Author Topic: time to buy gold?  (Read 4638 times)

neonlight

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time to buy gold?
« on: August 04, 2017, 03:59:46 AM »
I hear time and again that a prolong bear market is arriving. Some say it's time to move assets and shares to gold, not to grow your money but simply to preserve when things come crashing.

Is that a common wisdom here?

Thanks! :)

chasesfish

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Re: time to buy gold?
« Reply #1 on: August 04, 2017, 05:52:01 AM »
Only if you want to go full-on scrooge mcduck and pour all the gold in a vault and go swimming in it!

Its not "common wisdom" here, gold is generally a terrible long-term investment.  Its had two periods in the last 40 years where it beat the market, once when we went off the gold standard in the early 70s until the early 80s, then it barely beat the market between the peak of the tech boom and 2012, which included two historic market crashes and gold ending 40% higher than where it is today after a quick pull-back.

If you bought gold five years ago, you're down 40% vs. the market being up over 50%.


The biggest challenge with gold is it doesn't produce income - It has the same investment thesis and buying undeveloped land:  Limited supply, inflation hedge, ect.  I think all the arguments people use for gold could also apply to buying certain REITs.  You can get the same protection and lower "risk" by buying a near debt-free REIT holding income producing property.  It'll plod along and give you 5-6% in dividends a year that go up at the rate of inflation.  Like gold, the price of the REIT shares can be volatile depending on real estate value and interest rates, but long term you'll plod along with mid single-digit returns and they pay most of those returns out each year in cash.



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GuitarStv

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Re: time to buy gold?
« Reply #2 on: August 04, 2017, 06:16:58 AM »
I hear time and again that a prolong bear market is arriving.

People who predict the market are wrong a shocking amount of the time.  It's best not to put your faith in fortune tellers.

L.A.S.

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Re: time to buy gold?
« Reply #3 on: August 04, 2017, 06:24:09 AM »
Here is the famous "Gold cube" essay from Warren Buffett:

http://fortune.com/2012/02/09/warren-buffett-why-stocks-beat-gold-and-bonds/

Discussion of gold starts about half way down -- but the whole thing is worth a read.

2Birds1Stone

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Re: time to buy gold?
« Reply #4 on: August 04, 2017, 06:35:53 AM »
I hear time and again that a prolong bear market is arriving. Some say it's time to move assets and shares to gold, not to grow your money but simply to preserve when things come crashing.

Is that a common wisdom here?

Thanks! :)

5 Year CD's are paying 2.2% right now.......why the fuck would you even consider buying a speculative asset like gold to "preserve" anything?

PS - This is from someone who owns a healthy amount of gold, but not for that reason at all.
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JAYSLOL

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Re: time to buy gold?
« Reply #5 on: August 04, 2017, 07:58:41 AM »
I hear time and again that a prolong bear market is arriving. Some say it's time to move assets and shares to gold, not to grow your money but simply to preserve when things come crashing.

Is that a common wisdom here?

Thanks! :)

Hi neonlight, welcome to the forums here, and excellent question.  Generally around here we view trying to time markets by jumping asset classes as extremely un-wise.  While it sounds simple enough to expect a market correction, buy gold to preserve wealth, then buy back into the market at a lower price, the reality is that more people lose money trying to do this kind of market timing than people lose by just riding out market corrections and dollar-cost-averaging into a diversified portfolio.  Here is a list of hurdles to overcome to beat the market with this kind of move, and some questions to ask yourself. 

- The first problem is you have to be correct about calling the top of the market, and if you look back at years of evidence through threads on this forum, you can see loads of people saying "The top is in!" and being completely wrong.  These people have lost boatloads of cash if they were putting their money where their mouth was.  Are you ok with missing 10, 20 or 30% gains + years of dividends because you were "a little early" with your guess of where the top of the market was?
- The second problem is it will cost you money to switch asset classes, especially if you are talking about buying gold, it generally comes at a high premium that isn't recouped when sold.  Are you ok with losing ~5% of your wealth the moment you switch?
The third problem is that while gold is generally not correlated to the stock market, theres no guarantee that it will hold its value during a market downturn.  Most of the gains in gold came AFTER the bottom of the market was long gone during the great recession.  Are you prepared to buy back into the bottom of the stock market even if gold is also down?
- The fourth and BIGGEST problem is that you have to know when to sell your gold and buy back into the markets.  This is where the downfall of most market timers occurs.  What if you are expecting a 25% drop, and it only drops 22%, then rockets back up to record highs?  Then your stuck with gold, the cost of selling it, and have to buy back into the market at little or no discount.  It always sounds easy to buy back in at the bottom, but it is by far the hardest thing in reality to get right.  Do you know exactly where the market will bottom out? 

So, if all that sounds good, move all your money to gold and see if you can outsmart the market (and keep us updated on how thats going).  If that sounds like a lot of stress, risk and guesswork, then do what we generally do around here which is to follow an Investor Policy Statement.  Pick an asset allocation for your portfolio that you are comfortable with, as an example 50% US stocks, 20% International stocks, 25% bonds and 5%Gold.  You then dollar cost average your money over time into each category keeping the ratio the same NO MATTER WHAT THE MARKETS DO.  Over the long term you will be loads richer investing this way.   

JAYSLOL

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Re: time to buy gold?
« Reply #6 on: August 04, 2017, 08:16:32 AM »
Oh, and this is also from someone who owns some gold.  I keep 3% of my portfolio in silver, 1% in gold.  For me its an asset that i purchase at below market value (i buy and sell coins as a side hustle, and therefore pay no premiums, and actually make a healthy profit on them).  I keep some as a tool to rebalance my portfolio as needed and as a way to have an emergency fund that generally keeps up with inflation over long periods.  That way, every spare dollar i have can go into my index funds, and i've got some metals i can sell in an emergency.   

markbike528CBX

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Re: time to buy gold?
« Reply #7 on: August 04, 2017, 08:23:13 AM »
2% of my Net Worth (NW) is in physical gold. I use it as my emergency cash.

Since I basically never plan on using it, paying everything out of current cash flow, I wanted something that would have a hope of keeping up with inflation.

As an investment? Pah, bttthh, meh.  As speculation, meh, a great way to get poor, fast or slow.

plog

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Re: time to buy gold?
« Reply #8 on: August 04, 2017, 09:18:05 AM »
Quote
I use it as my emergency cash.

How exactly? Seriously. 

Like a water-heater-goes-out emergency?  Or a post-apocalyptic world emergency?  Whichever one you are talking about, please explain how gold is going to help. 

L.A.S.

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Re: time to buy gold?
« Reply #9 on: August 04, 2017, 09:25:33 AM »
Quote
I use it as my emergency cash.

How exactly? Seriously. 

Like a water-heater-goes-out emergency?  Or a post-apocalyptic world emergency?  Whichever one you are talking about, please explain how gold is going to help.

Yeah, I'm sort of curious, too.  Physical gold is really easy to buy today as there are a number of website selling various bullion products. But unless one is a dealer in it, I think one could have some difficulty selling it -- especially in large quantities, for a fair price, and on short notice.  I would imagine a buyer might require an assay, try to subtract weight due to alleged "dross," and might make an offer at a healthy discount from the spot price.  How would this be handled in an emergency?

ChpBstrd

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Re: time to buy gold?
« Reply #10 on: August 04, 2017, 09:58:04 AM »
Quote
I use it as my emergency cash.

How exactly? Seriously. 

Like a water-heater-goes-out emergency?  Or a post-apocalyptic world emergency?  Whichever one you are talking about, please explain how gold is going to help.

Usually, I hear "breakdown in societal order" as the scenario. Interestingly, you can put this hypothesis to the test in real time. Go to Somalia, Afghanistan, El Salvador, Yemen, or Venezuela and see if you can transact your gold bars / coins for living essentials and a ride out of that country. My bet is you end up dead.

Cwadda

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Re: time to buy gold?
« Reply #11 on: August 04, 2017, 10:02:30 AM »
Quote
I hear time and again that a prolong bear market is arriving.

My crystal ball is foggy, can I borrow yours?

neonlight

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Re: time to buy gold?
« Reply #12 on: August 04, 2017, 10:09:13 AM »
Only if you want to go full-on scrooge mcduck and pour all the gold in a vault and go swimming in it!

Still prefer sandy beach and blue ocean ;)

Its not "common wisdom" here, gold is generally a terrible long-term investment.  Its had two periods in the last 40 years where it beat the market, once when we went off the gold standard in the early 70s until the early 80s, then it barely beat the market between the peak of the tech boom and 2012, which included two historic market crashes and gold ending 40% higher than where it is today after a quick pull-back.

If you bought gold five years ago, you're down 40% vs. the market being up over 50%.

Exactly, both 3 and 5 year period gold investment lost value, while the market went up and up.


The biggest challenge with gold is it doesn't produce income - It has the same investment thesis and buying undeveloped land:  Limited supply, inflation hedge, ect.  I think all the arguments people use for gold could also apply to buying certain REITs.  You can get the same protection and lower "risk" by buying a near debt-free REIT holding income producing property.  It'll plod along and give you 5-6% in dividends a year that go up at the rate of inflation.  Like gold, the price of the REIT shares can be volatile depending on real estate value and interest rates, but long term you'll plod along with mid single-digit returns and they pay most of those returns out each year in cash.

REIT is something that should def look into. Since I am in based in East Asia my plan is to look at the REITs in this region.

markbike528CBX

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Re: time to buy gold?
« Reply #13 on: August 04, 2017, 10:09:43 AM »
Quote
I use it as my emergency cash.

How exactly? Seriously. 

Like a water-heater-goes-out emergency?  Or a post-apocalyptic world emergency?  Whichever one you are talking about, please explain how gold is going to help.

Usually, I hear "breakdown in societal order" as the scenario. Interestingly, you can put this hypothesis to the test in real time. Go to Somalia, Afghanistan, El Salvador, Yemen, or Venezuela and see if you can transact your gold bars / coins for living essentials and a ride out of that country. My bet is you end up dead.

I mean  my x months expenses type thing.  Really nothing more than that.   
The most Apocolypic scenario is identity theft, where my normal reserves are temporarily unaccessable.

It is there, I've checked off emergency fund, but since I'll hopefully never need it, gold is very slightly better than paper cash.

neonlight

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Re: time to buy gold?
« Reply #14 on: August 04, 2017, 10:10:08 AM »
Here is the famous "Gold cube" essay from Warren Buffett:

http://fortune.com/2012/02/09/warren-buffett-why-stocks-beat-gold-and-bonds/

Discussion of gold starts about half way down -- but the whole thing is worth a read.

Thanks for the share, will read it :)

neonlight

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Re: time to buy gold?
« Reply #15 on: August 04, 2017, 10:11:27 AM »
I hear time and again that a prolong bear market is arriving. Some say it's time to move assets and shares to gold, not to grow your money but simply to preserve when things come crashing.

Is that a common wisdom here?

Thanks! :)

5 Year CD's are paying 2.2% right now.......why the fuck would you even consider buying a speculative asset like gold to "preserve" anything?

PS - This is from someone who owns a healthy amount of gold, but not for that reason at all.

1 year CD is < 1% in Singapore which is where I keep most of my USD savings. But I get your point :)

neonlight

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Re: time to buy gold?
« Reply #16 on: August 04, 2017, 10:17:56 AM »

Hi neonlight, welcome to the forums here, and excellent question.



Thanks! Your reply is very informative :)


Generally around here we view trying to time markets by jumping asset classes as extremely un-wise.  While it sounds simple enough to expect a market correction, buy gold to preserve wealth, then buy back into the market at a lower price, the reality is that more people lose money trying to do this kind of market timing than people lose by just riding out market corrections and dollar-cost-averaging into a diversified portfolio.  Here is a list of hurdles to overcome to beat the market with this kind of move, and some questions to ask yourself. 

- The first problem is you have to be correct about calling the top of the market, and if you look back at years of evidence through threads on this forum, you can see loads of people saying "The top is in!" and being completely wrong.  These people have lost boatloads of cash if they were putting their money where their mouth was.  Are you ok with missing 10, 20 or 30% gains + years of dividends because you were "a little early" with your guess of where the top of the market was?
- The second problem is it will cost you money to switch asset classes, especially if you are talking about buying gold, it generally comes at a high premium that isn't recouped when sold.  Are you ok with losing ~5% of your wealth the moment you switch?

Interesting. I haven't purchased gold before so am not sure if they come in the form of funds-ish, bond-ish or just purely gold bars. If it's just gold bar the last time I checked you have to pay for all sorts of "collateral fees" eg: vault, and transfer fees if you want to hold the gold itself etc.

The third problem is that while gold is generally not correlated to the stock market, theres no guarantee that it will hold its value during a market downturn.  Most of the gains in gold came AFTER the bottom of the market was long gone during the great recession.  Are you prepared to buy back into the bottom of the stock market even if gold is also down?
- The fourth and BIGGEST problem is that you have to know when to sell your gold and buy back into the markets.  This is where the downfall of most market timers occurs.  What if you are expecting a 25% drop, and it only drops 22%, then rockets back up to record highs?  Then your stuck with gold, the cost of selling it, and have to buy back into the market at little or no discount.  It always sounds easy to buy back in at the bottom, but it is by far the hardest thing in reality to get right.  Do you know exactly where the market will bottom out? 

So, if all that sounds good, move all your money to gold and see if you can outsmart the market (and keep us updated on how thats going).  If that sounds like a lot of stress, risk and guesswork, then do what we generally do around here which is to follow an Investor Policy Statement.  Pick an asset allocation for your portfolio that you are comfortable with, as an example 50% US stocks, 20% International stocks, 25% bonds and 5%Gold.  You then dollar cost average your money over time into each category keeping the ratio the same NO MATTER WHAT THE MARKETS DO.  Over the long term you will be loads richer investing this way.

Currently my stock portfolio is only 5%, about half in US blue chips and another half in Asia.

tomsang

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Re: time to buy gold?
« Reply #17 on: August 04, 2017, 10:20:57 AM »
I was interested in Gold and found the replies and comments interesting.

https://forum.mrmoneymustache.com/investor-alley/is-gold-anti-mustachian/

Share your thoughts!



ChpBstrd

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Re: time to buy gold?
« Reply #18 on: August 04, 2017, 11:18:54 AM »
Here's how you can earn income off of gold:

Today's approx GLD price: 119.50
Price you could get selling a 119.50 strike price put option that expires Sept. 1: 1.22
That's a yield of about 1% in less than a month.
Repeat monthly.
If assigned to buy the shares, sell covered calls until assigned to sell the shares. Calls also sell for about 1%/month.
Repeat and rinse.

GenXbiker

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Re: time to buy gold?
« Reply #19 on: August 04, 2017, 02:00:56 PM »
No gold here, but I do have a precious metals and mining fund with Vanguard that correlates somewhat with gold.  When I first purchased it quite a few years back, it was my best performer, but then it dropped and hasn't done much since while everything else has gone up significantly.  The metals/mining fund also has a higher expense ratio than pretty much everything else.

Fortunately, that's only about 1% of my non-retirement and retirement stache combined.

effigy98

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Re: time to buy gold?
« Reply #20 on: August 04, 2017, 02:36:41 PM »
Yes you should have some gold. Go read portfolio charts golden butterfly information. It can be used in a balanced portfolio to lower overall volatility. If you have no emotion and can handle 50% of  your fresh investment disappearing, then you probably are better off with no gold. But if you are like me, you want the lowest possible volatility with the highest gain, gold makes sense based on back testing. Back testing does not always predict the future, but it is better then guessing and listening to the news media trying to scare you to death to keep you watching and spending more time looking at their commercials to make them more profit. You will get some hostile responses here (and everywhere) on gold, you need to filter the super bias ones that are not being objective, otherwise you will go mad.

ChpBstrd

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Re: time to buy gold?
« Reply #21 on: August 04, 2017, 03:23:18 PM »
Thing is, gold doesn't lower portfolio volatility very much. It's a myth.

Most people don't know that the correlation between the S&P500 and GLD is about the same as the S&P and the Russell 2000!

https://www.etfscreen.com/correlation.php

If you want lower volatility, picking low-beta stocks or using options are your best bets.

JAYSLOL

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Re: time to buy gold?
« Reply #22 on: August 04, 2017, 04:51:22 PM »
Quote
I use it as my emergency cash.

How exactly? Seriously. 

Like a water-heater-goes-out emergency?  Or a post-apocalyptic world emergency?  Whichever one you are talking about, please explain how gold is going to help.

I know you were asking the other poster, but I do the same, and NOT for ethier of those kinds of emergencies.  Post-apocalyptic situations having gold or not would be the least of anyone's problems and I have enough credit/income to handle a hot water heater or even a vehicle replacement sort of "emergency".  I would use it more for a real emergency like a sudden $20k medical bill, family crisis, or some kind of crisis where banks or electronic assets were closed for an extended period.  And yes, there's always a guy ready to hand you local currency for gold in any town in the world, and under any economic circumstances, I know because I'm one of those guys.  That said I currently keep it to just 4% of my portfolio and will likely decrease that further as my assets grow. 

ysette9

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Re: time to buy gold?
« Reply #23 on: August 04, 2017, 05:11:18 PM »
I think the main issue here is not whether to have good or not (though I am in the anti camp) but why you think you need to do some defensive moves in anticipation of the inevitable market ups and downs. The conventional wisdom around these parts is that you figure out an asset allocation that fits your goals and risk tolerance and you stick with it, thick and thin. Notice that what the market is doing or what you feel it will do has no consideration in choosing your AA. There is a ton of research showing that people who try to time the market underperform buy-and-hold investors. Figure out what will make you comfortable and how much volatility you can live with. Hell, trick yourself by purposefully not looking at that markets or your balances for years on end if that is what it takes. But don't fall I to the trap of thinking you can predict ups and downs or that a dip in the market is a compelling reason to adjust your investments.

Remember: you only lose if you sell in a downturn. Everyone here with income sees downturns as buying opportunities to take advantage of, not a reason to panic.
"It'll be great!"

JAYSLOL

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Re: time to buy gold?
« Reply #24 on: August 04, 2017, 08:28:16 PM »

Hi neonlight, welcome to the forums here, and excellent question.



Thanks! Your reply is very informative :)


Generally around here we view trying to time markets by jumping asset classes as extremely un-wise.  While it sounds simple enough to expect a market correction, buy gold to preserve wealth, then buy back into the market at a lower price, the reality is that more people lose money trying to do this kind of market timing than people lose by just riding out market corrections and dollar-cost-averaging into a diversified portfolio.  Here is a list of hurdles to overcome to beat the market with this kind of move, and some questions to ask yourself. 

- The first problem is you have to be correct about calling the top of the market, and if you look back at years of evidence through threads on this forum, you can see loads of people saying "The top is in!" and being completely wrong.  These people have lost boatloads of cash if they were putting their money where their mouth was.  Are you ok with missing 10, 20 or 30% gains + years of dividends because you were "a little early" with your guess of where the top of the market was?
- The second problem is it will cost you money to switch asset classes, especially if you are talking about buying gold, it generally comes at a high premium that isn't recouped when sold.  Are you ok with losing ~5% of your wealth the moment you switch?

Interesting. I haven't purchased gold before so am not sure if they come in the form of funds-ish, bond-ish or just purely gold bars. If it's just gold bar the last time I checked you have to pay for all sorts of "collateral fees" eg: vault, and transfer fees if you want to hold the gold itself etc.

The third problem is that while gold is generally not correlated to the stock market, theres no guarantee that it will hold its value during a market downturn.  Most of the gains in gold came AFTER the bottom of the market was long gone during the great recession.  Are you prepared to buy back into the bottom of the stock market even if gold is also down?
- The fourth and BIGGEST problem is that you have to know when to sell your gold and buy back into the markets.  This is where the downfall of most market timers occurs.  What if you are expecting a 25% drop, and it only drops 22%, then rockets back up to record highs?  Then your stuck with gold, the cost of selling it, and have to buy back into the market at little or no discount.  It always sounds easy to buy back in at the bottom, but it is by far the hardest thing in reality to get right.  Do you know exactly where the market will bottom out? 

So, if all that sounds good, move all your money to gold and see if you can outsmart the market (and keep us updated on how thats going).  If that sounds like a lot of stress, risk and guesswork, then do what we generally do around here which is to follow an Investor Policy Statement.  Pick an asset allocation for your portfolio that you are comfortable with, as an example 50% US stocks, 20% International stocks, 25% bonds and 5%Gold.  You then dollar cost average your money over time into each category keeping the ratio the same NO MATTER WHAT THE MARKETS DO.  Over the long term you will be loads richer investing this way.

Currently my stock portfolio is only 5%, about half in US blue chips and another half in Asia.

Out of curiosity, what's the other 95% of your portfolio?  Around here US equities in the form of low-fee S&P500 or Total US Market funds usually make up the larger percentages of people portfolios.

neonlight

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Re: time to buy gold?
« Reply #25 on: August 04, 2017, 10:28:14 PM »
Here is the famous "Gold cube" essay from Warren Buffett:

http://fortune.com/2012/02/09/warren-buffett-why-stocks-beat-gold-and-bonds/

Discussion of gold starts about half way down -- but the whole thing is worth a read.

Good infobites

Today annual production of gold is 16 billion USD worth, if gold were to sustain it's value this 16 billion will have to be absord by someone annually. The current value of all golds combined is almost 10 trillion, half of US annual GDP.

neonlight

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Re: time to buy gold?
« Reply #26 on: August 04, 2017, 10:29:46 PM »
I was interested in Gold and found the replies and comments interesting.

https://forum.mrmoneymustache.com/investor-alley/is-gold-anti-mustachian/

Share your thoughts!

Thanks @tomsang! Checking out the thread now

neonlight

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Re: time to buy gold?
« Reply #27 on: August 04, 2017, 10:34:14 PM »

Hi neonlight, welcome to the forums here, and excellent question.



Thanks! Your reply is very informative :)


Generally around here we view trying to time markets by jumping asset classes as extremely un-wise.  While it sounds simple enough to expect a market correction, buy gold to preserve wealth, then buy back into the market at a lower price, the reality is that more people lose money trying to do this kind of market timing than people lose by just riding out market corrections and dollar-cost-averaging into a diversified portfolio.  Here is a list of hurdles to overcome to beat the market with this kind of move, and some questions to ask yourself. 

- The first problem is you have to be correct about calling the top of the market, and if you look back at years of evidence through threads on this forum, you can see loads of people saying "The top is in!" and being completely wrong.  These people have lost boatloads of cash if they were putting their money where their mouth was.  Are you ok with missing 10, 20 or 30% gains + years of dividends because you were "a little early" with your guess of where the top of the market was?
- The second problem is it will cost you money to switch asset classes, especially if you are talking about buying gold, it generally comes at a high premium that isn't recouped when sold.  Are you ok with losing ~5% of your wealth the moment you switch?

Interesting. I haven't purchased gold before so am not sure if they come in the form of funds-ish, bond-ish or just purely gold bars. If it's just gold bar the last time I checked you have to pay for all sorts of "collateral fees" eg: vault, and transfer fees if you want to hold the gold itself etc.

The third problem is that while gold is generally not correlated to the stock market, theres no guarantee that it will hold its value during a market downturn.  Most of the gains in gold came AFTER the bottom of the market was long gone during the great recession.  Are you prepared to buy back into the bottom of the stock market even if gold is also down?
- The fourth and BIGGEST problem is that you have to know when to sell your gold and buy back into the markets.  This is where the downfall of most market timers occurs.  What if you are expecting a 25% drop, and it only drops 22%, then rockets back up to record highs?  Then your stuck with gold, the cost of selling it, and have to buy back into the market at little or no discount.  It always sounds easy to buy back in at the bottom, but it is by far the hardest thing in reality to get right.  Do you know exactly where the market will bottom out? 

So, if all that sounds good, move all your money to gold and see if you can outsmart the market (and keep us updated on how thats going).  If that sounds like a lot of stress, risk and guesswork, then do what we generally do around here which is to follow an Investor Policy Statement.  Pick an asset allocation for your portfolio that you are comfortable with, as an example 50% US stocks, 20% International stocks, 25% bonds and 5%Gold.  You then dollar cost average your money over time into each category keeping the ratio the same NO MATTER WHAT THE MARKETS DO.  Over the long term you will be loads richer investing this way.

Currently my stock portfolio is only 5%, about half in US blue chips and another half in Asia.

Out of curiosity, what's the other 95% of your portfolio?  Around here US equities in the form of low-fee S&P500 or Total US Market funds usually make up the larger percentages of people portfolios.

Sure, and you are dead right. Most people have S&P500 or some major blue chips. Rightly so since it's proven to be the most resilient and espoused by Wareen buffet himself.

I have ~25% in crypto, ~25% in property, about ~25% in cash most of which are not in TD yet and this is where I plan to shift to other assets. I am in East Asia so my properties and cash are here.

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Re: time to buy gold?
« Reply #28 on: August 04, 2017, 10:48:41 PM »
The price of gold is high relative to its average historical real price over the past 40 years. It is also high compared to the cost to mine more. Neither of these is necessarily predictive, but now is not an unusually good time to buy, price wise.

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Re: time to buy gold?
« Reply #29 on: August 04, 2017, 11:42:51 PM »

Hi neonlight, welcome to the forums here, and excellent question.



Thanks! Your reply is very informative :)


Generally around here we view trying to time markets by jumping asset classes as extremely un-wise.  While it sounds simple enough to expect a market correction, buy gold to preserve wealth, then buy back into the market at a lower price, the reality is that more people lose money trying to do this kind of market timing than people lose by just riding out market corrections and dollar-cost-averaging into a diversified portfolio.  Here is a list of hurdles to overcome to beat the market with this kind of move, and some questions to ask yourself. 

- The first problem is you have to be correct about calling the top of the market, and if you look back at years of evidence through threads on this forum, you can see loads of people saying "The top is in!" and being completely wrong.  These people have lost boatloads of cash if they were putting their money where their mouth was.  Are you ok with missing 10, 20 or 30% gains + years of dividends because you were "a little early" with your guess of where the top of the market was?
- The second problem is it will cost you money to switch asset classes, especially if you are talking about buying gold, it generally comes at a high premium that isn't recouped when sold.  Are you ok with losing ~5% of your wealth the moment you switch?

Interesting. I haven't purchased gold before so am not sure if they come in the form of funds-ish, bond-ish or just purely gold bars. If it's just gold bar the last time I checked you have to pay for all sorts of "collateral fees" eg: vault, and transfer fees if you want to hold the gold itself etc.

The third problem is that while gold is generally not correlated to the stock market, theres no guarantee that it will hold its value during a market downturn.  Most of the gains in gold came AFTER the bottom of the market was long gone during the great recession.  Are you prepared to buy back into the bottom of the stock market even if gold is also down?
- The fourth and BIGGEST problem is that you have to know when to sell your gold and buy back into the markets.  This is where the downfall of most market timers occurs.  What if you are expecting a 25% drop, and it only drops 22%, then rockets back up to record highs?  Then your stuck with gold, the cost of selling it, and have to buy back into the market at little or no discount.  It always sounds easy to buy back in at the bottom, but it is by far the hardest thing in reality to get right.  Do you know exactly where the market will bottom out? 

So, if all that sounds good, move all your money to gold and see if you can outsmart the market (and keep us updated on how thats going).  If that sounds like a lot of stress, risk and guesswork, then do what we generally do around here which is to follow an Investor Policy Statement.  Pick an asset allocation for your portfolio that you are comfortable with, as an example 50% US stocks, 20% International stocks, 25% bonds and 5%Gold.  You then dollar cost average your money over time into each category keeping the ratio the same NO MATTER WHAT THE MARKETS DO.  Over the long term you will be loads richer investing this way.

Currently my stock portfolio is only 5%, about half in US blue chips and another half in Asia.

Out of curiosity, what's the other 95% of your portfolio?  Around here US equities in the form of low-fee S&P500 or Total US Market funds usually make up the larger percentages of people portfolios.

Sure, and you are dead right. Most people have S&P500 or some major blue chips. Rightly so since it's proven to be the most resilient and espoused by Wareen buffet himself.

I have ~25% in crypto, ~25% in property, about ~25% in cash most of which are not in TD yet and this is where I plan to shift to other assets. I am in East Asia so my properties and cash are here.

Cool, I would definitely consider holding stocks with that 25% cash you plan on putting to work.  And I'd recommend setting up an asset allocation listing a firm percentage of each category you plan to buy and hold (and stick to when markets go up, down and sideways).  Also, congrats, looks like your crypto currencies might have just had a big bump, bitcoins up like $350 in the last couple hours.

neonlight

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Re: time to buy gold?
« Reply #30 on: August 05, 2017, 02:32:48 AM »
Cool, I would definitely consider holding stocks with that 25% cash you plan on putting to work.  And I'd recommend setting up an asset allocation listing a firm percentage of each category you plan to buy and hold (and stick to when markets go up, down and sideways).  Also, congrats, looks like your crypto currencies might have just had a big bump, bitcoins up like $350 in the last couple hours.

Thanks! BTC hit a record high today :) It finally crossed the $3000 line today. For those who sold off BCC earlier this week and kept BTC, they have made a killing.

That's my plans too, maybe changing the weightage from 5% to 20% over time for stocks.

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Re: time to buy gold?
« Reply #31 on: August 05, 2017, 07:41:57 AM »
I hear time and again that a prolong bear market is arriving. Some say it's time to move assets and shares to gold, not to grow your money but simply to preserve when things come crashing.

Is that a common wisdom here?

Thanks! :)

5 Year CD's are paying 2.2% right now.......why the fuck would you even consider buying a speculative asset like gold to "preserve" anything?

PS - This is from someone who owns a healthy amount of gold, but not for that reason at all.

1 year CD is < 1% in Singapore which is where I keep most of my USD savings. But I get your point :)

Synchrony Bank is paying 2.35% for Jumbo (25k minimum) 5 year CDs right now. Smaller CDs are 2.30%

With global, internet based banking there is rarely a good reason to buy USD denominated  CDs at significantly lower rates.
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TomTX

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Re: time to buy gold?
« Reply #32 on: August 05, 2017, 07:58:50 AM »
Yes you should have some gold. Go read portfolio charts golden butterfly information. It can be used in a balanced portfolio to lower overall volatility. If you have no emotion and can handle 50% of  your fresh investment disappearing, then you probably are better off with no gold. But if you are like me, you want the lowest possible volatility with the highest gain, gold makes sense based on back testing. Back testing does not always predict the future, but it is better then guessing and listening to the news media trying to scare you to death to keep you watching and spending more time looking at their commercials to make them more profit. You will get some hostile responses here (and everywhere) on gold, you need to filter the super bias ones that are not being objective, otherwise you will go mad.

Eliminate the year or two of massive price rebound from an artificially low level after the US went off the gold standard and that all falls apart.
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Re: time to buy gold?
« Reply #33 on: August 05, 2017, 08:07:48 AM »
Yes you should have some gold. Go read portfolio charts golden butterfly information. It can be used in a balanced portfolio to lower overall volatility. If you have no emotion and can handle 50% of  your fresh investment disappearing, then you probably are better off with no gold. But if you are like me, you want the lowest possible volatility with the highest gain, gold makes sense based on back testing. Back testing does not always predict the future, but it is better then guessing and listening to the news media trying to scare you to death to keep you watching and spending more time looking at their commercials to make them more profit. You will get some hostile responses here (and everywhere) on gold, you need to filter the super bias ones that are not being objective, otherwise you will go mad.

Eliminate the year or two of massive price rebound from an artificially low level after the US went off the gold standard and that all falls apart.

The problem with portfolio charts is that people using it don't understand what they are doing. All of those portfolios that use gold to get great returns compared to volatility fail a couple of key points. The first point is you could probably never have actually been able to hold that portfolio. Buying gold wasn't as simple as what it is now. Then you have to realise that there has been some great performances from gold but those performances were unique.

The way to develop a portfolio is to think through what has worked in the past and think why it worked. Lots of people think through what has worked in the past but fail to think through why it worked. If you are trying to get returns that have been historically great you've probably already missed the boat.

koshtra

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Re: time to buy gold?
« Reply #34 on: August 05, 2017, 08:31:56 AM »
The thing about gold is that it's always irrationally high. You can make money off it by buying when it's only stupidly high, and selling when it's batshit crazy high, but -- ugh. Leaves a bad taste in my mouth.

In any case, the time to buy anything is exactly NOT when everyone is saying it's time to buy it :-)

kenaces

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Re: time to buy gold?
« Reply #35 on: August 05, 2017, 10:33:52 AM »
Thing is, gold doesn't lower portfolio volatility very much. It's a myth.

Most people don't know that the correlation between the S&P500 and GLD is about the same as the S&P and the Russell 2000!

https://www.etfscreen.com/correlation.php

If you want lower volatility, picking low-beta stocks or using options are your best bets.

Huh?

The chart you link to show GLD has -0.19 correlation to SPY, and IWM has 0.83 correlation to SPY?

kenaces

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Re: time to buy gold?
« Reply #36 on: August 05, 2017, 10:37:58 AM »
Seems fine to me to have some % of ones allocation to "real assets".  Gold is just one thing you can put in that bucket. 

neonlight

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Re: time to buy gold?
« Reply #37 on: August 05, 2017, 01:09:03 PM »
I hear time and again that a prolong bear market is arriving. Some say it's time to move assets and shares to gold, not to grow your money but simply to preserve when things come crashing.

Is that a common wisdom here?

Thanks! :)

5 Year CD's are paying 2.2% right now.......why the fuck would you even consider buying a speculative asset like gold to "preserve" anything?

PS - This is from someone who owns a healthy amount of gold, but not for that reason at all.

1 year CD is < 1% in Singapore which is where I keep most of my USD savings. But I get your point :)

Synchrony Bank is paying 2.35% for Jumbo (25k minimum) 5 year CDs right now. Smaller CDs are 2.30%

With global, internet based banking there is rarely a good reason to buy USD denominated  CDs at significantly lower rates.

How I wish that's true. As a non US residents am not sure how Synchrony bank would allowed to open a bank account.  The closest thing I have to a SSN is an ITIN.

Mr. Green

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Re: time to buy gold?
« Reply #38 on: August 08, 2017, 09:57:54 AM »
I would only own gold so that the golden hue could reflect off my eyes and I could stroke it while saying, My precious!"
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effigy98

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Re: time to buy gold?
« Reply #39 on: August 08, 2017, 02:09:39 PM »
Yes you should have some gold. Go read portfolio charts golden butterfly information. It can be used in a balanced portfolio to lower overall volatility. If you have no emotion and can handle 50% of  your fresh investment disappearing, then you probably are better off with no gold. But if you are like me, you want the lowest possible volatility with the highest gain, gold makes sense based on back testing. Back testing does not always predict the future, but it is better then guessing and listening to the news media trying to scare you to death to keep you watching and spending more time looking at their commercials to make them more profit. You will get some hostile responses here (and everywhere) on gold, you need to filter the super bias ones that are not being objective, otherwise you will go mad.

Eliminate the year or two of massive price rebound from an artificially low level after the US went off the gold standard and that all falls apart.

No it doesn't. Tyler has already talk about that on his website and you can do that backtest yourself. If you backtest the golden butterfly excluding the 70's, you still get a 5% SW rate with very low volatility, if you backtest the "lost" decade in the 2000 you still are doing well. Go try it and show me a portfolio that has lower volatility with the highest possible gain in both accumulation and withdraw phases. I will gladly switch.
« Last Edit: August 08, 2017, 02:11:30 PM by effigy98 »

alexpkeaton

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Re: time to buy gold?
« Reply #40 on: August 08, 2017, 03:03:52 PM »
No gold here, but I do have a precious metals and mining fund with Vanguard that correlates somewhat with gold.

I just bought a couple gold mining stocks directly. Having the entire basket seemed like overkill when the highest weighted components of the fund make up a huge percentage of it. And you can cut out the high expenses.

steveo

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Re: time to buy gold?
« Reply #41 on: August 08, 2017, 03:48:05 PM »
Yes you should have some gold. Go read portfolio charts golden butterfly information. It can be used in a balanced portfolio to lower overall volatility. If you have no emotion and can handle 50% of  your fresh investment disappearing, then you probably are better off with no gold. But if you are like me, you want the lowest possible volatility with the highest gain, gold makes sense based on back testing. Back testing does not always predict the future, but it is better then guessing and listening to the news media trying to scare you to death to keep you watching and spending more time looking at their commercials to make them more profit. You will get some hostile responses here (and everywhere) on gold, you need to filter the super bias ones that are not being objective, otherwise you will go mad.

Eliminate the year or two of massive price rebound from an artificially low level after the US went off the gold standard and that all falls apart.

No it doesn't. Tyler has already talk about that on his website and you can do that backtest yourself. If you backtest the golden butterfly excluding the 70's, you still get a 5% SW rate with very low volatility, if you backtest the "lost" decade in the 2000 you still are doing well. Go try it and show me a portfolio that has lower volatility with the highest possible gain in both accumulation and withdraw phases. I will gladly switch.

Sounds great but it probably won't happen in the future. You use the past as a guide but you invest today for the future. Gold has a high holding cost and it may not provide even mediocre diversification in the future.

The golden butterfly might have worked in the past but will a portfolio with a low stock allocation do well in the future ? Personally I doubt it and think you've already missed that boat.

waltworks

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Re: time to buy gold?
« Reply #42 on: August 08, 2017, 09:30:13 PM »
The goldbugs are being slowly replaced (as they die on their couches watching Ron Paul shill gold companies on Fox) by BitCoin/LiteCoin/Etherium/etcCoin bugs.

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JAYSLOL

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Re: time to buy gold?
« Reply #43 on: August 08, 2017, 10:13:12 PM »
The goldbugs are being slowly replaced (as they die on their couches watching Ron Paul shill gold companies on Fox) by BitCoin/LiteCoin/Etherium/etcCoin bugs.

-W

Ooohh, where can i buy some etcCoin??  Are there any mining platforms for it yet?  j/k.  But i think you may be on to something, a lot of the traditional money that would have gone into gold may now be going into crypto currencies.  What that means for either is anyones guess, so i'll continue to buy both as a small part of my portfolio. 

Travis

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Re: time to buy gold?
« Reply #44 on: August 08, 2017, 10:29:56 PM »
Half the daytime commercials on the tv in the office:

"Hi, I'm someone the baby boomers might consider mildly famous.  I'm here to inform you out of the goodness of my heart that the global economy is teetering on total collapse. The fundamentals of our economy will doom us all though I won't elaborate on it. Here's a couple guys in suits to give you sound bites to be more scared....Now, you can protect yourself from this collapse by buying gold coins, though probably not enough to act as a replacement currency.  Why are we willing to take your paper money which we said is about to be worthless in exchange for these gold coins instead of hoarding them for ourselves if things are so bad? We're hoping you never ask us."

waltworks

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Re: time to buy gold?
« Reply #45 on: August 09, 2017, 09:18:17 AM »
I don't want to come off as a shill, but etcCoin is pretty great!
-Only one can ever be mined. It will never lose value, and is worth literally billions of times as much as *all the bitcoin in existence*!
-Mining it requires hundreds of thousands of dollars of gear (cooling accomplished via liquid helium) and many terawatt-hours of electricity. There's no way to know if you've mined the coin or not, so it's really exciting!
-Cannot be used as a medium of exchange (except on Etsy).
-Technobabble/gibberish terminology is being invented as we speak for it to make you EVEN COOLER than the BitCoin guys!

-W

L.A.S.

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Re: time to buy gold?
« Reply #46 on: August 09, 2017, 09:25:58 AM »
I don't want to come off as a shill, but etcCoin is pretty great!
-Only one can ever be mined. It will never lose value, and is worth literally billions of times as much as *all the bitcoin in existence*!
-Mining it requires hundreds of thousands of dollars of gear (cooling accomplished via liquid helium) and many terawatt-hours of electricity. There's no way to know if you've mined the coin or not, so it's really exciting!
-Cannot be used as a medium of exchange (except on Etsy).
-Technobabble/gibberish terminology is being invented as we speak for it to make you EVEN COOLER than the BitCoin guys!

-W

etcCoin is so last Thursday.  No one uses it anymore.  Well, since the fork, that is.  Get. with. the. times!

If you want to be in front of the next wave what you really need to do is drop $10K into @Coins. Duh!  I just finished configuring my mining rig today.

waltworks

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Re: time to buy gold?
« Reply #47 on: August 09, 2017, 11:55:58 AM »
Pshaw. EtcCoin is what is known as "Steampunk Kitsch Crypto", so it can only be mined with Babbage engines communicating via 300 baud modem on the AOL HelloKitty chat room.

I'm grooming my mustache (with the same oil I use for the gears and crankshafts!) right now just thinking of how rich I'll be.

Get with the times indeed. The future is over, start living in the past with etcCoin!

-W

NoraLenderbee

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Re: time to buy gold?
« Reply #48 on: August 09, 2017, 04:21:25 PM »
The time to buy gold is when the top is in.

maizeman

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Re: time to buy gold?
« Reply #49 on: August 09, 2017, 05:14:23 PM »
Pshaw. EtcCoin is what is known as "Steampunk Kitsch Crypto", so it can only be mined with Babbage engines communicating via 300 baud modem on the AOL HelloKitty chat room.

I'm grooming my mustache (with the same oil I use for the gears and crankshafts!) right now just thinking of how rich I'll be.

Your post has wet my appetite for more stories from the world of crypto-steampunk economics.

But surely mustache wax should be used in crankshafts only as a last resort, while a man who oils his mustache with crankshaft grease is either very brave or has nothing left to lose.
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