Author Topic: Gold in the portfolio  (Read 7618 times)

slowsynapse

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Gold in the portfolio
« on: May 24, 2016, 10:21:20 PM »
For those of you who have gold in your portfolio, what are your favorite ways to hold it? 

I have tried holding the GLD in my non-taxable accounts.  However, I always hear pundits like Dennis Gartman on CNBC or Bloomberg talk about buying gold in terms of Yen or Euros.  Essentially, they are shorting the Euro and going long gold.  I guess this can help protect against the drop in value of gold if it is only dropping due to an increase in the strength of the dollar.  I would welcome feedback on this idea as at least a part of gold holdings.  Below is an ETF I found that does the Euro/gold trade.  I am also hoping to find other ETFs that do the same thing.

http://advisorshares.com/fund/geur

Financial.Velociraptor

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Re: Gold in the portfolio
« Reply #1 on: May 24, 2016, 10:27:05 PM »
How much cash are you holding in portfolio?  How much Yen?  How much Euro?   None?   Why hold gold (currency?)  I'm skeptical of holding gold as an "investment"

Radagast

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Re: Gold in the portfolio
« Reply #2 on: May 24, 2016, 11:38:56 PM »
I personally do not see a problem with gold in a balanced portfolio for people who actually understand the implications of it, though I feel it becomes increasingly questionable as it goes past 10-20%.

However your suggested fund/method of buying gold (futures?) in other (shorted?) currencies is truly stupid. You ultimately are spending dollars so who cares what currency the price of gold is measured in, except the fund provider who gets the extra expenses? Looking deeper, it looks like it does not work quite like I thought, but is in fact even stupider. This is betting on price movements of both the Euro and Gold? I can't even tell what the fund "invests" in. Honestly, especially if you would consider this, you will most likely be better off avoiding gold or anything related to it.

Other quotes on this fund from ETF.com:
"The fund uses a complex structure to provide investors with gold exposure denominated in euros."

"To be RIC compliant, the fund invests in futures, forwards and exchange-traded products through a Cayman Islands subsidiary."

"Its expense ratio is higher than its vanilla peers, and its liquidity has been shallow, making it an expensive option."

This screams "stay away!" to me, and the more I look the more strongly I realize that.

« Last Edit: May 24, 2016, 11:42:15 PM by Radagast »

k9

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Re: Gold in the portfolio
« Reply #3 on: May 25, 2016, 05:17:26 AM »

Why do I own gold ? Two reasons :

1. It is a good diversifier. Historically, adding a slice of gold in a stock-heavy allocation produced less volatile portfolios without reducing significantly CAGR (i.e, generated higher SWR).
2. It is an insurance against political/financial risk. Bailouts are a hot topic here in EU, and you can't be sure your financial assets will still be yours in the years to come. That might be less of a risk in other parts of the world (USA, eg), or a bigger risk in countries that are known to play with their citizen's money (Argentina, eg). YMMV.

If you invest for reason 1, you can invest in bullions or ETFs. If you invest for reason 2, the only sane choice is gold bullion.

Now, about your more particular question. Well, gold (somewhat) protects you from a stock market krach, since, more often than not, gold goes upward when stocks go downward. But how can you protect yourself from a gold krach, i.e when the USD is strong ? Well, stocks and bonds.

Don't try to play with reverse ETFs, exchange rates bets and the like. It is not your job. They will bite you.

Tyler

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Re: Gold in the portfolio
« Reply #4 on: May 25, 2016, 09:38:23 AM »
@slowsynapse - I like gold in a portfolio, but I believe you're over-thinking it. If the rest of your portfolio is denominated in Euro or yen, then consider buying gold coins that you can sell in any currency.  Otherwise, the traditional gold ETFs like GLD and IAU are fine choices for gold exposure. Messing with active currency trades or complex financial instruments is completely unnecessary and is generally a bad idea for everyday investors.

forummm

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Re: Gold in the portfolio
« Reply #5 on: May 25, 2016, 10:57:55 AM »
I'd rather own actual businesses that return a profit than some hunk of metal that has no intrinsic value other than among some people who think it has value. I know there are backtests that make it seem like a good idea to hold it at particular times in the past. But it's not for me.

dougules

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Re: Gold in the portfolio
« Reply #6 on: May 25, 2016, 11:13:00 AM »
I think Buffett's take on gold about sums it up to me:

http://ivanhoff.com/2013/04/15/warren-buffett-on-gold/

The good reason to have gold is just as a hedge against every public company in the world collapsing and the value of all the world's currencies going to nothing.  If you're hedging against that risk, I would think you'd want to just hide some ingots somewhere in your house where nobody else will think to look for them.  If you have some account on paper somewhere, I don't think that would do you much good.  You might also try investing in canned goods, seeds, and ammo since those could potentially be even more valuable than the gold.   

k9

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Re: Gold in the portfolio
« Reply #7 on: May 25, 2016, 12:54:58 PM »
Here in Europe we are seeing refugees from Irak and Syria coming. Those who could bring assets brought cash and gold, not canned goods, seeds, ammo or stock market shares.

But I think OP was not wondering about the utility of gold, but rather how to hold it.

slowsynapse

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Re: Gold in the portfolio
« Reply #8 on: May 25, 2016, 01:36:42 PM »
Thanks to all who replied.  After reading some responses, I too conclude that this particular vehicle is too complex and adds risk and complexity that I probably don't comprehend.  I have long been skeptical of gold as an investment for the end of the world type scenarios like zombie apocalypse.  I have only ever used it for a trade.  As I get really close to my FIRE date, I tend to fantasize about different ways to diversify and my mind wonders to odd trade ideas that it shouldn't consider :)

That being said, lots of portfolio models like the golden butterfly that have been discussed in the forum actually hold gold so I wanted to solicit opinions on ways to hold it if you wanted to own gold.  I found it interesting at the price differences when gold is held in different currencies.  For instance, gold is up about 25% since January 1, 2014 through today when held in Euros but basically flat when held in USD.

Lastly, so that I contribute something, GLD is taxed at 28% long term gain rate as it is a collectible not an investment in the eyes of the IRS.  It can be a surprise for those not expecting it. 

talltexan

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Re: Gold in the portfolio
« Reply #9 on: May 25, 2016, 02:48:20 PM »
I have been intrigued by Gold because of its negative correlation with the SP500. I'm fairly sure it's possible to achieve that negative correlation by holding TIPS in an ETF (and they seem to have a lower expense ratio than--for example--GLD)

seattleite

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Re: Gold in the portfolio
« Reply #10 on: May 25, 2016, 06:41:18 PM »
Lastly, so that I contribute something, GLD is taxed at 28% long term gain rate as it is a collectible not an investment in the eyes of the IRS.  It can be a surprise for those not expecting it.

I'm not an accountant, but I believe that it's actually taxed at your normal federal income tax levels with a maximum of 28%. So, it's better than other short term capitals gains for those in high brackets, but worse than long term capital gains.

k9

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Re: Gold in the portfolio
« Reply #11 on: May 26, 2016, 03:32:05 AM »
I have been intrigued by Gold because of its negative correlation with the SP500. I'm fairly sure it's possible to achieve that negative correlation by holding TIPS in an ETF (and they seem to have a lower expense ratio than--for example--GLD)
TLT seems an even better trade regarding negative correlation to stocks, as far as I remember.

talltexan

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Re: Gold in the portfolio
« Reply #12 on: May 26, 2016, 06:44:23 AM »
Just checked out at http://www.assetcorrelation.com/majors I'm having trouble getting a matrix that shows TLT with SPY...


Sent from my iPad using Tapatalk

k9

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Re: Gold in the portfolio
« Reply #13 on: May 26, 2016, 06:58:42 AM »
http://www.etfscreen.com/correlation.php

The only thing TLT is a little correlated with is GLD. GLD is very uncorrelated, although a little less than TLT. It might be a good alternative for those who fear gold but want negative correlation to stocks.

dougules

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Re: Gold in the portfolio
« Reply #14 on: May 26, 2016, 09:41:48 AM »
Here in Europe we are seeing refugees from Irak and Syria coming. Those who could bring assets brought cash and gold, not canned goods, seeds, ammo or stock market shares.

But I think OP was not wondering about the utility of gold, but rather how to hold it.

I'm not saying gold doesn't have it's place, but it's not right to call it an investment.  It's just a store of value since it produces no true return. 

Gold's main benefit is as hedge against a complete and total collapse of society, exactly like what is happening in Syria and Iraq.  That being said, you'd only need gold if you thought the whole world's economy was plunged into chaos.  Otherwise keeping cash or assets from other countries works.  I imagine that euros or dollars are in a lot of ways better for the refugees than gold.  I would also imagine that any of the refugees that hold true investments (stocks, bonds, etc.) diversified across the world are not in quite as bad a position as those that don't. 

Also, if you live in a developed country, what is the real risk of your country completely collapsing like Syria?  It's definitely not zero, but you've got to weigh the risks proportionally.  You could also say it would be a good "investment" to build an asteroid-strike shelter. 

If you're intent on holding gold, why not hide bullion or coins in your house?  Why pay somebody to hold something you might not be able to access in an emergency?

If you want an investment in gold, why not buy stock in a diversified group of companies that mine gold?
« Last Edit: May 26, 2016, 10:03:22 AM by dougules »

effigy98

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Re: Gold in the portfolio
« Reply #15 on: May 26, 2016, 01:08:33 PM »
When Trump wins you will want gold. He will cover the white house in gold which will require a very large quantity driving prices up.

In all seriousness I like gold as a very diversifying asset that keeps the rest of my portfolio's volatility down by doing re balances. I also like physically having something to fall back on if I needed to run down to the local coin dealer to cash out on for a dire emergency. Ask why banks horde it if what others say about it being worthless is true? It is the oldest form of a store of wealth until VERY recently in history, that is not going away anytime soon.

k9

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Re: Gold in the portfolio
« Reply #16 on: May 26, 2016, 02:06:21 PM »
Otherwise keeping cash or assets from other countries works.  I imagine that euros or dollars are in a lot of ways better for the refugees than gold.  I would also imagine that any of the refugees that hold true investments (stocks, bonds, etc.) diversified across the world are not in quite as bad a position as those that don't. 
Agreed, and I think USD (in banknotes) is a very good hedge for those populations, but gold is very practical as you can hold quite a fortune around your neck or wrist. Stocks & bonds are cool too, although they are much easier to confiscate (victims of communism or nazism know that very well).

Red_Gold

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Re: Gold in the portfolio
« Reply #17 on: May 26, 2016, 06:42:36 PM »
My plan is to hold 5% of my portfolio in gold bullion (with some silver for a bit of fun and speculation) which I won't be paying anyone to store. When your family and yourself live through a bunch of currency reforms with confiscatory attributes as was the case with former USSR you learn that a hedge against paper assets, any paper assets might not be such a bad thing.

I bought few bullion bars back when AU dollar was on par with US. Its now worth 70 American cents but the bullion had kept its value. Had I kept that money in the bank I would have lost to currency fluctuation and the interest would have been taxed. I haven't sold any precious metals yet, but I think one can avoid paying tax on profit made if one is inclined to do so, claiming it as a hobby perhaps.

hodor

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Re: Gold in the portfolio
« Reply #18 on: May 26, 2016, 08:49:53 PM »
My plan is to hold 5% of my portfolio in gold bullion (with some silver for a bit of fun and speculation) which I won't be paying anyone to store. When your family and yourself live through a bunch of currency reforms with confiscatory attributes as was the case with former USSR you learn that a hedge against paper assets, any paper assets might not be such a bad thing.

I bought few bullion bars back when AU dollar was on par with US. Its now worth 70 American cents but the bullion had kept its value. Had I kept that money in the bank I would have lost to currency fluctuation and the interest would have been taxed. I haven't sold any precious metals yet, but I think one can avoid paying tax on profit made if one is inclined to do so, claiming it as a hobby perhaps.

You could have had a similar exposure to currency fluctuations with VTS or VGS. Which would have produced better results.

dragoncar

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Re: Gold in the portfolio
« Reply #19 on: May 26, 2016, 08:56:19 PM »
My plan is to hold 5% of my portfolio in gold bullion (with some silver for a bit of fun and speculation) which I won't be paying anyone to store. When your family and yourself live through a bunch of currency reforms with confiscatory attributes as was the case with former USSR you learn that a hedge against paper assets, any paper assets might not be such a bad thing.

I bought few bullion bars back when AU dollar was on par with US. Its now worth 70 American cents but the bullion had kept its value. Had I kept that money in the bank I would have lost to currency fluctuation and the interest would have been taxed. I haven't sold any precious metals yet, but I think one can avoid paying tax on profit made if one is inclined to do so, claiming it as a hobby perhaps.

You could have had a similar exposure to currency fluctuations with VTS or VGS. Which would have produced better results.

VTS is easy to confiscate though.

I mean hodor

Red_Gold

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Re: Gold in the portfolio
« Reply #20 on: May 27, 2016, 05:23:01 AM »
My plan is to hold 5% of my portfolio in gold bullion (with some silver for a bit of fun and speculation) which I won't be paying anyone to store. When your family and yourself live through a bunch of currency reforms with confiscatory attributes as was the case with former USSR you learn that a hedge against paper assets, any paper assets might not be such a bad thing.

I bought few bullion bars back when AU dollar was on par with US. Its now worth 70 American cents but the bullion had kept its value. Had I kept that money in the bank I would have lost to currency fluctuation and the interest would have been taxed. I haven't sold any precious metals yet, but I think one can avoid paying tax on profit made if one is inclined to do so, claiming it as a hobby perhaps.

You could have had a similar exposure to currency fluctuations with VTS or VGS. Which would have produced better results.

Apart from my PPOR the rest of my portfolio are in paper assets (Vanguard managed funds and individual shares) and its from those quarters that I expect growth etc. Gold and a bit of cash are a buffer for emergencies really, from the very real to the far-fetched SHTF scenarios. I don't want to have to sell shares of Vanguard units if there is a need for an urgent medical procedure or something similar. Best case scenario for my precious metals: I never have to cash them in and my kids and future grandkids inherit my little stack.

forummm

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Re: Gold in the portfolio
« Reply #21 on: May 27, 2016, 11:10:02 AM »
When Trump wins you will want gold. He will cover the white house in gold which will require a very large quantity driving prices up.

He could just tap the supply in Ft Knox which wouldn't affect markets.

hodor

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Re: Gold in the portfolio
« Reply #22 on: May 27, 2016, 05:35:51 PM »
My plan is to hold 5% of my portfolio in gold bullion (with some silver for a bit of fun and speculation) which I won't be paying anyone to store. When your family and yourself live through a bunch of currency reforms with confiscatory attributes as was the case with former USSR you learn that a hedge against paper assets, any paper assets might not be such a bad thing.

I bought few bullion bars back when AU dollar was on par with US. Its now worth 70 American cents but the bullion had kept its value. Had I kept that money in the bank I would have lost to currency fluctuation and the interest would have been taxed. I haven't sold any precious metals yet, but I think one can avoid paying tax on profit made if one is inclined to do so, claiming it as a hobby perhaps.

You could have had a similar exposure to currency fluctuations with VTS or VGS. Which would have produced better results.

Apart from my PPOR the rest of my portfolio are in paper assets (Vanguard managed funds and individual shares) and its from those quarters that I expect growth etc. Gold and a bit of cash are a buffer for emergencies really, from the very real to the far-fetched SHTF scenarios. I don't want to have to sell shares of Vanguard units if there is a need for an urgent medical procedure or something similar. Best case scenario for my precious metals: I never have to cash them in and my kids and future grandkids inherit my little stack.

Fair enough. Sounds like you have a well thought out reason for having it.

Including it for currency risk mitigation etc is not why I would have it. Some might have seen that in your post and I was pointing out other options that from a pure investment view make more sense IMO.

Red_Gold

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Re: Gold in the portfolio
« Reply #23 on: May 28, 2016, 12:09:34 AM »
Thanks hodor. You are right, currency hedge and possible tax benefits is not why I want to keep bullion.

AlmstRtrd

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Re: Gold in the portfolio
« Reply #24 on: May 28, 2016, 07:12:39 AM »
I think Buffett's take on gold about sums it up to me:

http://ivanhoff.com/2013/04/15/warren-buffett-on-gold/

I like Buffett but I wonder if he was being a bit disingenuous about this. Back in 1997 he bought 130,000,000 ounces of silver through BH. Yes, silver is not as cleanly defined as a "precious" metal as it has lots of industrial uses. Let's call it part precious metal, part industrial metal. Tried to find a link to post but everything I come up with is from a site trying to sell gold! I think gold is a good investment as part of a balanced portfolio. There are situations where it can really save one's ass and when it comes time to have one's ass saved, I personally would want to be holding more than 5%. I guess my position is that if one determines that something is worth holding, then it's worth really holding it.

For me much of the great divide surrounding gold is due to investors being super dug in on a certain position (stocks are the only way to go, or the world is coming to an end... better stock up on gold). I like stocks because they allow me to take advantage of a growing economy. I want to hold them at all times. But I also don't want to be killed by a bad sequence of returns and I think holding some gold is one of the ways to mitigate that problem.

We are all looking at more or less the same information. We just draw different conclusions from the historical data. For me personally I think 100% in stocks is way too high, but maybe that's because most of my earning power is in the rearview mirror. So what may feel right for me might feel totally misguided for someone else. If I were super optimistic about continued economic growth here in the US, I could see going with a really high percentage of stocks. I'm not that optimistic so I prefer to really diversify.
« Last Edit: May 28, 2016, 12:03:28 PM by AlmstRtrd »

Red_Gold

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Re: Gold in the portfolio
« Reply #25 on: May 28, 2016, 05:32:20 PM »

 I personally would want to be holding more than 5%. I guess my position is that if one determines that something is worth holding, then it's worth really holding it.

Agreed. I am in accumulation phase of my wealth building so defensive assets such as gold, cash and bonds take up a smaller proportion for now. It will increase as I age. I might go as high as 10% in precious metals (diversifying between gold, silver and maybe even platinum, who knows) but probably not higher. And really holding for me means actually holding the stuff in my hands. In the SHTF scenarios those will be the only assets you really "hold" as bank deposits, safe boxes, shares and the like can be frozen by government decrees. Gold can be confiscated too, but they will to have find it first. But I don't really fit with the 'stack to the moon, paper is dead' crowd and therefore won't go higher than 10% unless I see some really disturbing trends.

Bad sequence of returns can be mitigated by holding assets that are not correlated with each other, doesn't have to be gold. I would gladly get into the rental property market, but sky high prices here in AU and my own limited capabilities prevent me from doing so. I fully intend to hold VAP though. Property and shares are not entirely out of sync, but they are different enough to not crash at the same time, at least I don't see it happening in AU. And then, there are bonds and other fixed interest vehicles that should do well when shares are doing badly.
100% in stocks is only okay if you are under 25 and your parents support you, imho, kinda like my teenage sons.

markbike528CBX

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Re: Gold in the portfolio
« Reply #26 on: May 29, 2016, 07:30:02 PM »
physical gold +silver held as emergency stash instead of cash/CD's.
 I expect that most emergencies can be dealt with from current income, so I'm mostly inflation hedging.

amount~ 1.5%, which may increase slightly if the price is right, for the non-correlation to SP500.

JrDoctor

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Re: Gold in the portfolio
« Reply #27 on: May 30, 2016, 12:19:17 AM »
I held ~15% gold mining shares this january after a purchase in november, it has contributed on its own about an 8% return on the TOTAL portfolio (it returned 180% on its 12k investment).  If I had have waited it would have returned a bit more.  Once prices settle a bit I will be looking to add another gold element to my portfolio.  It has accounted for over half of my returns this year.

Westoftown

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Re: Gold in the portfolio
« Reply #28 on: May 30, 2016, 06:36:53 AM »
The best way to own is just through GLD in a tax deferred account(Roth IRA or rollover 401K).

That way you avoid any extra taxes.  Just sell when you want with no tax implications, and then withdraw the money whenever you normally would with the taxes due then on any distributions.  In the case of Roth, if you make it to 59.5, no taxes.

dougules

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Re: Gold in the portfolio
« Reply #29 on: May 31, 2016, 09:22:24 AM »

 I personally would want to be holding more than 5%. I guess my position is that if one determines that something is worth holding, then it's worth really holding it.

Agreed. I am in accumulation phase of my wealth building so defensive assets such as gold, cash and bonds take up a smaller proportion for now. It will increase as I age. I might go as high as 10% in precious metals (diversifying between gold, silver and maybe even platinum, who knows) but probably not higher. And really holding for me means actually holding the stuff in my hands. In the SHTF scenarios those will be the only assets you really "hold" as bank deposits, safe boxes, shares and the like can be frozen by government decrees. Gold can be confiscated too, but they will to have find it first. But I don't really fit with the 'stack to the moon, paper is dead' crowd and therefore won't go higher than 10% unless I see some really disturbing trends.

Bad sequence of returns can be mitigated by holding assets that are not correlated with each other, doesn't have to be gold. I would gladly get into the rental property market, but sky high prices here in AU and my own limited capabilities prevent me from doing so. I fully intend to hold VAP though. Property and shares are not entirely out of sync, but they are different enough to not crash at the same time, at least I don't see it happening in AU. And then, there are bonds and other fixed interest vehicles that should do well when shares are doing badly.
100% in stocks is only okay if you are under 25 and your parents support you, imho, kinda like my teenage sons.

I can see the argument for gold as an option for safety and smoothing volatility.  It can't be called an investment, though.  It's just a store of value. 

And gold is subject to its own volatility.  When the economy gets back on track, and people aren't panicking, people are going to stop hoarding gold.  The price will decline then just like it did in the 80s and 90s.  And if somebody were to discover some big new source of gold, the price might go down quite a bit as what happened with Spanish discoveries in the Western Hemisphere in the 16th century.  The price going down is the same as inflation for gold. 

And I agree completely with keeping it physically on hand if you're going to have it. 

k9

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Re: Gold in the portfolio
« Reply #30 on: May 31, 2016, 03:29:14 PM »
Oh yes. Gold is probably the most volatile thing your portfolio can contain (hmm.. maybe silver is worse ?) Even Japanese or emerging markets stocks don't swing that fast. It stabilizes a portfolio as a whole but be warned that this component will drive you crazy if you look at it in isolation.

gpotter

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Re: Gold in the portfolio
« Reply #31 on: June 02, 2016, 11:25:04 AM »
Where do you recommend purchasing gold bullion from? Does anyone have any dealings with the major online sites - JM Bullion, etc?

Tyler

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Re: Gold in the portfolio
« Reply #32 on: June 02, 2016, 02:41:44 PM »
I have not personally used them, but I've had several people recommend APMEX and Texas Precious Metals.

Beaker

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Re: Gold in the portfolio
« Reply #33 on: June 02, 2016, 03:00:37 PM »
Is it cheap and easy to convert physical gold back into cash? What are the expected roundtrip expenses on that? What are the odds that it fluctuates a lot right when you need it (ie, something happens and everyone wants to sell gold at the same time)?

I'm not trying to make any particular point, I just haven't looked into it and honestly have no idea.

dragoncar

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Re: Gold in the portfolio
« Reply #34 on: June 02, 2016, 06:28:17 PM »
Is it cheap and easy to convert physical gold back into cash? What are the expected roundtrip expenses on that? What are the odds that it fluctuates a lot right when you need it (ie, something happens and everyone wants to sell gold at the same time)?

I'm not trying to make any particular point, I just haven't looked into it and honestly have no idea.

The spread seems to be a few percent.  But I imagine when you "need it" will be the time it's most valuable, not when everyone is selling, and you probably don't want to convert it into "cash" anyways

k9

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Re: Gold in the portfolio
« Reply #35 on: June 03, 2016, 04:08:48 AM »
Gold can fluctuate a lot, since it is even more volatile than stocks. So, if you absolutely need to sell it and prices are very low, well... that might hurt. That's why you don't want to own to much of it.

But remember : when gold is very low, stocks or bonds are likely to be having a very good time, so you will more likely sell one of those.

2Birds1Stone

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Re: Gold in the portfolio
« Reply #36 on: June 03, 2016, 06:07:41 AM »
I have about 12% of my net worth in physical precious metals. I have it stored safely in the vault of my local bank.

I didn't purchase Ag/Au as a smart investment. I'm actually down about 25% vs what I paid for the metals in 2013/2014.

I hold it as a reminder that I am not smarter than the markets and as a way to diversify my assets. What started off as a large chunk of my net worth when I first found MMM and Bogleheads is now getting smaller and smaller as I put all future investments into a simplified 3 fund ETF portfolio.

If anyone wants to read about it in more detail check out the first page of my journal here, link in signature.

nobodyspecial

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Re: Gold in the portfolio
« Reply #37 on: June 04, 2016, 08:39:20 AM »
I have about 12% of my net worth in physical precious metals. I have it stored safely in the vault of my local bank.
... Location: New York

Although you do have to worry about British actors with unconvincing German accents.