Should Retirees and Near-retirees Invest in Gold Now?
With gold trading at close to $2,000 as of this writing, up about 31% since the start of 2020, Retirement Daily decided to ask members of the Financial Planning Association these questions:
Should retirees and near-retirees be investing in gold now, if they weren't already? Is yes, why? If no, why not? And, what should retirees and near-retirees who might have allocated, say, 5% of their portfolio to gold do now? Rebalance?
It's in a nice big bull market since October 2018. When you are investing in a bull market you buy the dip. If you get overweighted because of the growth you prune when it hits the top end of its range. If you're just now putting some in your portfolio, where have you been?
In general, balanced portfolios should already have some allocation in asset classes that are less correlated to traditional stock and bond investments. Gold is one of those asset classes, and most of our client portfolios have exposure to it. The problem for retirees, especially those looking for more income, is that it doesn't pay a dividend. It will, however, provide a hedge to inflation and also compliment the traditional equity and fixed-income portfolio.
Michael Simmons, CFP, Transitions Wealth Management
Gold isn't so much an investment as it is a bet. Because gold doesn't have earnings that can grow and doesn't pay a dividend or interest, the only way one makes money from gold is through capital appreciation. That's why using commodities as investments usually doesn't work well. The rate of return for gold since it could be legally owned in 1975 has been 5.05% annually but with significantly more volatility than the S&P 500 which has returned 11.89% annually during the same time period. For anyone who owns gold, this may be a great exit point to sell and take the proceeds to better diversify a portfolio.
Gold is an unmanaged asset that tends to increase in value when fear is pervasive. The long-term results for owning gold are not very attractive. If you own gold before fear spreads and hold until the fear starts to abate, you can make a good return. Long term, commodities like metals tend to rise when there is high inflation. Globally, there is and will likely be low inflation for the near future so neither of these "opportunities" seems to indicate that owning gold will be beneficial to a client portfolio. We are not recommending any ownership of gold in client portfolios now.
Should retirees be invested in gold? Absolutely, and silver as well. Considering that the Federal Reserve, along with the other central banks around the world, have had to engage in a printing spree to rescue their economies and citizens, and that it is unlikely that these excess dollars flowing into the economy will ever be taken back out, there will ultimately be a dilution of the value of the dollar and inflation when the US economy comes back to normal several years from now. The only way to preserve value is through a “currency” that can’t be printed, is scarce, in demand, and has been viewed as a global currency for over 6,000 years, namely precious metals. As one financial analyst described it, holding a portion of your portfolio in precious metals is insurance against “stupid Fed tricks.”
Five to 10 percent of a portfolio in precious metals is my recommended range. (My clients are holding around 9%, at least before the most recent run-up in gold and silver prices.)
Should they rebalance? Eventually, but to do so too frequently risks curtailing the momentum in the precious metals market, or any market or sector for that matter. Annual rebalancing is usually the best way to go, based on studies of rebalancing.
Charles Sachs, CFP, Kaufman Rossin Wealth
Five percent in gold isn't going to move the needle one way or another. It is far more important to focus on understanding what spending in retirement their assets will support and if changes to their overall allocation are warranted.