That is an exciting question for lots of investors. We decided to talk to some financial planners, investors, and traders to get a few different perspectives. Most agreed that buying and holding onto gold feels pretty special. There is a certain rush of adrenaline you experience when buying gold bullion. In fact, for some of us seasoned gold buyers it can be the highlight of our month.
Large and small investors alike have thought about adding gold to their portfolio. Many small investors have put between a few hundred and a few thousand dollars invested into precious metals. Many large investors, institutions, and countries keep billions in gold bullion. For many of us, that means owning a few ounces might have some merit.
Given how mesmerizing precious metals are, and given their timeless value, there is more than meets the eye. In fact, there are very few investments you can hold and feel your wealth accumulated.
In this respect, a lot of people find investing in their future infinitely rewarding. So if you could buy and sell gold as often as you wanted, how much would you want to keep in your portfolio? Read on for some different ways of thinking about this.
For those already invested, there are no doubt times when portfolio allocation beckons. Many of these times (in both good and tough markets) raise the question of how much gold should I own in my portfolio.
This is doubly so when you have only recently started investing and are trying to buy the cheapest gold bars in Canada or elsewhere. As good as it feels to own some gold, you are probably asking yourself the question all savvy gold investors do. That is do I own enough gold to make impactful long-term gains?
So let’s take a look at some of the financial advice we got. Keep in mind that we are not financial advisors or experts. We are not here to give you investing advice, just to talk about our own experiences and share some common learning.
We hope you can take this and get an even better idea just how much gold you want to have in your portfolio.
We thought the best way to get some thoughts would be to ask you. And so we conducted an anonymous survey. From it, we got some great thoughts on "How Much Gold Should I Own in My Portfolio?".
Note that we did not distinguish between gold and silver. You can read more about whether silver may be a better investment than gold here.
0% Gold: 8% | 1-3% Gold: 39% | 4-6% Gold: 24% | 6-9% Gold: 15% | 10-20% Gold: 6% | 20%+ Gold: 8%
One perspective views gold as an insurance policy. Jim Cramer, the host of Mad Money on CNBC, takes the conservative position on gold as an investment.
Back in 2014, he said the following to CIBC. "I think that 10 percent is the upper limit because I consider gold as an insurance policy, and no worthwhile insurance policy should be 20 percent of the money you have invested."
What is it an insurance against? The stock market performing poorly, or the USD dollar weakening. So it’s not really a choice to invest in gold, it’s a prerogative. This is backed up by reams of economic research – like this study done by Oxford Economics - that proves gold value will rise when the dollar is weak.
The 10% cap appears to be the advice given by lots of financial advisors, so it’s worth keeping this number in mind as you go about your investment pursuits.
Another perspective views gold as more than simply an insurance policy. The fact is, a lot of investment advice about gold assumes the investor wants to make fast cash, often in the form of dividends.
A dividend is a payment made by businesses to their stockholders to thank them for their support. A dividend will be paid out of the company is doing well, which, as we know, is never a sure thing.
The point is: you can invest in companies that offer dividends, but that should not be your exclusive pursuit, nor should it be at the expense of gold.
While you don’t get dividends with gold, you do get a whole host of other benefits – benefits which central banks across the world understand. Take the points made by Mike Parker. One common financial use of gold is an Inflation Hedge. Mr. Parker highlights the fact that while the purchasing power of the dollar has decreased, the purchasing power of gold has remained the same.
Well, not really. In fact, a lot of people argue that gold has inherent value. Contrary to what many investors will tell you about gold, it may actually have immense inherent value. Where does this value come from? Its industrial use, its tremendous use in jewellery (especially in Eastern countries) its aesthetic appeal, and its scarcity. This is in contrast to fiat currencies that can be artificially pumped out by governments whenever they please.
Many of advantages to buying gold are not present with most other investment options, and thus add to gold's inherent value. Will 5% of your portfolio in gold make any material difference? On the model of treating gold as a hedge against economic or social distress, it becomes very valuable very quickly, just when things are really going wrong.
This is a good place to remind ourselves that we don't need to rush when adding metals to our portfolios.
Depending on what gold coins you are buying, for example Gold Maple Leaf Coins, you can add these to tax-free accounts. Or you can choose to keep your equities in those. That can be a very personalized financial question.
One great way to plan further investment in gold is to follow this advice:
Consider Making Incremental Payments.
Say you have $300 dollars read to invest. That might not seem like a lot, and yet with the power of compounding it can be. Rather than waiting to save enough for 1 oz. of gold, you could buy smaller amounts incrementally. Alternatively, you can look to buy cheap silver coins. Some would even say this way you can take time to learn and study the marketplace. Then you buy when gold dips a little.
So how much gold should I own in my portfolio if I think the economy is going to do worse? History shows that when markets do badly, gold goes up. As faith in currencies diminishes, people put it into gold. Even alternative currencies suffer from trust issues. So the answer is more than you normally might.
To diversify or not to diversify?
If I am still unsure about how much gold I should own in my portfolio, I may try to find a middle ground. For most investors, that involves allocating at least a little to various assets. This is great if your goal is to reduce beta (the up-and-down in your portfolio. On the other hand, it can significantly impair long-term earning power. Within an asset class, however, does that even hold? Not always. If you are buying gold bars and want to diversify into futures, you are just adding speculation to your holdings.
Be mindful of keeping your portfolio diversified, but not more than need be. With this kind of thinking planning, you could go down many paths. Likely, there is no reason why your portfolio should not contain at least some gold. Still, exactly how much gold should I own in my portfolio will always involve personal financial elements that are hard to cover.