How much gold should you have in your investment portfolio?
Investors seeking a balanced portfolio often include gold because its price tends to move in the opposite direction to risk assets such as equities and high-yield bonds.
One of the most common questions such investors ask is “how much gold should I own in my portfolio?”
It’s one that’s getting renewed attention, not just because gold recently pushed above USD 1,400 per ounce, but also due to the plunge in global bond yields and the likelihood that the US Federal Reserve will soon begin easing monetary policy.
Many astute investors typically allocate 5-10% of a diversified portfolio to gold. Bullion should always form part of a portfolio, with a holding of at least 10%, according to Dr Mark Mobius, a high profile investor interviewed recently by Bloomberg.
- However, there are some strategies, including the 'Permanent Portfolio' investment strategy, which typically recommends a 25% allocation to the yellow metal, alongside similar weights in equities, bonds and cash.
There are many reasons investors allocate to gold, including the fact that it:
- Has delivered strong long-term returns in its own right.
- Typically helps diversify a portfolio, owing to its low to negative correlation with financial assets.
- Is a highly liquid asset with zero credit risk.
- Has a strong record of protecting wealth in periods of market stress and high inflation.
It is also worth noting the supply of gold is finite and it can’t be created at will. Central banks can print money, but they cannot print gold. This is another attractive feature driving demand for gold and its price, given ongoing investor concern about rising debt levels and monetary debasement.
All these factors reinforce the case for gold within a long-term portfolio. Whether that number is 5%, 10% or 25% is up to the individual. Whatever allocation they choose, gold is an asset that should be on investors’ radars.
Liquid ETF but still solid gold
What is liquidity and why is it important for investors? Liquidity refers to the ability in which assets can be bought and sold quickly. When it comes to ETFs, one of the most important benefits is the liquidity, enabling investors to purchase and sell ETF units at any point throughout the trading day. When markets are volatile, investors don’t want to be constrained by illiquid assets, which makes gold ETFs a good investment.
How gold ETFs keep fees and costs low
One of the advantages of gold ETFs is that they are inexpensive both from a management fee, as well as a trading cost perspective. Find out more