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Don’t fixate on gold in your portfolio
Those living in retirement are often told to strike a balance between investing for safety and investing for growth. And when it comes to investing for growth, some pundits are fond of telling investors to put their money in commodities, including gold. Doing so, the experts say, is one surefire way to keep pace with inflation.
It’s also one surefire way to lose money as some retirees and would-be retirees are finding out today: Gold has fallen roughly $400 from its 52-week high of $1,803 to $1,420 and now, some say, might be a good time for retirees to revisit their decision to put their money at risk in commodities and gold.
Take a broad approach to commodities
To be fair, most advisers suggest that retirees and other investors ought to commit some of their funds to commodities. But they suggest doing so only after drafting what’s called an investment policy statement (IPS). And they also recommend against betting the entire portion earmarked for commodities to just gold. Doing that, they say, is pure speculation and folly.
“I think commodities are a great diversifier in portfolios because of their low correlation to stocks and bonds,” said Nathan Erickson, an investment strategy manager with Miller/Russell & Associates. “The data do show that including commodities in a well-diversified portfolio of stocks and bonds can lower overall portfolio risk,” said Erickson.
Dave Stepherson, chief investment officer of Hardesty Capital Management, agreed: “Investing in commodities is certainly a way to diversify which, generally speaking, is a good thing.”
But Erickson and others say that retirees ought to take a broader approach and invest in things that track the Dow Jones UBS Commodity Index DJCI -0.89% , for instance. “Gold fits as part of that basket, but as a stand-alone investment I do not think it makes sense,” he said. “I tend to fall in the (Warren) Buffett camp of gold being an unproductive asset that prices more on fear than anything else.”
In general, Erickson said retirees should invest no more than 10% of their portfolio in commodities.
Erickson also strongly advised retirees against speculating on commodities or gold with their portfolio. “I think the biggest challenge for retirees is keeping up with inflation,” he said. “Because of that many retirees are hearing that gold is a great inflation hedge, but it really isn’t.”
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