My Lesson From Being A Gold Bug

Apr 27, 2021

Around 2010, I was sure gold was a great investment. I was convinced by two “gold bugs,” or fans of gold investing, Peter Schiff and Chris Martenson.

At the time, they convinced me that the US economy was on the edge of collapse. And when that collapse occurred, owning gold would be the surest way to increase my wealth.

As you know, that collapse never happened.

Looking back, I accepted their reasoning and investment recommendation without question. I did none of the following:

  • Analyze the historical returns and characteristics of gold.
  • Think about the opportunity cost of holding it as my largest investment (as compared to other investment options).
  • Think about how much of my portfolio it should comprise. Instead, I went nearly all in.

I didn’t have one “aha” moment where I changed my mind on investing in gold, but over time the repeated excuses, missed predictions, and continued rationalizations wore off. I eventually sold my position and was lucky to come out with only a minor loss.

What I learned from this experience relates back to “asset allocation.” That simply means how much you own of each investment.

While you can debate whether gold is good or bad (plenty of people argue each side well), you should never be so sure of your investment idea/strategy/allocation that you over-invest in a single area. Even Jim Rickards, another gold bug, suggests a mere 10% allocation.

Summary
No matter how excited you are for an investment, make sure that you are not overly concentrated. There’s a saying in the investment world: “If you can make a killing from it, it can also be a portfolio killer.” This doesn’t just apply to gold, but all investments.

Continually question your investment thesis and check it against the facts. Try to avoid confirmation bias. Seek other points of view. Factor in your excitement level to gauge how much that may be factoring in. These are all much easier said than done, but hopefully my story is instructive as you consider investment options.

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The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this commentary is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The material has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

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Past performance is no guarantee of future returns.

The graphs and charts in this commentary are for illustrative purposes only and not indicative of any actual investment. Index returns do not reflect any fees, expenses, or sales charges. It is not possible to invest directly in an index. Stocks are not guaranteed and have been more volatile than other asset classes. Historical returns were the result of certain market factors and events which may not be repeated in the future. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgement in determining whether investments are appropriate for clients.

This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities.

  1. Data from Morningstar. Returns over one year are annualized.

Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Think Different Financial Planning cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Think Different Financial Planning does not provide tax or legal advice, and nothing contained in these materials should be taken as such. As always please remember investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Think Different Financial Planning and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Think Different Financial Planning unless a client service agreement is in place.