Is Gold Still a Reliable Strategic Asset for Your Portfolio?

Gold can be a divisive topic when it comes to asset discussions. Some would argue gold is an ideal inflation-adjusted asset since its price movements have historically been inverse to the value of the dollar. A segment of investors also like gold as a hedge against stock volatility. These attributes can be useful for some portfolios, but how useful it is or whether it will help your portfolio depends entirely on your goals.

Although gold isn’t exactly renowned for its growth potential, it is a finite and sought-after commodity and therefore has strategic value. There’s also an attractive simplicity to gold. An ingot doesn’t have any cash flow statements or balance sheets – it’s a hunk of metal.

At the same time, there are a lot of borderline-predatory actors in the gold market who make big promises about gold’s potential. These promises are frequently coupled with doomsaying about economic, monetary and societal instability, suggesting gold is the best hedge against all of these uncertainties.

Some gold advocates truly believe in the long-term potential of gold, and they have well thought-out and evidence-based arguments to back up their beliefs. Others are just looking for a way to make money off impressionable, risk-adverse investors. That doesn’t mean gold isn’t a good asset for your portfolio, but you should avoid allocating a significant percentage of your portfolio into the precious metal without doing your due diligence first.

The Difference Between Strategic Asset Allocations and Tactical Asset Allocations

Many people hold gold as a strategic asset in their portfolio. The idea of strategic asset allocation is to maintain a mix of various types of assets – bonds, equities, precious metals, ETFs, etc. – that meet appropriate growth expectations for your desired level of risk.

The goal with any investment portfolio is generally to maximize returns while minimizing risk, but it’s especially important if you are soon to be or are already retired.

Strategic asset allocations often involve setting long-term targets and then holding the right asset mix to meet those targets. Those strategic asset mixes might be maintained for decades.

The argument in favor of strategic asset allocation is it prevents investors from taking rash, short-sighted actions. Although a strategic plan doesn’t require frequent changes, asset portfolios should be rebalanced fairly frequently to maintain the targeted allocations.

Tactical asset allocation has the same fundamental goal – invest in the right asset mix for the investor’s risk preference. However, a tactical investor changes the weight of their allocations based on short- and mid-term changes in the market and economy. In theory, a skilled and experienced investor can maintain risk levels while maximizing returns with a tactical approach, but it’s far more labor intensive than a strategic asset allocation plan.

Gold and precious metals might be an important asset class in either a strategic or tactical investment strategy, but its risk-reducing attributes – especially in the long run – make it an attractive fit for some strategic asset allocation plans.

Should You Buy Gold?

Be wary of anyone who definitively tells you exactly where you need to invest your money. Every person has unique needs. No two workers, soon-to-be retirees or retirees have the exact same financial situations. Your income needs or retirement expectations are unique to you, which is why your retirement savings or investment plan should also be customized to match your growth needs and risk tolerance.

For some retirees gold does make sense as an asset that historically increases in value when the dollar goes down. Others might be better served with more aggressive, higher-risk alternatives. Your investment advisor may suggest alternatives that will provide better growth with comparable risk.

Before you buy physical gold or invest in a gold fund based on an ad you heard on the radio or a conversation you had with a friend, consider speaking with a certified and experienced investment advisor. Our team at Fullerton Financial Planning would be happy to discuss your retirement plan and help you determine which investment strategies would be the best fit for you.

Call us at (623) 974-0300 to schedule an appointment with a financial advisor today.