Love the fact it’s called ‘correction’ instead of ‘plunging into oblivion’. Sounds a lot more reassuring
I have been investigating a while for gold holding in the portfolio and its important to choose right ETF. Most ETFs are not backed with gold, but only a promise from their gold supplier that amount that been traded. If you want to have a reliable shares in gold search for Gold backed Exchange Traded Funds (ETFs), securities designed accurately to track the price.
Great list Diversify!
The one that is listed in Freetrade is actually one of the best in the market at this moment. I had two on my list for investment (see attached pic). Priority is a ETF that has physical gold and second is the annual fee.
It would be useful to hear why the ETF being backed by gold is a priority for you?
Good question Alex. Best way to protect yourself against inflation, stock market and etc has been throuthout history gold. But buying physical gold is expensive, hard and difficult to storage. Then we have companies such as BullionVault or ETFs that promise backed gold.
Found an old news letter from BullionVault, which describe tje reason of gold storage pretty good.
”Why does BullionVault make sure you get outright physical ownership of gold? After all, it would be so much easier to offer you a gold account.
The reason is risk of default. One of the patterns which recurs throughout history is that growing financial sophistication leads to widespread expansion of credit and exposure to default, and few people successfully avoid it when it matters.
Banks, pension savings, mortgage guarantors and all the major financial institutions on which we depend are now tied up in a web of undelivered assets. A is the registered owner of a bond payable by B, the principal on which has been credit-swapped out to C. The terms are controlled by a deed drafted by an investment bank D, which itself receives the interest, which has been aggregated with 30 others and sold notionally to E. E is foreign, and flattens the FX risk with a bank F, who sells and rolls a future on his long currency book, which is bought by another bank for an assured profit by running the position against a higher yield bond bought from a junk-status borrowing customer, which has been insured against the risk of default with G, a major insurer, who happens also to be A.
These are the styles of relationship which dominate the world in which ordinary peoples’ savings are bound up, and they are profitable in the short term. This is why financial rather than commercial companies increasingly dominate the list of the top companies in America and Europe. They find it easier to make profits by providing credit and assuming eventual repayment, rather than by actually demanding settlement; a habit which could put off no end of potential customers.
All our common savings products are bound up in these webs. At BullionVault we do not know when and where these webs will break, and, with the greatest possible respect, we don’t think you do either. But it is so certain that they will break, and at an unexpected place and time, that we believe every forward thinking person with a respectable private reserve would do well to opt out with at least part of their savings.
A purchase of gold is a good way to do this.
But gold accounts, indexes, spread bets, and futures all fail to extricate the buyer from the web of dependencies, because they are based on undelivered gold. The only way to opt out of the web is to own physical property outright.”
Thanks, that’s really useful!
I’ve got some iShares Physical Gold in my portfolio to diversify in choppy markets. It’s up almost 4% in the past two weeks while my S&P 500 is down 6.5% over the same period. Gold miners looking good too.
Can I ask, what purpose does having the gold serve? I’m keen to understand how people use things like gold when the market is down.
Are you planning to sell the gold at some point (i.e. when it has grown higher) and use the money to buy something at the bottom? e.g. buy more S&P?
Or will you just hold gold in your portfolio and then one day when the markets go back up, watch your gold go back down (and maybe go negative)?
A well diversified portfolio should have between 5 and 10 percent gold in a portfolio. Taking account that you want risk-adjusted portfolio or even better
Harry Brownes all weathers permanent portfolio. Historically, gold has made portfolios better by being negatively correlated to equities in times of crisis. For example, a 60/40 portfolio became 0.55% better per year during the 30-year period between 1987-2017.
|Crises||Period||S&P 500||USA interest rates||Gold|
|Crashes 1987||870825 – 871019||-33,2%||-7,2%||5,0%|
|Iraq invades Kuwait||900717 – 901012||-17,6%||-0,4%||7,6%|
|Asia crisis||971007 – 971028||-6,2%||0,0%||-4,6%|
|Russia crisis / LTCM-krisen||980720 – 980810||-18,7%||5,3%||1,2%|
|9/11 attack||010910 – 011011||-22,3%||11,2%||16,6%|
|Financial crisis||071011 – 090306||-54,5%||15,8%||25,6%|
|EU crisis and flash crash||100420 – 100701||-14,5%||4,5%||5,1%|
|US credit rating downgrading||110725 – 110809||-12,3%||3,6%||7,8%|
|China troubles||150818 – 160211||-11,8%||3,5%||11,5%|
Nine periods of disturbance, the period between the market falling and its lowest point, shows that the gold was a better protection than fixed income and bond funds. You can say that Gold can function like a Hedge. Check this video about Bloomberg - Is Gold Really a Good Hedge?.
In a permanent portfolio you keep the gold. Is not a short-term investment but rather long-term - time is your best friend here.
Thanks for this, I appreciate you putting this together - I need to go through your post again once I am more awake and decide if I should start looking again at gold.
TL;DR if the world is going to shit you’re probably going to want some gold (along with tinned beans and bottled water).
If things get that bad no way am I swapping my beans for your gold
So I am still a little confused. If the markets are depressed and my ftse100 etf drops 10% but my gold etf rises 10% then what is the point? All I have done is flat lined, if I want my portfolio to hover around 0% net growth then I may as well put the cash in a savings account.
And if gold only makes up 10% of my portfolio anyway then it will need to rise a lot to cover the drop on my equities.
However if I sell my gold at +10% and use the proceeds to buy more ftse100 then I can start to understand that.
If I believe I have solid equities then if they drop in value surely I should be buying more of them, not buying gold? (Which is now going up in price)
I think the idea is to see Gold as insurance rather than look for profit from it, so in the event of a huge crash you still have something that’s valuable that you can sell if you need to.
Of course you can sell the gold and buy more equities if you think equities will recover. I think it just adds a bit of flexibility
Personally I’m of the perspective that holding gold as part of your normal portfolio is a waste of resources but that very much depends on the goals of your portfolio and your take on risk.
In my mind holding Gold is all about rebalancing your portfolio. Rebalance your portfolio to its original percentage allocation every 6months makes you buy assets at a low price and selling high price. By adding Gold to your portfolio that does not correlate to stocks you make sure that when the stock prices crash you will be able to use your gold assets to rebalance your portfolio and buy stock when they are at a really good price. Which will make your recovery time after a crash much faster. Therefore you will hopefully have a less volatile portfolio than one without gold.
I have some (ETF) and treat it like cash in my portfolio (though of course it’s not, but it’s another asset which is not very well correlated with stocks). Plan to sell it in the next month or two as market volatility increases and hopefully the gold price increases, and get that money back into stocks. So I think yes this is what people tend to use it for. Of course this requires buying it when everything seems fine, and selling when everything seems terrible.
I feel like the next few months are going to be a great time to buy stocks though, not gold - most of the indexes have seen significant corrections, and some tech stocks have seen very high reductions (almost 40%).