered acceptable performance, the one which was the least correlated along the way (down the most or up the least when your portfolio was up, and up most or down least when the rest of your portfolio is down) is the more useful product, which is hard to show on a simple Google Finance chart that doesn't know what else you held when.


From the archives
(June 2020) 
https://forums.moneysavingexpert.com/discussion/comment/77305904#Comment_77305904

If you don't want to own gold miners etc but are just looking to buy the commodity, and the reason to buy the commodity is to diversify your portfolio, you could buy something like WisdomTree's Physical Precious Metals (PHPM/PHPP for the dollar or sterling version) which holds a basket of physical precious metals (platinum, palladium, silver, gold).

Gold is of course traditionally more 'investy' while the others are more 'industrial' but they are all still valuable metals (compared to  pure industrial stuff like iron, copper, aluminium etc). So it's diversified metals including some gold, and you want to diversify your portfolio and only have a small amount of your overall portfolio in gold, so it could work. However, as the price may be less volatile as a packaged product than gold on its own (due to being diversified), you may not get the advantages of such volatility if volatility is what you want - i.e. if you are trying to have the diversification of gold price going extremely one way while equities or bonds go extremely the other so you can rebalance and benefit from those swings

(October 2016)
https://forums.moneysavingexpert.com/discussion/comment/71404769#Comment_71404769

I don't hold a pure gold ETF but I do have a 'precious metals' basket ETF which is about 50% gold plus silver, platinum and palladium. Commodities are speculative as they do not produce income, so are a gamble on someone paying more per ounce in the future than they do today. As such, in deciding to put them in my portfolio as a diversifier from equities, debt, real estate, etc, I don't profess to know more about the direction of movement of gold than the others, which can be quite different from time to time. So I have a mixed basket.

Anyway the ETF I use for that is ETFS Physical PM Basket , listed in two forms on london stock exchange: ticker PHPM for the one priced in dollars and PHPP if you want to pay in pence and avoid your broker's FX fee. The version priced in pence is not 'hedged' so just delivers basically the same return as you would have got buying dollars with your sterling, buying the dollar priced fund, and later selling the fund and buying sterling with the dollars received.

(March 2015)
https://forums.moneysavingexpert.com/discussion/comment/67892034#Comment_67892034

I hold ETFS Physical PPSG basket. It's 50% gold and the rest split between silver, platinum and palladium. If you have a particular reason why you think gold will do better than the other metals (other than you like the colour) then sure, buy gold only. As suggested above, it is just a diversifier in a portfolio and so there's no intrinsic reason to gamble on just gold, just silver, etc., imho.
Ticker for that one is PHPM or PHPP

83705628

bowlhead99 said:

tcallaghan93 said:

bowlhead99 said:

Aminatidi said:

DiggerUK said:

You would be well served with Gold backed ETF's/ETC's, especially on the timescale you mention..._

Gold fascinates me.

I'm wondering if I'd have held my nerve if I was in it heavily enough and "preservation of wealth" was my intention?
[Chart]

Generally the people who like it a lot would have been buying it not just on day one of the chart for 100 or late the following year at 150, but at the various points in between, and also on the journey back down to 90 in 2015, and so on. Then when it recently surged from 120% to 180% of summer 2010's value in a little over a year, they would feel very happy and vindicated for sticking with it through the huge losses off the previous peak.

Stable, it is not. And the 'keep buying to get an average long term price' is a concept that could be applied to any other long term better-performing asset such as equities, and not very easy if you are talking about a retirement portfolio like OP's which won't be having new money coming in to buy the ups and downs if you don't have other things that you are looking to exit.

So really the addition of gold would be something just to consider as a 'diversifier' - it could be of use due to the fact that its value isn't very correlated with equities and bonds, so it can help reduce overall volatility of a portfolio if you add it to the equities and bonds you hold.

If, as in OP's case, you were looking for inflation proofing and low risk over the timescale you were drawing from the portfolio, it would be a bad thing to hold on its own to do those jobs, as evidenced by the chart from summer 2011 to the first half of 2019 when it had lost a good proportion of its value in both nominal and real terms.

Whereas by adding some of it to a diverse multi asset portfolio and periodically rebalancing, it could reduce the volatility without necessarily hurting the ability to preserve real terms value over the very long term (ie not as bad at holding large unused cash reserves for that purpose).

/
Gold has no utility as an investment. It doesn't do any of the things people think it does.

So as a commodity with speculative value, its value hasn't generally increased over time while moving in a way that's significantly less than fully correlated with the day to day returns from equities, bonds and property? As explained in the post you're quoting, that's why people hold it as a diversifier: 

"could be of use due to the fact that its value isn't very correlated with equities and bonds, so it can help reduce overall volatility of a portfolio if you add it to the equities and bonds you hold...
... periodically rebalancing, it could reduce the volatility without necessarily hurting the ability to preserve real terms value over the very long term (ie not as bad at holding large unused cash reserves for that purpose)."

csgohan4 said:

Why not consider ETC's which include gold as well as other commodities so if the price of gold drops, other things can reduce the down turn, much like a fund in some ways

I suppose the main reason not to use a product that dampens the return from gold (i.e., like you say: if it drops, other things can reduce the impact) is that if you were adding gold to your existing portfolio as a diversifier, you don't want its up and down performance to be dampened or subdued - because its whole function as a diversifier is predicated on the fact that it will be going up and down at times when other parts of your portfolio are moving down and up; extreme movements are to be embraced rather than feared.

Having said that, it's difficult to know with foresight whether gold or other precious metals such as platinum or silver will have better outright performances over particular time periods (the demand for the others being more industrial led, but still somewhat diversified from mainstream equities). So back in 2015 I mentioned holding Wisdom Tree's physical precious metals basket ETC (half gold, half other) rather than their gold ETC. 

The five year chart for PHPP (the mixed metals one) shows 111% vs 102% for PHGP (gold only). So its value change was a tenth better which would have been welcomed if you were holding it for outright performance. However, if you ran the chart back to late 2007 instead of 2015, the gold one did a fifth better and would have been preferred if you were holding it for outright performance.

 But a key thing in the context of portfolio construction is that the overall value change of such holdings over the long time frame is not the be-all and end-all because you wouldn't be wise to hold either of those ETCs as your whole portfolio. Instead, you would be looking for them to have an acceptable return while being non-correlated with the rest of your portfolio.

So if they both delivered acceptable performance, the one which was the least correlated along the way (down the most or up the least when your portfolio was up, and up most or down least when the rest of your portfolio is down) is the more useful product, which is hard to show on a simple Google Finance chart that doesn't know what else you held when.


From the archives
(June 2020) 
https://forums.moneysavingexpert.com/discussion/comment/77305904#Comment_77305904

If you don't want to own gold miners etc but are just looking to buy the commodity, and the reason to buy the commodity is to diversify your portfolio, you could buy something like WisdomTree's Physical Precious Metals (PHPM/PHPP for the dollar or sterling version) which holds a basket of physical precious metals (platinum, palladium, silver, gold).

Gold is of course traditionally more 'investy' while the others are more 'industrial' but they are all still valuable metals (compared to  pure industrial stuff like iron, copper, aluminium etc). So it's diversified metals including some gold, and you want to diversify your portfolio and only have a small amount of your overall portfolio in gold, so it could work. However, as the price may be less volatile as a packaged product than gold on its own (due to being diversified), you may not get the advantages of such volatility if volatility is what you want - i.e. if you are trying to have the diversification of gold price going extremely one way while equities or bonds go extremely the other so you can rebalance and benefit from those swings

(October 2016)
https://forums.moneysavingexpert.com/discussion/comment/71404769#Comment_71404769

I don't hold a pure gold ETF but I do have a 'precious metals' basket ETF which is about 50% gold plus silver, platinum and palladium. Commodities are speculative as they do not produce income, so are a gamble on someone paying more per ounce in the future than they do today. As such, in deciding to put them in my portfolio as a diversifier from equities, debt, real estate, etc, I don't profess to know more about the direction of movement of gold than the others, which can be quite different from time to time. So I have a mixed basket.

Anyway the ETF I use for that is ETFS Physical PM Basket , listed in two forms on london stock exchange: ticker PHPM for the one priced in dollars and PHPP if you want to pay in pence and avoid your broker's FX fee. The version priced in pence is not 'hedged' so just delivers basically the same return as you would have got buying dollars with your sterling, buying the dollar priced fund, and later selling the fund and buying sterling with the dollars received.

(March 2015)
https://forums.moneysavingexpert.com/discussion/comment/67892034#Comment_67892034

I hold ETFS Physical PPSG basket. It's 50% gold and the rest split between silver, platinum and palladium. If you have a particular reason why you think gold will do better than the other metals (other than you like the colour) then sure, buy gold only. As suggested above, it is just a diversifier in a portfolio and so there's no intrinsic reason to gamble on just gold, just silver, etc., imho.
Ticker for that one is PHPM or PHPP

/
Gold does not work to diversify, its not an inflation hedge, it has no utility as an investment. The only peopley who make money are the mining companies and the banks with gold vaults who charge to hold onto it.

Aminatidi

tcallaghan93 said:

Aminatidi said:

bowlhead99 said:

When you have built your diverse portfolio you just need to hold it and look after it. Looking after it generally doesn't mean dumping something that has lost value, because that's the opposite of 'looking after it' - like kicking a child out of class for doing badly, you are waving byebye to the potential of them helping you in future.  So, if it has done relatively less well than other things, you can top it up instead.

That was what I was getting at with my comments on the price of gold.

I mentioned earlier that I have a fair amount in PNL and it's around 10% in gold bullion.

I know some of my own psychology and if I had that same amount directly in a physical gold ETF I could perhaps see myself being unsettled and doing something daft if it shed 30% or 40% of its value even if it was doing so because equities had risen dramatically.

Ditto bonds.

My own psychology is I just don't like seeing red in my portfolio so I try to avoid it (don't we all )

I find the multi-asset approach means I can shield myself from some of that emotion.

/
Bonds don't shed 30-40% of their value... Or at least in future they probably won't do that quickly.

Appreciate that.

What I was getting at is that even if you could build a multi-asset portfolio from the individual components which of course you could, I expect quite a lot of people would struggle seeing individual components losing money even if they were meant to be because a different component was gaining it.

Or maybe it's just me

bowlhead99

tcallaghan93 said:

Gold does not work to diversify, its not an inflation hedge, it has no utility as an investment. The only peopley who make money are the mining companies and the banks with gold vaults who charge to hold onto it.

It is not an investment in the sense of growing its inherent 'worth' derived directly from economic activity or utility (as equity or real estate might) or providing an income (as shares, bonds or property rights might offer) - as you say, far from providing an income, it costs money to store and insure.

However, while it doesn't guarantee to hedge inflation over any specific time period (and there are various time periods you could pick to demonstrate major loss of real value over certain long timeframes - such as when it bobbled up and down between £150-300 /Oz for a quarter century from 1980 and it lost 80% of its real value over about two decades, or the eight years it sat at a substantially lower than peak price following summer 2011 until the next economic crisis came along), it certainly has speculative value as a scarce and pretty commodity with established links to the financial system.

Much of that speculative value comes from fear - of equity crashes, house price crashes, bond market crashes, government intervention such as money printing, unwanted economic issues such as inflation etc. Those things have propelled gold forward from time to time.

As a somewhat finite commodity whose price gets propelled forward from time to time and is often seen to move in a different direction to other asset classes (whether up, down or sideways), it's perhaps short- sighted to say it 'doesn't work as a diversifier' because it will certainly change the result of your portfolio, for better or worse.

Ideally we would only hold things in our investment portfolio that would definitely grow or maintain their real-terms value over specific periods we identify. However, we can't say that equities or bonds or real estate will definitely do that either, unless the period is very long and various other assumptions hold true. The OP of the thread had asked for something that could 'partially hedge' inflation.  Gold is certainly imperfect for that but is one tool to consider within a portfolio.

Language evolves over time so perhaps it should not be called an 'investment' if it lacks certain characteristics - but your signature statement that 'gold is not an investment' and thread comment that 'gold has no utility as an investment' and 'does not work as a diversifier' is not in line with the fact that people have used it within investment portfolios for decades, especially as a real-asset diversifier from traditional financial investments. If it's being used in portfolios of investments, is it not an investment (as long as you understand the risks and limitations of holding speculative assets)?

Whatever happened to "if it walks like a duck, quacks like a duck, it's a duck" in the context of this commodity that can increase its market value over time to a greater extent than cash (like an investment) and move in a non-correlated way with other financial instruments (like a diversifier)...

Sub 5-10% of a portfolio, it's probably fine, though many portfolios may prefer to not bother with it, and most would agree that it's price is not currently very cheap in relation to historic levels (albeit acknowledging that many high profile equities and bonds are not very cheap in relation to historic levels either).

83705628

bowlhead99 said:

tcallaghan93 said:

Gold does not work to diversify, its not an inflation hedge, it has no utility as an investment. The only peopley who make money are the mining companies and the banks with gold vaults who charge to hold onto it.

It is not an investment in the sense of growing its inherent 'worth' derived directly from economic activity or utility (as equity or real estate might) or providing an income (as shares, bonds or property rights might offer) - as you say, far from providing an income, it costs money to store and insure.

However, while it doesn't guarantee to hedge inflation over any specific time period (and there are various time periods you could pick to demonstrate major loss of real value over certain long timeframes - such as when it bobbled up and down between £150-300 /Oz for a quarter century from 1980 and it lost 80% of its real value over about two decades, or the eight years it sat at a substantially lower than peak price following summer 2011 until the next economic crisis came along), it certainly has speculative value as a scarce and pretty commodity with established links to the financial system.

Much of that speculative value comes from fear - of equity crashes, house price crashes, bond market crashes, government intervention such as money printing, unwanted economic issues such as inflation etc. Those things have propelled gold forward from time to time.

As a somewhat finite commodity whose price gets propelled forward from time to time and is often seen to move in a different direction to other asset classes (whether up, down or sideways), it's perhaps short- sighted to say it 'doesn't work as a diversifier' because it will certainly change the result of your portfolio, for better or worse.

Ideally we would only hold things in our investment portfolio that would definitely grow or maintain their real-terms value over specific periods we identify. However, we can't say that equities or bonds or real estate will definitely do that either, unless the period is very long and various other assumptions hold true. The OP of the thread had asked for something that could 'partially hedge' inflation.  Gold is certainly imperfect for that but is one tool to consider within a portfolio.

Language evolves over time so perhaps it should not be called an 'investment' if it lacks certain characteristics - but your signature statement that 'gold is not an investment' and thread comment that 'gold has no utility as an investment' and 'does not work as a diversifier' is not in line with the fact that people have used it within investment portfolios for decades, especially as a real-asset diversifier from traditional financial investments. If it's being used in portfolios of investments, is it not an investment (as long as you understand the risks and limitations of holding speculative assets)?

Whatever happened to "if it walks like a duck, quacks like a duck, it's a duck" in the context of this commodity that can increase its market value over time to a greater extent than cash (like an investment) and move in a non-correlated way with other financial instruments (like a diversifier)...

Sub 5-10% of a portfolio, it's probably fine, though many portfolios may prefer to not bother with it, and most would agree that it's price is not currently very cheap in relation to historic levels (albeit acknowledging that many high profile equities and bonds are not very cheap in relation to historic levels either).

/
It's a waste of money. If you want to control volatility hold cash. Gold has not intrinsic value so it is impossible to work out the expected return.

bowlhead99

tcallaghan93 said

It's a waste of money. If you want to control volatility hold cash. Gold has not intrinsic value so it is impossible to work out the expected return.

Well, cash doesn't have 'intrinsic value' either - it's a medium of exchange, and will buy in the future whatever it will buy based on the prices of goods, services and investments at that time. So too would the proceeds of gold.

83705628

bowlhead99 said:

tcallaghan93 said

It's a waste of money. If you want to control volatility hold cash. Gold has not intrinsic value so it is impossible to work out the expected return.

Well, cash doesn't have 'intrinsic value' either - it's a medium of exchange, and will buy in the future whatever it will buy based on the prices of goods, services and investments at that time. So too would the proceeds of gold.

/
Exactly, with 0 volatility, 0 cost and the fact it may pay interest

bowlhead99

tcallaghan93 said:

bowlhead99 said:

tcallaghan93 said

It's a waste of money. If you want to control volatility hold cash. Gold has not intrinsic value so it is impossible to work out the expected return.

Well, cash doesn't have 'intrinsic value' either - it's a medium of exchange, and will buy in the future whatever it will buy based on the prices of goods, services and investments at that time. So too would the proceeds of gold.

/
Exactly, with 0 volatility, 0 cost and the fact it may pay interest

Though the 0 volatility and cost is only true in nominal terms rather than real terms, so you have to hope that the interest may cover the inflation, and the risk that it may not do that (especially with interest rates at 300 year lows) is the main reason that the OP was looking for something that may have a better 'element of inflation proofing'.