Found about this hour-long British podcast (Episode 118) over on the Mr Money Mustache forum.
The Bengen study that advocated a 4% safe withdrawal rate admitted its own limitations: it was only using two asset classes, domestic stocks and domestic bonds. The guest in this podcast drew on data from ten financially dominant countries and seven asset classes going back to 1970.
His conclusion was that the optimal portfolio (for a safe withdrawal rate) is:
10% domestic stocks
30% foreign stocks
20% domestic bonds
10% commodities
30% gold
Absolute worst portfolio:
100% gold
If you were to remove gold, the portfolio would seek out some foreign bonds and domestic bills
I’m not gonna listen to it but I think it’s been said time and time again that the best way to ensure you don’t deplete your savings is to have an adjustable withdrawal rate
4-5% during good years is fine
But you need to be able to live on 2.5-3% during bad years
By holding 90/10 (us stock/bond) or even 100/0 will result in a larger portfolio over time
30% gold!!! Please…. I pray to god no one does this
I think the adjustable withdrawal rate makes sense, because if you retire on Dec 31 and live on $X and the stock market drops 10% the next day, someone retiring in the same situation on Jan 1 would assume $0.9X.
Gold was $41.28 in 1969 and is $2,535 today. That’s 61.41x or 7.77% per year.
That being said it varied a lot:
1969-1981 $41.28 => $460 (+22.25% per year)
1981-2005 $460 => $445 (-0.14% per year)
2005-2024 $445 => $2,535 (+9.59% per year)
The point of gold is to hedge inflation risk, but its only really relevant at the balance sheet level. It does zero for your income (and cashflow) if you are a regular person (say with pot of $2M and age 55) which is why it is largely to be avoided unless you have tens of millions or more.
I’ll buy that shifting your portfolio to more precious metals and commodities in a debt laden environment is worth looking at. How many times has doing that for 40% of your portfolio at a random point in the cycle worked out? Pretty low I would guess, but if you are a believer in calling the turn it might work out.
I’ve got about $130K mostly in gold ETFs but some silver, and I’m thinking of increasing it. Not up to 30%, but up to 10% under the current government financial situation.
However it has had a good run so far this year. I googled Gold Overbought and articles were saying it was overbought in April or May and it’s up at least +8.5% since then. Maybe I won’t rush into adding more.
Gold is already up pretty sharply, 20% this year and 60% over the last five. If you want to add some for diversification, I understand but I wouldn’t go too heavy.
I bought a few physical coins back when it was first hitting 1k. A little bit of insurance in case SHTF, but i don’t think it should be a significant part of diversified LT portfolio.
30% at retirement could make sense assuming you have something like 115% of your retirement needs funded. You can cherry pick periods of return that look OK, but it’s just going to sit there and wait for inflation to happen. It’s purely defensive.
Now, you should probably buy some amount regardless. I’m a fan of making small investments in things for the sake of learning, A few coins are fun to own. Sure, you could just buy an ETF, but this is something you can hold/touch, so why not?
The interesting thing about gold is that mining companies are materially reducing their exploration budgets for it, even with higher global gold prices, in favour of materials more relevant to the green transition (base metals like copper)
I did ultimately increase my portfolio for now to 1/6 gold, some on 8/1, more on 8/28 and 9/3.
Certainly happy with the decision so far as it is up about 6% since 8/1. I don’t expect to buy any more, and I could certainly sell some if I knew when and why.
