Going For Gold?

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I’ve been investing for more than two decades and managing my family’s investments for nearly half that time. Gold has never been part of our portfolio. We never gave it serious consideration. Things have fundamentally changed recently. 

Gold Medal

On a personal level, our portfolio is now several multiples of what it was a decade ago when we  developed our plan. Our ability to work and save to rebuild it is less certain than it was just a few months ago. Limiting volatility has become much more important to us. 

On an investment level, stock valuations remain high by historic standards despite record unemployment and an even more uncertain than usual economic future due to the COVID-19 pandemic. Interest rates are at historic lows.

Stocks and bonds are both looking unattractive. I’ve been considering adding gold to diversify our portfolio.

Why Gold, Why Now?

I recommend everyone have a written investment policy statement. In ours, Kim and I outlined a method for making changes to our portfolio to avoid acting on emotion.

We wrote, “We will adjust our allocation only when we mutually agree and only when something fundamentally changes to the point that it would be beneficial to do so. Examples would be shifting to a more conservative allocation as we meet investment goals, exiting an asset class if it no longer meets our investing objectives, or adding asset classes if they become available in a cost efficient way as we combine accounts over time.”

That sounded great on paper when we wrote it. In practice, considering an asset that we’ve never previously considered holding while the pandemic and its massive economic uncertainty looms feels a lot like letting emotion get the better of us.

Before taking action, it was time for reflection. We started by reviewing why we haven’t held gold up until now.

Downsides of Gold

Gold is not an investment. It is speculation. Physical gold doesn’t generate any income. You can only make money from gold if you sell it for more than you bought it. Don’t forget to account for transaction and storage fees.

A chart of inflation adjusted gold prices shows this is not a promising proposition. You could have bought gold at its most recent peak in September 2011 for nearly $1,900 per ounce. 

That ounce is worth about $1,700 after holding it for nearly a decade. This is before factoring in expenses. Anyone considering gold should read the last paragraph from the post Should I Buy Gold?, written in December 2011.

Buying physical gold creates transaction fees. You may have to rent a safe deposit box or purchase a safe to store your gold.

You can limit transaction and storage fees and improve liquidity by holding gold in an ETF. Two of the most popular ETFs are GLD and IAU. They carry expense ratios of .4% and .25% respectively. While not egregious, these fees are approximately 2.5 to 4 times greater than the average of the index funds we currently hold.

Some people choose to invest in companies or concentrated funds of companies that mine gold and other precious metals rather than the metals themselves. As with any equity investment, this creates potential cash flow from dividends in addition to the possibility of price appreciation. But investing in a few companies or a small sector of the market also adds significant cost and risk compared to a broad market index investing approach.

Reviewing the downsides of owning gold reminds me why we didn’t initially choose to include it in our portfolio. This leads to my next question.

What’s Actually Changed?

When we built our portfolio, we chose to allocate 80% of our portfolio to stocks. At the time, we were saving and building wealth. 

We were comfortable with the volatility of that aggressive allocation. With low interest rates, I questioned whether we were actually too conservative and I only kept the small amount of bonds and cash to appease Kim who is more conservative than me.

We assumed we’d shift some of our stocks to bonds as our portfolio grew, we transitioned to early retirement, and bond yields became more attractive. 

But yields never became more attractive. We also ended up earning more money than we were anticipating as we began our transition. So we let things ride.

In 2019, the markets had an amazing year. I started to think about taking some risk off the table. At the time, the nominal yield on 10 year treasuries was less than 2% and the real yield was essentially 0%

Putting more money into bonds with those low yields was unappealing. Our income situation continued to look strong. So we didn’t make any changes to our portfolio.

A Punch To The Face

When the coronavirus hit in March, I learned three things:

  1. I am not as comfortable as I assumed with market volatility. Watching our stock heavy portfolio plummet with the market, sometimes by 10+% in a day, was gut wrenching.
  2. As much as I despised the volatility of stocks, it was easy to follow our plan to sell bonds to buy even more stocks. Buying bonds didn’t make sense for us last December. We felt fortunate to sell some at a profit after rates dropped in March to rebalance our portfolio in April.
  3. Things can change overnight. My book sales and blog advertising revenue looked strong in February. They fell off a cliff in March. Our contingency to use our mother-in-law suite as a short term rental to generate income evaporated simultaneously, at least for the foreseeable future. My ability to go back to work as a physical therapist became unlikely. My wife’s work still seems stable, but the entire economy is more vulnerable than it was six months ago.

Alternative Options

I continue to look for ways to limit volatility in our portfolio while maintaining opportunities for growth. A traditional approach of shifting our allocation away from stocks and towards bonds would likely meet the first objective, but at the expense of the second given extremely low interest rates.

So I’ve been exploring alternative asset classes that are not highly correlated to stocks. One option is real estate. We own our home outright, which gives us planning options external to our portfolio

We’ve also already allocated 10% of our portfolio to real estate investment trusts (REITs). Their performance and volatility are similar enough to stocks that we consider them part of our 80% equity allocation. We don’t want to increase our REIT allocation.

Adding rental real estate is another option. We’ve tried our hand as landlords, renting our current residence for a year before moving in. I’ve continued to explore using rental real estate to produce more retirement income

However, the low interest rates that make bonds unattractive and are contributing to high stock valuations are also helping inflate housing prices. This makes buying a quality investment property challenging in our area, as it is in many others.

Physical real estate also doesn’t fit with our otherwise passive investment approach. So I’ve decided to take a closer look at the impact of gold on a portfolio.

Gold In A Portfolio

Several well known portfolios advocate for a large percentage of a portfolio to be allocated to gold (or a combination of gold and other commodities). Examples are Harry Brown’s Permanent Portfolio, Ray Dalio’s All Seasons Portfolio, and the Golden Butterfly Portfolio.

They all have reasonable long-term returns with lower volatility than my portfolio. I have two major reservations with all of them:

  1. Each portfolio allocates a substantial portion of the portfolio to gold or other commodities (15-25%). I understand this strategy. But it isn’t something I feel comfortable with. A key element to being a successful investor is not picking the perfect asset allocation, but choosing a “good enough” allocation you’ll stick with for the long haul. I doubt I’d have the conviction to stick with these strategies that I don’t fundamentally believe in.
  2. These portfolios all have a large allocation to bonds (40-55%). With interest rates at extreme lows, I have little confidence that future returns will match the back tested data of recent decades.

As I was researching for an article on rebalancing a few months ago, I read William Bernstein’s The Rebalancing Bonus: Theory and Practice. Bernstein wrote the following:

The portfolio characteristics of precious metals equity are unique; very low long term return, very high return variance, and near zero correlation with most other asset classes…Thus, not only is the systematic risk of precious metals stocks much lower than its stand alone risk, but its rebalanced portfolio return is much higher than its observed stand alone long term return.”

The Impact of Gold on a Portfolio

Bernstein’s statement got my attention and sent me back down the gold rabbit hole. After doing a lot of reading on gold, I compared four portfolios at Portfolio Charts:

  1. Our current 80% equity/ 20% bond portfolio. Equities were represented by 30% US Total Market, 10% US REIT, 10% US Small Cap Value, 10% Europe, 10% Japan, 10% Emerging Markets. Bonds were represented by 15% intermediate-term Treasuries, 5% T-Bills.
  2. A 60% equity/ 40% bond portfolio. Equities were represented by 26% US Total Market, 10% US REIT, 6% US Small Cap Value, 6% Europe, 6% Japan, 6% Emerging Markets. Bonds were represented by 35% intermediate-term Treasuries, 5% T-Bills.
  3. A portfolio of 75% equities/ 20% Bonds/ 5% Gold. Equities were represented by 29% US Total Market, 10% US REIT, 9% US Small Cap Value, 9% Europe, 9% Japan, 9% Emerging Markets. Bonds were represented by 15% intermediate-term Treasuries, 5% T-Bills.
  4. 80% equities/ 20% Gold. Equities were the same as in portfolio 1. Gold was substituted for the bond portion of the portfolio.

I summarized the impact of average return (Return), the percentage of years the portfolio lost money (% Losing Years), standard deviation (SD), and the maximum single year drawdown over the past 50 years (1970-present) in the table below.

PortfolioReturn% Losing YearsSDMax Drawdown
75/20/5 Gold7.3%26%12.4%32%
80/20 Gold8.1%28%13.7%32%

Making Sense of the Numbers

The first thing I noticed in the chart is that all three alternative portfolios substantially decreased the worst single year drawdown from our current portfolio. Both of the alternative portfolios with bonds decreased the standard deviation of the portfolio. Our goal is to protect our principle and decrease volatility, so this was interesting.

I didn’t place a lot of emphasis on the absolute return numbers. The Portfolio Charts tool looks at back tested data over the past 50 years. The past 40 of those years consisted of a historic bull run for bonds, as interest rates have fallen from all time highs to all time lows. I anticipate low interest rates will mean lower returns going forward. 

Ben Carlson recently wrote a fascinating article on periods of low bond returns in the past. Of particular interest were four consecutive decades of negative real returns from the 1940s through the 1970s that preceded the strong bond returns from the 1980s to the 2010s.

Even in better times for bonds in recent decades, the 60/40 portfolio returned at least a full percent less than any of the other three portfolios. The 60/40 portfolios’ redeeming quality for those drawing from the portfolio was having the lowest standard deviation.

The 80/20 stock/gold portfolio was compelling because it added nearly 2% in annual return compared to the more conventional 60/40 stock/bond portfolio. They delivered these returns with identical 32% maximal drawdowns. 

However, this portfolio produced the greatest percent of losing years and largest standard deviation of any of the portfolios. I would be uncomfortable allocating 20% of our portfolio to speculative investments to start. It would be incredibly hard to stick with a plan that I don’t fully believe in through a stretch of rough years.

The Sweet Spot?

The most compelling portfolio given our objectives was to shave 5% from our equity and allocate those funds  to gold. That backtested portfolio delivered near identical returns to our current portfolio. It did so while shaving 1% from the standard deviation and chopping 7% from the maximum single year drawdown.

More importantly, this approach requires making only a small change from our current investing philosophy. It should be relatively easy to stay the course and stick to the plan during periods of underperformance, which are inevitable for any portfolio.

As we’ve considered making changes from our current 80/20 stock/bond portfolio to a 75/20/5 stock/bond/gold portfolio, one substantial challenge remained…

The Challenge of Market Timing

There has been considerable market volatility over the past few months. I’ve gone from addressing the idea of investing at market highs last November to attempting to “buy the dip” in early March.

I can sum up both articles in one sentence: Time in the market is more important than timing the market. I always prefer to control the things I can control, putting my money to work where it is earning dividends and interest, rather than worrying about things I can’t control, future share prices.

However, the fundamentals of gold are different than those of stocks and bonds. The reason for adding gold to our portfolio is to capitalize on its high volatility and low correlation with our other investments. It is a speculative investment that is dependent on being able to buy it low and sell it high when rebalancing.

Had we made the moves that we’re considering at the end of 2019, rather than the middle of 2020, we’d have been feeling pretty good about ourselves. The price of an ounce of gold has jumped from $1,570 in early January to $1,740 in early June, an increase of about 11%.

Over that same period all of the stock index funds we invest in are down for the year. Our worst performing fund, Vanguard’s Small Cap Value Index fund, is down about 14%. This is exactly the opposite of the “buy low, sell high” mantra that guides successful investors.

So does it make sense to make a long term shift in our portfolio? If so, when and how should we do it?

Going for Gold

We’ve decided to allocate a small amount of our portfolio to gold. Our target allocation will be 5% of the portfolio.

Our reason for buying gold is to utilize the volatility and low-correlation with our other asset classes. The goal is to improve long-term returns while decreasing portfolio volatility through rebalancing. For those reasons, we chose to own gold in an ETF rather than purchasing physical gold. We chose iShares Gold Trust ETF (IAU).

We’re still not 100% sure how we’re going to transition from stocks to gold. Looking at the current price of gold, we’re certainly in no hurry to go all in today. We decided a dollar cost averaging approach away from our stocks and towards gold makes the most sense. 

Looking at our portfolio, I was shocked to see that the Vanguard Total Stock Market Index (VTSAX) was almost back to even for the year as of Friday, June 5th. We’re tens of thousands of dollars in the black due to the rapid price run up since rebalancing just two months earlier.

So we started by selling off approximately 1% of our total portfolio from VTSAX shares. We’ll gradually sell off a portion of our other equity funds over the next year and use the proceeds to start making monthly gold purchases until we reach our target allocation.

Hopefully, adding a little gold to our portfolio will improve our risk adjusted returns over the ensuing decades. In a worst case scenario, we’re speculating with a small portion of our portfolio while maintaining our core principles with the vast majority of our investments.

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible. Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences. Blog inquiries can be sent to chris@caniretireyet.com. Financial planning inquiries can be sent to chris@abundowealth.com]

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  1. Well thought out move. Wouldn’t it be nice to have a personal robo service at your brokerage at no charge?

    I read a comment wherein the investor had an action plan with cash. Holding 5% cash in a separate account for dry powder. Half of the cash would be put to work in equities when they dropped 10% from the peak. Half of the remainder after a 20% drop. All the cash would be invested when stocks drop over 30%. The market does drop 10% frequently, so the 50% cash investment was well utilized. This should work better with gold. What may work better than gold is long term or extended duration bonds? They move a lot upon stock or economic conditions and just like gold will not improve income during calm conditions. You’re not utilizing gold for income just to exploit the low correlation with stocks for better returns and reduced overall volatility. Who cares of low return on long term bonds or gold. They are not intended for this purpose. As you post, these investments correlated to fire insurance benefit that can be invested at an opportune time.

    1. Appreciate the thoughtful feedback Forrest.

      Agree with your take on long bonds historically. Not comfortable buying them at these rates where they have a lot of room to go up and little room to go down. Admittedly, gold prices currently aren’t very attractive either so a similar argument could be made there. Since we already hold a small percentage of our portfolio in long bonds and more in intermediate term, we decided to add a little gold to the mix. It’s a tough time to be an investor and none of these options have us very excited.


  2. Just curious if you looked at silver. I took a modest 2% position back in 2015/2016 based on its low price relative to gold.

    1. Bill W,

      I didn’t specifically look at silver (or any other commodities). Gold seems to be the “gold standard” for lack of a better term, but I may explore it if gold prices continue to go up faster than the stock prices I’m trading out of. Feel free to link to any good resources on silver that helped you make your decision. I’m always curious to learn, though generally slow to change my opinions unless I see something very compelling.


  3. Excellent post Chris!

    You might consider the AAAU ETF. Cheaper ER (.18%) than IAU and shares are redeemable for physical gold (Perth MInt). I have my gold allocation split evenly between it and IAU.

    I’m going to provide a link to a piece by Steven Evanson at Evanson Asset Management about commodities that includes some of the most insightful writing about gold I’ve seen. Evanson is one of the best advisors in the DFA universe and is certainly not a gold bug by any means.

    A call-out quote from the article:

    “Ibbotson conducted a study of the benefits of precious metals diversification covering the 1971 through 2004 period (Idzorek, CFA, Ibbotson Associates, 2005).  Of particular note is their finding that precious metals tend to do best when traditional asset classes like equities and fixed income have negative returns.Ibbotson recommends the following allocations to gold: 7.1% for conservative portfolios, 12.5% for moderate portfolios, and 15.7% for aggressive portfolios.  This is similar to what we at EAM recommend.”

    All of which is by way of suggesting that 5% isn’t going to be enough given your aggressive portfolio. Indeed I’d argue that 5% of anything isn’t worth the bother. YMMV


    1. Thanks for the feedback and sharing that resource Kevin. I’ll give it a read.

      You may be right mathematically, but 5% feels like a big move for me given that I’m still not enamored with gold. I’m much more concerned about moving too quickly towards something I won’t stick with in the long run than I am about moving too slowly or in too small of an amount.

      Also 5% gold is added to 5% we currently hold in TIPS, which is 10% of our portfolio that should both do relatively well in an inflationary scenario when stocks struggle. We also have 5% in cash and 10% in a total bond fund which is 15% that should do reasonably well in a deflationary period when stocks struggle.

      I still believe in stocks for the long run, we still plan to diversify outside of our stock/bond portfolio by finding fun and interesting ways to earn some income for the foreseeable future, and owning our home and car outright gives a lot of flexibility on the spending side of the equation, so I’m comfortable with this move for the time being.



  4. Gold should not be bought as either an investment nor as speculation. It is insurance. And as insurance, it typically does very little, until it performs strongly, inversely, to stocks. You mentioned the 3 main gold-holding portfolio theories but completely short shrifted the reason for their holdings: volatility. You want volatility, and you want holdings which will shore up one leg while another is being cut off. Combined with prudent rebalancing, you can do very well with any of these types of investment practices. I’ve found that once or (rarely) twice a year rebalancings will do nicely. We are presently “up” about 4% this year with the Permanent Portfolio, and I have NEVER been disappointed when I “only” made 8% while others were making 11%. Those folks are the ones crying loudest now, while I sleep like a baby.

    I say “congratulations” to you for discovering gold, but a 5% holding of gold, with no goal for it nor offsetting asset, will do little for you, particularly in light of buying it at near historical highs. I believe another “bump” in the system is on the horizon, but am not a fan of buying gold willy-nilly at this time.

    BTW, unless you really believe that sewing gold into the hem of your wife’s dress and smuggling yourselves across country lines to live and build a new life are in your future, paper certificates of deposited gold will work very well in a portfolio and have virtually no holding cost and are completely liquid at the click of a mouse. Physical gold is fun, but poses risks and costs. A combination of the two is usually prudent.

    Best of luck and I enjoy the BLOG. Good work.

    1. Scott,

      Regarding your critiques:

      1.) I specifically stated in the post “Our reason for buying gold is to utilize the volatility and low-correlation with our other asset classes. The goal is to improve long-term returns while decreasing portfolio volatility through rebalancing. For those reasons, we chose to own gold in an ETF rather than purchasing physical gold. We chose iShares Gold Trust ETF (IAU).”

      2.) I also specifically addressed our reservations about buying it near an all time high. “We’re still not 100% sure how we’re going to transition from stocks to gold. Looking at the current price of gold, we’re certainly in no hurry to go all in today. We decided a dollar cost averaging approach away from our stocks and towards gold makes the most sense.”

      3.) As far as making gold only 5% of our portfolio, you may be on to something there. See my reply to Kevin in the preceding comment for our reasoning there. Remember, personal finance is personal, and there may be multiple “right” answers. There are certainly many “wrong” answers.


  5. I have to agree with Scott on all of these points. The Evanson article I posted the link to also makes it clear that those who attack “paper” gold are incorrect.

    And vis-a-vis bonds Carlson’s article is right about the history but wrong in that he looks at bonds in isolation rather than as part of a portfolio. It’s the same kind of blinkered thinking that leads folks steeped in Boglehead”s-style stocks-and-bonds-only approaches to dismiss gold as being speculation not investment when it has been a store of value for many centuries before fiat currencies let alone stocks and bonds denominated in them were invented.

    All of the ultra-successful defensive portfolios you mention (the Permanent Portfolio, Golden Butterfly and All Seasons) use long and short Treasuries and gold in combination with equities to create a blend of assets whose offsetting volatilities result in a smoother ride overall with far lower drawdowns and much higher safe withdrawal rates than classic 60:40 and other “plain vanilla” portfolios. Also of note: Carlson doesn’t mention (and probably doesn’t understand) bond convexity – which happens to be the primary factor behind the PP’s positive returns during the current crisis.


    1. Yes, I agree with hims as well, which is why I didn’t quite understand most of the comment.

    2. Kevin

      that’s a great article you posted a link for. It really is mandatory reading for anyone looking to begin to understand the Bond market, and Long Bonds in particular. It took several complete readings of Harry Browne’s “Permanent Portfolio” for me to begin to grasp the fundamentals of what he was espousing. Your article is a very good Primer for anyone who wants to break out of the mold and think for themselves; being strongly defensive in retirement, while still managing to soak up much of the gains of a traditional portfolio. His book was one of maybe 100+ books I’d scan in bookstores. I’d scan 3-4 books and buy one. I found that for every 4 books I bought, 3 were worthless. I have a grand total of about 5-6 investment books in my library now and they are each worth a complete read once a year.

      I have always wondered if I’d taken the right path, and March 2020 told me I had.

      1. Thanks Scott! I seem to end up rereading William Bernstein’s books and the Craig Rowland Permanent Portfolio book annually.

        And how’s this for perfect timing: within hours of this great post from Chris on gold being published this new post from Tyler at Portfolio charts showed up in my in box addressing exactly what we’ve all been talking about here – namely how to dampen volatility and choose an allocation one can truly stick with even in a pandemic and depression:


      2. Scott,

        If you don’t mind sharing, what were your other favorites. I’ve found the same. Even the good investing books are often repetitive, and there are many that are complete garbage.

        Congrats on finding a path that lets you sleep well at night even in the scariest of times. That’s ultimately what matters.


        1. Well, different books serve different purposes (and sometimes have a particular bent or axe to grind), so for me, these were a great foundation in my education: Four Pillars of Investing (Bernstein), Little Book of Common Sense (Boggle), A Random Walk Down Wall Street (Malkiel), The Intelligent Investor (Graham), Permanent Portfolio (Browne). For pure fun and topical information, just reading Wade Pfau periodically on-line is great stuff.

          Some of this stuff of course goes back to my Grandfather’s day (an MD) who was the archeotype of “Buy Amalgamated, Sell Consolidated!!” at the brokers’ office. Tax consequences, Obamacare, 401’s, were not necessarily covered, considered, or even in existence at the date of original publishing, but they all have GREAT foundational truths that can be built upon by anyone. Myself, as mentioned earlier, found Browne’s book to be the one which made me rethink what others had said and apply his principles to other’s truths.

          BTW, I wasn’t trying to be antagonistic or critical of your article or your opinion…it was more a knee-jerk reaction to the mention of “gold” and my expectation of people fundamentally misunderstanding it’s place in investing and mistaking it for being a “collectable”, which of course it isn’t, and for those who insist it is, they have entirely missed the point and need to go back and do some study (which you obviously have). My only critique which I still hold is that 5% (importantly: “at this time”) probably will not serve you like you hope.

          Again, all the best

          1. No offense taken at your comments. I welcome and appreciate any honest feedback and discussion. As I noted above, I just took the way that they were written as argumentative when in fact I agree completely with most of your assertions. The amount I’ve decided to allocate is admittedly small, but I’m confident that I’ll stick with it and I’m hopeful it will be enough to alleviate some of the pain in a downturn. Time will tell.

            Thanks for sharing the books. I agree that all are excellent and have impacted my thinking as well, though the Intelligent Investor was a tough read and I’m not sure how much I would have gotten out of the original version. Most of the take homes for me came from Jason Zweig’s analysis in the updated version. I also like Bernstein’s Intelligent Asset Allocator better than The Four Pillars, though it’s a bit dated at this point, for the similar reason of getting a historical perspective. I seem to be in the minority with that opinion though.


  6. Given your reasoning and the comments above I’m wondering if you considered the Pinwheel Portfolio from portfolio charts?

    1. I’ve looked at most of the portfolios on the Portfolio Charts site. The Pinwheel Portfolio in particular would achieve my goals of less deep and prolonged drawdowns and generally less volatility, but like many of the others that I highlighted, they do so at the expense of total return. Since we’re still likely to be net savers this year (less income from my writing, but also less spending b/c we can’t travel or eat at restaurants which are two of our bigger areas of discretionary spending) and once we fully retire we’ll likely have a 40+ year retirement to support, we don’t want to sacrifice too much growth by getting overly conservative.

      Two big take homes for me are:
      1.) When building wealth, volatility can be your friend and help you obtain greater growth. When drawing down in a more traditional phase of retirement, controlling volatility is more important because you may have to take money from a depleted portfolio which then can’t recover. We’re at a phase between these two extremes, so we’re happy with the trade-off we’re making by selling a small portion of our equities and allocating that money to gold b/c it should dampen volatility without taking much from returns. This is not to suggest this is the right answer for everyone.
      2.) I stated a similar sentiment in my post, but here is a direct quote from Tyler at Portfolio Charts from a post he also released today: “Find a portfolio you can stick with even when times are tough, and you’ll keep yourself positioned to benefit from the inevitable recovery while nervous active traders are still sitting on the sideline wondering what to do next.” Again, for this reason, this is the right answer for us, but may not be for anyone else.

      Hope that clarifies.


  7. We bought some gold coins (I forget when), some years back. The price was under $300 per ounce. Even at current rates (down somewhat from whenever the high was), it sounds like a good return.

    It is a pain, as far as I’m concerned. First, gains are taxed as income; not at capital gains rates. To my mind, to sell enough gold to serve any cash-flow purpose will elevate taxes for no good reason.

    Second, anything that is only of value if you sell it (that is, it yields no growth of any kind) is only of value when you sell it. (My apologies for the tautology.) When we try to imagine any situation so dire as to require us to sell, say, that 5% of our portfolio, the surrounding world will be in a state so dire, it would garner us little or nothing.

    (That is, unless you are a dyed-in-the-wall apocalypse too-soon person, in which case, my view is immaterial to you. And godspeed, of course.)

    It’s always good to think of old things in new ways. I don’t know that metals and collectibles are well-served in that way, because if you have enough excess wealth to buy those things, it’s not really a valid “investment.” It’s just another something to collect.

    (($; -)}™

    1. Gozo,

      I agree that I couldn’t imagine ever buying physical gold. I’ve read about the “prepper” mentality that suggests holding physical gold for end of the world type situations, but that is not our philosophy.

      Our purpose for holding gold is to buy and sell it within a tax-sheltered account where we do all of our rebalancing. For those reasons an ETF makes far more sense than gold coins and tax consequences can be discarded.


      1. Chris, your reply is appreciated. Yes, the EFT form removes the tax concerns, but adds maintenance costs.

        I’ll stick with the view that any inert asset is a speculation. Not that there’s anything inherently wrong with that.

        You present some provocative material. For which, thanks.

        (($; -)}™

  8. Interesting topic. I’ve dabbled in Gold in the past, but always tend to find it hard to hang onto it due to all the reasons you mention. One move I did make was to pretty dramatically reduce my foreign equity exposure and slightly increase my bond position (both my wife and I are in our early 50s). I landed at roughly a 70% equity 25% Bond 5% cash. My equity used to be nearly 40% international and Im now at about 10%. I made this adjustent when the market mostly recovered in the last month. All the talking heads seem bullish on the remainder of the year, but Im not quite as convinced. I also struggle with the low bond returns but I look at Bonds as ballast more than anything. I am annoyed with how Bonds lately seem to move in tandem with equities so I have also been looking at potentially putting some of my bond position into all cash and buying equities on some of the volatility in the market. It’s not something I plan to do long term, but likely until we get past covid 19 and the election cycle. I see some buying opportunities will develop. Im waiting for the other shoe to drop…but it feels like it’s floating in the stratoysphere out for a while 🙂

    1. Wade,

      Interesting point about having a hard time hanging on to gold Wade. Some of the other commenters seem to think that 5% is not enough to be worth having, but like you I’m worried that I wouldn’t stick with a plan of holding gold through tough periods which are inevitable for any asset class. The numbers show that having a little bit of gold can impact volatility. More importantly to me, I’m confident that I’ll stick with it like I have with a 5% allocation to cash in 2019 when everything else was soaring and 10% allocation to small cap value which has been underperforming for years. This is because they are relatively small components to my portfolio and the overall portfolio still does fine. Best of luck with your future decisions.


  9. Somewhere on this page you mention that you are a “net saver”. In this case, I would not have touched my existing portfolio to rebalance it to include gold. I would have used those new savings to gradually build up the gold position, automatically resulting in dollar-cost averaging.

    1. Good suggestion Jeroen. I guess I didn’t make it clear, but we’re not saving much if at all so it would take a looooong time to dollar cost average in up to our 5% allocation. If we were able to save more that would be an excellent way to do it though.


  10. “Our worst performing fund, Vanguard’s Small Cap Value Index fund, is down about 14%.”

    You should divest yourself of this fund as its redundant with your VTSAX holding. Don’t waste your money on gold investment. VTSAX will trounce any gold investment which produces no earnings nor dividends. If market has gained this year even with about 15% US unemployment, a global pandemic, and significant racial unrest, stick with VTSAX for your investment. Trust me.

  11. Thank you for an EXCELLENT post about gold. Your post was well researched, objective, factual and showed to me that you are open to “new ideas”.

    However, I have 1 comment: you looked at gold as part of a portfolio in the ACCUMULATION phase. Since you and I are both retired, shouldn’t you be looking at gold as part of a portfolio in the DISTRIBUTION phase?

    I believe that once retired, retirement ASSETS are less important than retirement INCOME. This requires a mental shift as well. Me, for one, I am no longer interested in accumulation and growing my portfolio. Instead, my priority has shifted to preservation and making sure the portfolio lasts me my lifetime. I am 55 years old and have accumulated a substantial liquid portfolio.

    Also, as I am sure you know, a portfolio that is in the DISTRIBUTION phase is subject to the sequence of returns risk more so than a portfolio that is in the ACCUMULATION phase. Sequence in returns can absolutely kill a DISTRIBUTION portfolio even though the same asset allocation in an ACCUMULATION portfolio looked promising.

    I also use http://www.portfoliocharts.com and that website actually allows you to put together a DISTRIBUTION portfolio.

    I was surprised to see that including gold in a DISTRIBUTION portfolio actually INCREASES the sustainable withdrawal rate (SWR).

    As you pointed out in your article, gold is not correlated to stocks and bonds so gold really acts like a buffer (principal preservation) when both stocks and bonds take a hit.

    I really don’t want to criticize you at all, I just would like to have an open and intelligent discussion about all this since I believe that we both could benefit from it. You seem to be quite informed about investing, asset allocation, taxes, etc. and I think I am equally informed about all these topics. So, together we could (maybe) come up with the “ideal” retirement/distribution portfolio?

    1. No need to worry about offending me. I appreciate an honest exchange of opinions.

      I’m actually in an in-between space between accumulation and distribution, where I may be a net saver or spender in any given year, depending on how my writing projects do and on what we decide to spend on in a given year. I’m also a good bit younger than you (44 and wife 42) so we potentially have an extra decade to support, and importantly 2+ decades until Medicare which IMO is the biggest wild card for any early retirement plans. Finally, we have accumulated a portfolio that is currently (as of January, I haven’t really looked closely at asset values or spending since then) of about 28x our current spending (not factoring in funds for my daughter’s college, home equity, future SS projections, or any anticipated inheritances).

      Bottom line, I don’t know that there is an “ideal” portfolio. I think it really depends on the specifics of your situation, desires, personality, needs, etc. If I were in your situation, I’m honestly not sure what I would do. I do think you’re in an envious position in that you could support your spending while drawing down only 2.5% of your portfolio. You have many options and seem to be thinking about the problem wisely.

      If you are stuck in taking action and are looking for specific advice, I can’t give you much more than that and I would recommend talking to a fee-only financial advisor who charges for only their time. Maybe a few to get a variety of opinions. You seem to be in a position to be able to afford it and it may provide an excellent ROI, even if only in peace of mind. If you scroll to the last few paragraphs of this article, I recommend some ways to find a good advisor. https://www.caniretireyet.com/5-reasons-need-financial-advisor/


  12. Great post Chris,

    Welcome to the gold club! I’ve been using my Juicy Portfolio for about 9 years now, which consists of 15% gold, 55% stock, 30% bonds. It works for me. Once you’ve owned gold for a while you become more comfortable with it.

    Take care.

  13. TIPs bought directly at auction are a safer play than gold and provided inflation protection. You can hold until maturity to avoid all the ups and downs of interest rate movements. We could start seeing this in the coming year.
    I try to avoid TIP funds as they fluctuate too much with rate movements.

    1. Steve,

      I struggle with these types of actions. You’re technically right, actions like these or moving money from bonds to CDs or even cash savings accounts with higher interest rates can allow you to arbitrage your way to higher returns or away from particular risks. I ask how much additional return will you get for your extra effort?

      I’m looking for ways to make a decision one time and then leaving my portfolio be for two reasons. 1.) I won’t screw it up by forgetting to do things, doing too much, making it too complicated if something happens to me, etc. and 2.) I can direct my time towards actions that are more profitable, more enjoyable, or both.

      My default is automation and leaving things alone. I’ve been thinking about when it is worth the time and effort to do a little more.


  14. You are right on the money, Chris. The value of gold is not that it is actually expected to produce a return, but that it is a volatile, uncorrelated asset that tends to increase in value during recessions (as the chart you linked to pointed out). For this reason, I recommend a 10-15% allocation to gold. One thing to keep in mind is that gold is taxed as a “collectible” in the US and is taxed at 25% regardless of income. Thus, you should hold gold in a tax advantaged account.

    I write about gold a bit in my post, Double Your Retirement Income, “The Secret to Increasing your Withdrawal Rate is Gold and the Small Cap Value Premium”.


  15. Good point that I didn’t address how gold is taxed, b/c I plan to hold it inside of retirement accounts where we do all of our rebalancing.

    Here are some resources for those looking for more information on how gold is treated when held in taxable accounts.



  16. I like reading Dan Amerman’s blog, and he has a fascinating DVD course on the role of gold in a portfolio with weightings as high as 2/3. We use a tactical asset allocation service ourselves that rebalances monthly. Majority of our portfolio is in real estate,.

    1. I’ve read his some of his work. While I find it interesting, I struggle when he constantly compares gold to and stock prices without accounting for dividends.

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