Gold has always had a unique allure, and over the last century it has alternately entered and exited investors’ preference lists.
In English | “See this paper money? In 100 years, it will be long gone.” Those infomercials on late-night television present gold as the only protection against a future in which your dollars will be worthless.
Such statements tap into our fear that with conflicts in the Middle East and elsewhere, a plague threatening Africa and a disappointing job market at home, the end of life as we know it may be very near. It’s tempting to call that 800 number and stock up on gold, whether in the form of Krugerrands and other coins, or in bullion. In fact, several financial advisors interviewed for this article suggest investing between 5% and 15% of your portfolio in gold, just in case gold ira companies reviews.
Beyond the emotional appeals, many financial experts warn that gold (and, for that matter, silver, an even more volatile product) is simply too risky, especially for a retiree who needs income-generating investments . more than an asset whose value can fluctuate widely in a short time, or languish for years.
“Gold by itself doesn’t produce anything,” says Eric Meermann, an equity portfolio manager at Palisades Hudson Financial Group, in Scarsdale, New York, which manages $1.3 billion. “It’s just there… a form of money for people who don’t trust other forms of money, like cash or other investment instruments.”
The currency of fear
Gold has always had a unique allure, and over the past century it has alternately entered and exited investors’ preference lists, soaring in times of economic or political stress. It is not known as the currency of fear for nothing.
Following the oil crisis of the 1970s and years of high inflation, gold reached what was then a record price of $850 an ounce in 1980. Then, after the Federal Reserve raised interest rates to contain inflation, Its value fell and practically did not vary for two decades. It took 28 years, until 2008, for the price of gold to climb back to $850 an ounce.
The last run took place during the recent Great Recession and financial crisis of 2008. That year, lending was suspended, the Dow Jones Industrial Average lost 778 points in a single day, and Wall Street icons Bear Stearns and Lehman Brothers , collapsed as the country nervously waited to find out who would be next.
“In 2008 and 2009 it looked like we were going to fall into the abyss,” says Barry Ritholtz, a financial columnist and president and chief investment officer of Ritholtz Wealth Management in New York, with $182 million under management.
The price of gold rose 131% from late 2007 to September 2011, when it reached $1,921 an ounce, according to the World Gold Council (WGC). Then it was said that its price would more than double. Instead, the economy improved, stocks rallied , and gold collapsed, losing 28% of its value in 2013. It fell again in 2014, ending the year at $1,184 an ounce.
In contrast, last year the S&P 500 index, which fell by more than 50% between its peak in 2007 and its trough in 2009, regained all of its lost ground and has since reached record highs. “Gold is an emotional investment instrument, and one I wouldn’t recommend for those nearing or already retired ,” says David I. Kass, associate professor of finance at the University of Maryland, College Park. “The price of gold can go down or up with the same speed.”
According to many advisors, older investors in particular need income-producing investments, such as dividend-paying securities, municipal bonds, or real estate investment trusts that pay out most of their earnings in dividends to the shareholder. “To protect yourself against inflation, you just have to own stocks,” says Meermann. The price of shares has risen, over time, even more than inflation, he says.
Billionaire Warren Buffett, one of the world’s most successful investors, has a more colorful argument against gold. In a letter to shareholders in 2011, the Oracle of Omaha said that all the gold mined would amount to 68 cubic feet, the equivalent in money of all the arable land in the US, 16 companies the size of ExxonMobil. and one trillion (1 trillion) dollars in cash. “100 years from now, the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton and other crops, and will continue to produce that valuable crop, regardless of the current currency. “ExxonMobil has likely delivered trillions of dollars in dividends to its owners and will also retain assets worth several trillions (and, remember, you will have 16 Exxons),” he wrote. “The 170, 000 tons of gold will maintain its dimensions unchanged and will continue to be incapable of producing anything. You can pet the ingot, but it won’t respond.”
And don’t underestimate taxes . Gold is considered a collectible item, and profits from a sale are taxed at a rate of 28%. By comparison, long-term capital gains on stocks and bonds are subject to a maximum tax rate of 15% for most investors.
An insurance policy
If you remain convinced that gold is for you, you can invest in funds that hold gold, although many gold fans—often called goldbugs—prefer to buy the physical metal, even though this may mean additional storage and insurance costs.
Steve Brown, 60, from Texas, bought his first gold coins in 2011, and they now represent about 10% of his assets. He sees the metal as a way to diversify his investments and protect against inflation, which, he suspects, is much higher than reported.
Gold, they say, is an insurance policy, similar to a homeowner’s insurance policy purchased on a house that may never burn down: “If the markets go crazy, it gives me some peace of mind.”
Andrew Carrillo, a financial planner at Barnett Capital Advisors in Miami, has half of his personal investments in gold and advises his clients — especially retirees — to keep 5% to 15% of their portfolio in physical gold. “His biggest risk is not running out of money,” he says, “but rather that his money completely loses its purchasing power.”
But in the end, many advisors suggest taking negative comments with a grain of salt. Ritholtz, for his part, affirms that the imminent disappearance of the dollar, the dominant currency in the world, is highly unlikely. “Believe me, the people who run Goldman Sachs are not going to let their dollars become worthless,” he says wryly. “And whoever thinks the dollar is worthless can send me their money so I can dispose of it properly.”
And what about the silver?
If you’re no longer convinced by gold, should you consider silver? It’s cheaper — it was selling for about $16 an ounce late last year — and is often called the poor man’s gold. Silver, however, is much more volatile than gold. That’s because it has more industrial uses, and as the economy expands and contracts, so does demand, explains Doug Eberhardt, author of Buy Gold and Silver Safely. During the second half of last year, gold lost about 10%, and silver fell more than 24%. Silver also shares disadvantages with gold: it does not produce dividends and taxes are higher on profits.