As you can see from the responses so far, there is a range of opinions on whether gold and other commodities should even be included in a diversified investment portfolio. Historically, gold behaves more like a currency than a commodity because it is traded by speculators and investors much more than it is used in industrial processes. Viewed in this context, one could make a case for gold as an inflation hedge or as a short-term hedge against declining currency values, but as a long term investment I believe that there are superior assets that achieve the same objective. I agree with the admonitions about media hype; one reason that you hear so many radio and TV advertisements promoting gold is because the price has gone up in the past few years, while other asset classes (except Treasuries) have languished. Because gold is not a security it is not subject to the same advertising restrictions that require a fair and equitable presentation of opportunity and risks. Imagine if an investment advisor cherry picked the best performing stocks or funds and promoted them as "the next big investment" based on past performance. They would be quickly reprimanded by the regulators and justly so. Yet this is exactly what gold bugs do with their shameless self-promotion and exaggerated claims. If you ultimately decide that you do wish to hold some physical gold in your portfolio, consider working with a qualified, fee-only advisor to obtain the best terms and minimize your transactions costs. Good luck!
Allow me to disagree wholeheartedly with Evan, and to some extent, the other reasoned answers. I believe strongly that investors should maintain an allocation to gold. It is absolutely a valid asset class to invest in; it isn't simply a speculation. The price of gold has risen for eleven straight years. Can you think of any asset that has had the same price gains? As nations around the world do everything in their power to debase their currencies, gold will likely continue to increase in value relative to those currencies. There are many ways to own gold, either through direct purchases of coins, mutual funds, ETFs or individual stocks. You should speak with an advisor as to which may be the best for you depending on your unique circumstances. But don't let the naysayers scare you away from investing in gold.
One important factor to keep in mind when considering a direct investment in gold is that gold does not pay dividends or interest. As a result, if gold prices happen to stay fixed for a period of time, the value of your portfolio would remain essentially unchanged. On the other hand, a diversified portfolio consisting of stocks and bonds can provide income which could potentially increase your returns and/or offset losses resulting from declines in the market values of securities. This would provide you with some protection against inflation and help to reduce the downside exposure within your portfolio. Accordingly, the decision to invest in gold should be made only after consideration of the potential upsides and downsides. This will help you to position the investment as a single part of a well-diversified and balanced portfolio.
You should always START your decision making tree at the end and work backwards. Therefore, your first question should be "what am I trying to accomplish?" and clearly define your needs, expectations and timeline.
GOLD like everything that you can spend money is great and terrible depending on what you are trying to do in the same way that a screwdriver is a great tool unless you need to drive a nail or cut a board. You could have just as easily asked "Is penicillin a good drug?". If you have an infection: YES. If you are allergic: NO. If you have a broken arm: NOT WHAT YOU NEED, BUT NEITHER GOOD NOR BAD.
All of the answers given have merit, but you will always be more successful if you clearly define what "success" means to you. That is hard for investors sometimes because they do not know where to start. Start at the end.
I agree completely. But still can't resist pointing out that gold has had a 200 year real return of 0% (Sorce: Jeremy Seigel, Stocks for the long run)
I can understand gold's use as an alternative to the fiat currencies of the world but, personally, I can't find any investment merits in the metal at all. I just don't know how to value it and I readily admit that may be a shortcoming of mine.
Ultimately, I think Warren Buffett does the best job of quantifying the argument: "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"
This is not to say gold is not a good vehicle for speculative activities. It just doesn't make any sense as an investment, a distinction that is imperative to acknowledge.
yes Jesse -- i think this frames the decision very effectively. Gold has tremendous marketing appeal ... but as a long-term investment the return is 100% dependent on the time period in which you hold it. As a speculative venture, it can certainly be exciting ... but as an investment it has all of the risk characteristics of an equity with long-term return characteristics of cash.
You can't invest in gold because gold is not an investment, its speculation.
Mr. Werlinich, It was FDR who took us off the gold standard in 1933. Nixon took us off the Bretton Woods system in 1971.. let us not confuse the two :)
You are correct; my mistake. But it doesn't change my investment thesis. And please, call me Greg.
One would respectfully suggest that Gold should definitely be part of a diversified portfolio consisting of stocks, bonds, real assets and cash. You could consider gold as either a real asset or as a type of currency (non-US cash), but I believe Gold should be part of the mix. Other real assets could include real estate, oil, raw materials and commodities. There are low-cost index Exchange Traded Funds (ETF's) that provide exposure to all of these asset classes. Currently, my 12 ETF Balanced Model Portfolio contains 27% Stocks, 26% Real Assets, 47% Bonds, and no cash, including a 6.67% position in GLD (Gold ETF).
Excellent points.