Gold, Your Portfolio, and Your Money
The recent fall in commodity prices has raised more than a few eyebrows on the validity of owning these types of investments, particularly gold.
Much advice out there centers on just diversifying among Stocks, Bonds, and Cash. Their plan has led to heavy losses in the past, taking years to get back to even. Our recipe requires gold, silver, other natural resources that protect and diversify your investments. Depending on the client, we can also provide for physical ownership of bullion, funds that hold physical bars, and when warranted, mining and commodity companies that produce the metals.
Do you believe commodities, gold and the stock market are risky places to invest? We answer: YES, in isolation. However, when combined with other non-correlated investments, over time the combination increases the returns but decreases the risk.
Let's talk gold: the mixing of gold into your portfolio of stocks did have a dramatic and positive effect on your overall portfolio performance year by year for 40 years. Gold has the qualities to act as a hedge in a portfolio to lessen the negative effects that a bad stock market can deliver. So, just as investing in the yellow metal alone could cause sleepless nights. When mixed with stocks and bonds, it greatly mitigates larger draw downs (falls in your portfolio value) and contributes to the overall portfolio performance. What is critical is not how each component of your portfolio preforms but what is the PROFIT or LOSS at the end of the year - and the volatility or drawdown of your portfolio during that time.
Two major actions / beliefs that investors cling to that I feel can hurt your pocketbook. First, if you are viewing your portfolio line-item by line-item, looking at each holding, you are missing the boat and need to change your outlook. It's a portfolio of investments, to be gauged as a whole. Don't nit-pick this and that. Second, view your results over time, not from their peak. Few can time the markets and you'll be disappointed if you use this gauge of performance. Instead, what is your 3-5-7 year average performance? Did it meet your expectations based on your level of risk you (or your advisor) recommended?
Historically when stocks turned down, gold delivered. Gold helped boost your results of an actual portfolio of stocks, bonds, cash and gold in 1973, 1974, 1977, 1990, the 2000-2002 bear market, and the most recent 2007-2009 ugly bear market when stocks fell 50% in just 17 months! Gold rose $200 an ounce or 30% during that stock meltdown.. That’s the diversification or balancing effect Gold will have in the next bear market which could be imminent.
Barry L. Unterbrink
Chartered Retirement Planning Counselor
Fort Lauderdale, Florida
Note: We have just received the performance report on the largest portfolio managed by our research department. For the 10 years we have managed this account we have had an average annual return of 11.84% per year. This performance report has been verified by the major brokerage firm who is the custodian.
Although I cannot quote individual client performance in this space, the benefits of staying diversified and adding Gold the last two calendar years for those investors in this program: +10.5% in 2011 and +10.6% in 2012.