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.
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.
Join Our Newsletter
Sign up to receive an email when new articles are posted.