What Percentage Of One’s Portfolio Should Be Allocated To Gold? – 8 Professionals Chime In
The first appearances of gold artifacts were discovered in Egypt, dating between the fifth and fourth millennium BCE Subsequently, the ancient Egyptians began smelting the precious metal sometime during the fourth millennium BCE (roughly 5,000 years ago).
Gold has been used as a fiat currency for thousands of years. The first example of the precious metal being used as a form of currency in coinage form dates from the late 7th century (610 BCE to be precise), hailing from the Kingdom of Lydia, which is present-day western Turkey. Following the emergence of gold as a currency, its importance increasingly grew throughout the centuries and across borders. Virtually every civilization in human history both in the Old and New World used the precious metal in some capacity as its standard currency. Moreover, the impetus for European exploration of the New World was fueled by reports of the astronomical amount of gold ornamentation worn by the indigenous peoples of the Americas.
The precious metal has captivated and tantalized humankind, becoming intertwined within our collective culture as the epitome of wealth, status, and achievement. Given the importance placed on gold, it comes as little surprise that the precious metal is often considered a hedge against economic uncertainty and a component to a diversified portfolio or retirement account.
In this article, 8 financial professionals chime in on the percentage of one’s portfolio that should be allocated to gold.
Overall, 10-40% Of Your Portfolio
“Overall, you should have 10-40% of your portfolio invested in gold depending on the state of the economy. In fact, gold is a great hedge in times of uncertainty.”
Danny Ray, Founder, PinnacleQuote Life Insurance Specialists
Only Have About 5% Or Less Of Your Portfolio Allocated To Gold
“You should only have about 5% or less of your portfolio allocated to gold. Gold is subject to volatile prices, and the money you make solely depends on the rising or the falling of the gold price. It's not as reliable as other forms of investment like equities, real estate, and fixed incomes.
Try as much as possible to stay away from investing in physical gold, and rather, look toward gold-exchange traded funds, and sovereign bonds dealing in gold.
Bottom Line: Keep the allocation of gold in your portfolio as low as possible as the volatility of the price of gold, as well as its sole dependence on the rise and fall of its value, make it a risky, less productive investment option.”
Joe Bailey, Business Development Consultant, My Trading Skills
10%, During Good Times
“Gold is the best diversifier for a portfolio. Historically, when the U.S. market does poorly, gold does well. It is a must for a well-balanced portfolio. The problem is: How Much?
A position of 1% or 2% doesn’t provide enough upside during times of upheaval.
I recommend around 10%. During good times, 10% is not a large drag on a portfolio during a bull market. During bad times, a 10% position in gold often provides a nice offset, reducing the overall decline in a portfolio.”
Randy Kurtz, CFP®, Chief Investment Officer, Upper Left Wealth Management, LLC
5% To 10% Should Be In Precious Metals And 5% To 10% Should Be In Other Alternative Classes
“iSectors provides asset allocations to financial advisors. We have the only Precious Metals allocations available on major platforms.
Studies show that a 15% allocation to alternatives is the most efficient in portfolios. We believe that 5% to 10% should be in precious metals and 5% to 10% should be in other alternative classes.”
Charles H. Self III, MBA, CFA Chief Operating Officer, Chief Compliance Officer, Chief Investment Officer, iSectors(r), LLC
Gold Is Overhyped As A Hedge Asset And It Already Had A Significant Bull Run That Looks Like It's Topping Out
“Our current view is that gold allocation should be 0%. It is overhyped as a hedge asset and it already had a significant bull run that looks like it's topping out. Gold does not earn any yield, and has very limited actual use as a precious metal.
In the event of a systemic financial collapse, the amount of gold one holds becomes irrelevant, as they are much likely larger issues, and gold is a very expensive and difficult material to transact in. There are much better options out there, such as high yield CDs that pay 6% APY (HCF High Yield CD for example), or simply conservative/defensive equities that have historically done well in recessionary times.”
Edgar Radjabli, Managing Partner, Apis Capital
Typically The Most That We Advise In A Portfolio Is 5%
“Gold historically has been a very volatile asset to own. It quickly comes into favor when market volatility rises and investors fear the worst. It drops out of favor just as quickly as fear fades. Typically the most that we allocate in a portfolio is 5%.”
Lou Cannataro ChFC®, REBC®, AEP®, CASL®, CLU®, Partner, Cannataro Park Ave Financial
Make It A Small Portion Of Your Account And, Like Always, Hold For The Long Run
“Gold is a reasonable investment to have in a portfolio – if it's held for the right reasons. Most people hold gold in their portfolio because they believe it is a volatility hedge.
By and large, the correlation between gold and the S&P is widely varying over time. If someone wants to hold gold in a portfolio for the sake of counterbalancing their equities exposure, it may do a decent job. But as a stable holding in the investment account, there are many other options that fare a much better job.
My team personally doesn't hold any gold in the over $400M we manage. If you do hold gold, make it a small portion of your account and, like always, hold for the long run.”
Bob Forrest, Certified Kingdom Advisor, Financial Advisor, Jacobitz Wealth Management Group
Allocating A Small Portion Of One's Portfolio To (Easily-Sold) Gold Can Be A Wise Way To Prepare For Emergencies
“Let me begin by making an important point: When folks invest in virtually anything, there's normally an expectation of earning a profit. However, buying gold and/or silver for one's portfolio isn't *primarily* about making a profit! Owning precious metals is a hedge against a future financial collapse (such as we experienced in 2007-2008), and it can also stave off the ravages of high inflation (which periodically occurs in some countries but is less common in the United States these days). Further, for folks who live in countries that have unstable governments, owning some easily negotiated gold or silver coins could also make good sense. However, buying, storing and later *selling* bullion (in the form of small gold or silver bars purchased on the secondary market, for example) might well be more problematic. So I'd recommend that most folks should stick to well-known coins. Finally, while it's entirely possible to earn some profits while owning gold or silver, that's really not the point; and relatively few folks who invest in precious metals become ultra-rich by doing so.
Nevertheless, allocating a small portion of one's portfolio to (easily-sold) gold or silver coins (produced by a well-known sovereign mint) can be a wise way to prepare for emergencies. And thus, I've collected silver coins for many decades.
I have a large collection of high-quality Morgan Silver Dollars (90% silver content), a similar-sized collection of even higher quality U.S. Silver Eagle Dollars (99.93% silver content) and a number of Commemorative Silver Dollars (e.g., from various Olympic Games). I also have a large canvas bag of old, heavily circulated U.S. silver coins (mostly dimes and quarters plus a few half-dollars, all with a 90% silver content) that I accumulated over several decades. Very few of those worn, heavily-circulated
(pre-1965) silver dimes, quarters and half-dollars would be of any interest to coin collectors; but they're still worth quite a bit in terms of their melt-values: $1.23 for an old silver dime, $3.07 for an old silver quarter and $6.14 for an old silver half-dollar. (BTW, all of my silver dollars are significantly more valuable to collectors than their melt values would indicate; so in my mind, their melt-values are essentially meaningless.)
As a senior citizen, a bit less than 4% of my retirement nest egg is invested in silver coins. Is that too little or too much? Who knows! But investment allocation experts generally advise against keeping more than 10% of one's portfolio invested in precious metals, and an allocation recommendation of 5% is quite common. So I'm likely taking a conservative approach in my portfolio allocation to my silver coins.”
Timothy G. Wiedman, D.B.A., PHR Emeritus, Associate Prof. of Management & Human Resources (Retired), Doane University
In September of this year, the price of gold reached an all-time high, perhaps in direct correlation to the growing uncertainties surrounding the trajectory of the global economy. Because historically the precious metal has performed well during times of market turmoil, the precious metal is often considered a good addition to a diversification strategy. Likewise, it is considered a hedge during geopolitical instability.
Yet, it is very important to note that previous performance of the precious metal, does not equate to future performance. Therefore, only a small percentage of gold ought to be allotted in a portfolio. Gold itself is a volatile commodity, and small percentages are the wisest, safest option.
Tantamount to any investment, there are advantages and drawbacks to investing in gold. If you are interested in adding the precious metal to your portfolio, always do your due diligence, factor in what these financial experts have discussed, and consult a financial professional before investing your hard-earned money.