Is Gold Worth Its Weight in a Portfolio?

Buying gold seems like a good idea. But does it really do what you think it is going to do?

This paper suggests some considerations from a historical perspective … really the only perspective because nobody knows the future, in gold or for anything else really …. and that realization in itself is a healthy perspective.

“The components of a portfolio should have an expected return. As a material input, however, gold does not offer the potential for generating income or earnings. Its only source of return is price appreciation caused by shifting supply and demand. As shown in historical performance, price appreciation is not a certainty.”

“These characteristics make gold a speculative asset, like currency or collectibles. If you put gold in a vault and wait a few decades, it will not produce anything, and its value will reflect the current spot market price. In fact, holding physical bullion may incur negative cash flows due to storage, insurance, and other costs. In contrast, a stock reflects ownership in a business enterprise that seeks to generate profits and produce more wealth. Investors who put their capital to work in the economy expect a potential return from cash flows and appreciation.”

Warren Buffett’s observation (in the summary) about what all the gold in the world could buy.

More on commodities in general … you may be surprised at how much you may already hold and don’t realize it.

Also read … Do you really own the gold you think you own?

About Larry Frank, Sr.

Larry R Frank Sr., MBA, CFP®, is an experienced financial advisor and a published author on Retirement Planning Research. Have a financial question? Click Here to Ask Larry

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2 Responses to Is Gold Worth Its Weight in a Portfolio?

  1. Larry Frank, Sr. June 19, 2014 at 4:43 pm #

    Here’s another measure of how gold compares to other diversification options http://advisorinsightsblog.com/2014/06/19/return-gaps-and-efficient-diversification/#more-1184

  2. Larry Frank, Sr. July 19, 2014 at 9:17 am #

    During times of stress people run to gold thinking paper money is risky. Well, the last time there was such a “gold rush,” the U.S. government (by Executive Order) required all gold to be turned in … http://en.wikipedia.org/wiki/Executive_Order_6102 … for the very paper money people thought they’d get away from!

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