Gold In Your Portfolio Goes A Lot Further Than You Might Think

Gold In Your Portfolio Goes A Lot Further Than You Might Think
Stéphane Renevier, CFA

about 2 years ago1 min

Over the past 20 years, holding 10% of gold would have increased the risk-adjusted returns of a traditional portfolio (of roughly 50% stocks, 30% bonds, and 20% alternative assets) by almost 13%.

That might not sound much, but it means you’d make an extra 1.3% each year for every 10 percentage point increase in volatility. Over the long term, that apparently small advantage could turn into something much more significant thanks to the power of compounding. Put differently, just a little bit of gold should generate a lot more bang for your buck.

The reason it diversifies a traditional portfolio so well is that it’s as good a hedge to stocks (since gold – perceived as a safe haven – tends to outperform when stocks crash) as it is to bonds (since gold tends to benefit from bonds’ biggest enemy: inflation). Even better, it could well prove one of the only hedges that works when both bonds and stocks drop at the same time, which would happen in a stagflationary – i.e. low-growth and high-inflation – environment.

Anything between 1% and 10% should already turn the balance in your favor. As for how much you should add, it depends how risky your current portfolio is: the riskier, the more your should add.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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