I am asked “How Much Gold Should I Hold?” often by both investors and advisors, and there is no simple answer but [independent research recommends] that an allocation of 10% to gold and 5% to silver should be enough to ensure you will do much better in the coming market crash.
…To support this position, in 2005 BMG engaged Ibbotson and Associates to provide an analysis of proper portfolio diversification. Their conclusion:
- An investor can potentially improve the reward-to-risk ratio in conservative, moderate and aggressive asset allocations by including precious metals with allocations of 7.1%, 12.5% and 15.7%, respectively. [Your Portfolio Isn’t Adequately Diversified Without 7-15% in Precious Metals – Here’s Why]
David Ranson, an assistant to then Treasury Secretary William E. Simon during the Reagan Administration, and president of Wainwright Associates, concluded that:
- in order to protect an equity portfolio from inflation, you need an allocation of 40% to gold, and
- in order to protect a bond portfolio, you need gold allocation of 18%.
However, how much gold do you need if, like 50%+ of Canadians [& Americans], you do not have enough savings or assets to meet your retirement needs. In this case, you may need:
- as much as 100% during the immediate short term,
- and 20% for gold
- and 10% for silver on an ongoing basis.
Without this allocation, a typical portfolio of a 60/40 allocation to stocks and bonds will give you no chance of having a comfortable retirement or breaking even during the next market crash.
There is no rule that says you must always stay invested. There are times to take your money off the table, and sit it out if the risks are greater than the potential returns – today is one of those times.
- Hold your money in cash and, if you have enough knowledge and self-confidence,
- hold gold.
Instead of experiencing painful portfolio declines and severe losses in your savings, you will be able to buy the best stocks at pennies on the dollar at the bottom of the correction.
Table 1: Performance of major indices from October 1, 2007 to March 2, 2009
Table 2: Performance of technology stocks from October 1, 2007 to March 2, 2009
Table 3: Performance of Canadian banks from October 1, 2007 to March 2, 2009
Table 4: Performance of American banks from October 1, 2007 to March 2, 2009
If you sat out the market crash in cash and then invested two years later, you would have made a 2-fold return (216.6%) by January 31, 2019. If you held gold instead of cash, you would have made a 3-fold return (317.0%).
By trying to move to 100% cash or 100% gold, you will get resistance from your advisor and reallocating your traditional stock and bond portfolio to 100% gold will simply not be allowed by your dealer’s Compliance department unless your Know Your Client (KYC) form states that you can tolerate high risk. Most Compliance departments wrongly believe that gold is a volatile, high-risk asset, in direct contradiction to the BIS guidelines.
In order to implement this strategy, you will need to:
- Transfer your advisor investment accounts to Class D units of the BMG Gold BullionFund in a Discount Brokerage account (see How to buy BMG Funds).
- …Spend the time educating yourself in order to overcome your biases and gain the knowledge to be comfortable with your decision.
- Fast track the learning process by going to:
- Subscribe to the free newsletters listed on the right side-bar of the DIY site.
- Read “$10,000 Gold” Exclusive Excerpts from Nick Barisheff’s New Book to get a thorough understanding of gold,
Related Articles from the munKNEE Vault:
The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137
We are reading a lot of hype these days about gold and the necessity to own it but only about 2% of ‘investors’ actually have gold in their portfolios and those that have done so have insufficient quantities to offset the future impact of inflation and to maximize their portfolio returns. New research, however, has determined a specific percentage to accomplish such objectives. Words: 1063
Do you own enough gold and silver for what lies ahead? If 10% of your total investable assets (i.e., excluding equity in your primary residence) aren’t held in various forms of gold and silver, we…think your portfolio is at risk. Here’s why. Words: 625
There is such a “fear of gold” amongst most people that it must be due to statist indoctrination and propaganda because it makes no rational sense to have such a fear of such a time-tested and true store of wealth. After all, we are talking about time-tested and true money – the only money that has lasted for thousands of years and is still fully accepted worldwide as a store of wealth….What would you rather hold “for eternity” gold [or] US dollars [which are nothing more than] a paper debt obligation of a bankrupt nation-state? Words: 450