What Percentage Of Your Portfolio Should Be Allocated To Gold And Silver? 10 Experts Weigh In
Both gold and silver have been used as fiat currency for thousands of years. The precious metals have usually been regarded as excellent options for a diversified strategy. In this article, 10 experts weigh in on what percentage of your portfolio should be allocated to gold and silver?
1% In Gold And 1% In Silver
“In challenging times the investment community typically switches from equities to bonds…..debt. But with interest levels (yields) at such low levels, one needs to think very carefully about putting all your eggs in one basket.
As Voltaire once said – “Common sense is not so common”
People, therefore, need to think about their options. Whilst gold is not likely to be the answer to everything. Having at least some allocation would appear to be common sense. Personally, I think people should have at least 1% of their portfolio in gold. Although gold has not always been a great protector of purchasing power, given the potential upside in value – it’s previously been at $1,895 per ounce – should inflation rear its ugly head, then it may at least offer some protection. The main accusation pointed in gold’s direction is that it doesn’t yield anything – but with negative interest rates – I don’t think that argument still holds true.
The other concern is the escalating debt – If you look at the chart below, it’s clear that the debt ceiling does not mean that much – every time it gets hit – it increases. This escalating debt means that people should probably think about other assets – not just debt – in a crisis.
Finally, my other chart. Although history does not always repeat itself, should that happen and gold follows the same path as the bull market in the 1970’s – investors with even a small allocation could do very well.
I should add that with the gold to silver ratio currently being around 88:1 and the average in the last century being around 47:1 – this implies that the gold price will come down or silver go up (a lot). So I would also suggest having at least 1% of your portfolio in silver.
So that’s 1% in gold and 1% in silver – as a minimum. “
Simon Popple, The Brookville Capital Newsletter
5% To 10% Maximum For Gold And Silver
“Only 5% to 10% max. It's typically inverse to the stock market. The market is up far more often than it is down. It's a decent hedge against inflation but not as good as stock.”
Chane Steiner, CEO, Crediful
Generally 0%-3% In Gold Or Silver Depending On The Client
“When it comes to allocating a client's portfolio, thinking outside the box is important as we do not believe in a cookie-cutter or one size fits all approach. It is truly like going to the doctor and telling them that your knee hurts and getting a prescription based on that one statement. The doctor truly needs to understand the patient's situation and ask many questions to get a proper solution or diagnoses. We love alternatives investments and that is a great question, how much gold and silver should I have? We generally would say 0%-3% in gold or silver again depending on the client. To potentially reach a higher return in today's market, savvy investors should think outside of the typical investment solutions box and mix both alternative investments with traditional investments (stocks and bonds).
Traditional investment solutions usually include:
* U.S. Equities (Stocks)
* International Equities
* U. S. Fixed Income (Bonds)
* International Fixed Income
* Cash & Equivalent
Alternative Investments include, but are not limited to:
* Hedge Funds
* High Yield Strategies
* Real Estate
* Natural Resources
* Private Equity”
Gerald Hendrik, Director of New Business & Client Relations, ICMC (International Capital Management Corp
5% Of An Investment Portfolio To Precious Metals Is An Accepted Standard For Any Diversified Strategy
“Allocating 5% of one's investment portfolio to precious metals is a generally accepted standard for any diversified strategy, especially—but not limited to—a portfolio with a long-term time horizon. During times of heightened risk (i.e. turmoil in equity and bond markets, war and geopolitical tensions, or an economic downturn more generally), perhaps a more aggressive allocation of 10%–15% is warranted. This is because gold and silver have historically tended to behave as safe-haven assets during periods characterized by volatility and uncertainty. The price appreciation of bullion during such scenarios helps offset some of the depreciation elsewhere in the portfolio. It can be compared to buying insurance for your portfolio. Gold also provides added stability because it is highly liquid in the event that funds need to be withdrawn quickly.
Investors can choose any distribution of the different metals within that 5%–15%. Virtually all of these options are quite reasonable. For instance, you could simply split the weighting 50-50 between gold and silver (2.5% allocation each), or you could choose to more heavily weight one metal if you anticipate it will outperform its counterpart. Similarly, some investment portfolios include a small allocation (<1%) of the lesser-known precious metals, platinum, and palladium, for added diversification. In our experience, however, more than half of the portfolios that allocate any exposure to precious metals are strictly focused on gold.”
Everett Millman, Precious Metals Specialist, Gainesville Coins
No More Than 10% In Gold And Silver
“I would say no more than 10%. Gold and silver are too volatile to hold a significant place in your portfolio. Also, the majority of the time, they don't do that well. I tend to recommend someone invests in gold and silver near the end of an economic cycle when it's demand (therefore it's price) is lower.
Additionally, when you invest at the end of the cycle, the odds of a recession occurring goes up. When the economy/market decline, that's when gold/silver should outperform.”
Jake Sensiba, Financial Advisor, CRG Financial Services, Inc
Investing In A Diversified Basket Of Small Stocks Provides Even Greater Returns
“For a long-term investor the answer is quite simple — zero. If you have a long time horizon you should not invest in precious metals, as the long-term returns are far below those of equities. At the end 1925, the price of an ounce of gold was $20.63. At the end of 2018, an ounce of gold sold for $1283.10. Over that 93-year period, the precious metal returned 4.54% compounded annually. Over that same time period, according to Ibbotson Associates, the compound annual rate of return of a diversified portfolio of large stocks (the S&P 500) was 10%. That same $20.63 invested in gold at the end of 1925 would have grown to $145,888 if invested in the S&P 500. Investing in a diversified basket of small stocks provides even greater returns. The compound annual rate of return of a basket of small stocks over that 93-year period according to Ibbotson Associates was 11.8%. That same $20.63 would have grown to $660,065 at the end of 2018. The overall return to gold was less than 1% the return to a diversified basket of common stocks.
While having a small position in precious metals may dampen portfolio volatility in the short-run, the tradeoff between slightly dampened volatility and the lost long-term return is certainly not a prudent one.
Gold and silver are speculative investments, based on the Greater Fool Theory. The price of gold is not determined by its intrinsic value but simply by its expected selling price to someone in the future. But, don’t listen to me, listen to Warren Buffett who in 2011 when meeting with students at the CFA Institute Research Challenge explained his rationale concerning gold as an investment as follows: “The world’s gold stock is about 170,000 metric tons, which if melded together could create a cube of about 68 feet per side; the cube would be worth about $9.6 trillion. For that much money, one could buy all the cropland in the United States, purchase 16 Exxon Mobils, and have about $1 trillion of walking-around money left over.” He asked the students, which one they would rather have. He also noted, “You can fondle the cube, but it will not respond.”
Robert R. Johnson, Professor of Finance, Creighton University, Chairman and CEO, Economic Index Associates
Allocate 5% To Gold Or Gold Mining Stocks
“First, I do NOT allocate assets to silver. The reason is that there is often a disconnect to gold. Until just recently, this was the case but the prices of many metals have risen recently due to the uncertainty in the global economy and the deleterious impact of tariffs.
I have used gold as an alternative investment or hedge for many years in my clients' portfolios. I view it as a crisis manager, not an inflation hedge as many investment advisors do. When financial crises arise, investors want and need to maintain a gold position. I use it in two ways – in an exchange-traded fund (ETF) either GLD or IAU which does not purchase bullion directly but places a lien on bullion. For more aggressive clients who are more bullish on the long term prospects of gold, I will have them invest in mutual funds that invest in gold mining stocks. My favorite fund is the Tocqueville Fund (TGLDX). These mutual funds often experience precipitous declines but meteoric rises so they are not for the faint of heart.
When designing a portfolio, I allocate 5% to gold or gold mining stocks. Until recently as a result of the poor returns in gold over the past several years, their allocation fell beneath this threshold and I have bolstered them up to reach that 5% figure. Depending on the client, I may use both the ETF and mutual fund though I tend to stay with the ETF due to its relatively low volatility compared to gold mining stocks.”
Cliff Caplan, CFP(r), AIF(r), Neponset Valley Financial Partners
3 to 7% Of A Portfolio
“As a manager of a 5-star fund who prefers to invest in sectors rather than individual stocks I do from time to time install gold and silver into the portfolio. I usually like to add this sector during times of rising or high inflation which we are NOT currently in or economic instability. Although I do not believe the US economy will enter a recession in 2019 there are many other countries where that threat is real and growing. So, this may be a good time to add some gold and silver to your portfolio.
The next thing to consider is how to play the precious metal sector. This, in my opinion, is the most important determination an investor needs to make. The biggest risk when entering this sector is the management risk of the mining company. This risk can is very hard to quantify and nearly impossible to hedge. Gold and silver soar and the mining companies can still get hit hard. Let's remember what happened in 2011 & 2012.
So I like to eliminate it completely by just participating in the price movements of gold and silver. A smart way to do this is to invest in an ETF that mirrors the price movement. GLD & SLV are two that are very good. They are very liquid and have extremely low fees. Finally, an investor must figure out what percentage of their portfolio should be in these metals. During good times I am usually between 0-5% invested. In high inflationary times, I can go as high as 10%. Currently, I think a good long term growth model we be wise to have between 3-7%. Keep in mind everyone has different goals/objective/risk tolerance. I usually tell my clients to pick a percentage you are comfortable with, and then drop it a bit. Remember a prudent portfolio is always a work in progress.”
Mark Anthony Grimaldi, Certified Fund Specialist, Excerpt from RetireSMART!
5%-10% Of Investable Assets Be Held In Physical Gold
“Each time the price of gold and other precious metals reaches a high, renewed interest also peaks. Gold is presently (8/9/2019) trading over $1,500 which represents a several month high. Readers should probably never consider gold to be a core holding in their respective portfolios as gold and companion metals can be erratic, pay no dividend and especially in physical form, might present a challenge to liquidity. However, in the history of mankind, no other alternative investment has proven to be a better hedge than gold. Some neo centric investors will suggest that bitcoin and cyber currency has replaced the need for metal. Nonsense! When geopolitical conditions or financial mayhem presents itself, its gold you want to own. The appreciated price of gold will explode northward depending on the severity and type of emergency. Bitcoin is unproven and in the event the emergency is a disruption of cyber confidence, bitcoin will be useless. As a CFP and student of markets, I recommend 5%-10% of investable assets be held in physical gold. I'm not an alarmist, but a realist. I wonder how many Venezuelans wish they had some gold in their possession. I wonder how many Europeans during WWII wished they had gold. I wonder how many Zimbabweans could have used gold during their time of hyperinflation. Oh, it could never happen here in the United States! You may think. But with a $23 trillion debt and a deficit of over $1 trillion the next logical news event could just be financial calamity. What would you rather have, paper currency, bitcoin or gold? History teaches us invaluable lessons and one of these lessons teaches us to hedge our financial well-being with the yellow metal.
William Francavilla, CFP, Excerpt from The Madoffs Among Us
4% Of My Retirement Nest-Egg Is Invested In Silver Coins
“Let's start by getting one thing straight: When folks ‘invest' in something, there's normally an expectation of earning a profit. However, buying precious metals 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). Further, for folks who live in countries that have unstable governments, owning some easily-sold precious metals could also make good sense. Thus, while it's entirely *possible* to earn some profits while owning precious metals, that's really not the point; and relatively few folks who own precious metals get rich by doing so.
However, allocating a small portion of one's portfolio to (easily-sold) precious metals 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 bag of old, heavily-circulated U.S. silver coins (mostly dimes and quarters with a 90% silver content) that I accumulated over several decades. Few of those worn (pre-1965) silver dimes and quarters would be of any interest to coin collectors, but they still have quite a bit of worth in terms of their ‘melt-values': $1.23 for an old silver dime and $3.08 for an old silver quarter. (BTW, all of my silver dollars are *considerably* more valuable to collectors than their melt values would indicate.)
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, so I'm likely taking a conservative approach in my portfolio allocation.”
Dr. Timothy G. Wiedman, Associate Prof. of Management & Human Resources (Retired), Doane University
Including gold and silver in a portfolio is a good diversification strategy to keep your investments (and more aptly, hard-earned money) safe. Ultimately, the percentage allocation of gold and silver is dependent on the individual. Take into account what these experts have suggested, and always remember to do your due diligence.