Reducing 25% Gold portion out of fear of its safe keeping?
Posted: Sat Aug 04, 2018 7:12 pm
Once one's PP gets really large, I'm not close to there yet, but it would seem that the gold portion could become a conundrum.
I fully agree with the importance of having Gold in the PP. I think it is the most important component as it is the only one that doesn't have counterparty risk. But for this benefit you are responsible for its safe keeping and are not afforded the benefits of SPIC investors insurance from brokerages or FDIC insurance in banks.
Of course having 25% in physical gold shields you the best in a absolute Armageddon as you would still retain some of your wealth while the other 3 pots could vanish. But there are also risks even in good times that if you keep it at home that you get robbed or forget where you put it later in life when you need it. If using a safe deposit box there is the risk it gets raided or mishandled by an employee. A private vault could defraud you just as well. The ETF route has issues since it is only paper, but would at least fall under SPIC like your stocks, but if the ETF custodian had their gold stolen then SPIC would not help anymore than it would if you were holding Enron. Now, in an Armageddon situation the exchanges could shut down for a period of time, so that is why having Gold outside the financial system is important, but are the risks in doing so worth?
In all of the situations above I see real risks to losing ones Gold holdings that could occur in non financial collapse times. So I wonder is it not smarter to keep a smaller percentage in gold and try to get the inflation protection in other ways?
So unless you want to keep 25% of your wealth in the form of Gold in your house, which to me seems extremely risky, then it might make sense to use other safer forms of inflation protection, albeit not as good of protection. The PP is all about safety. Gold has the best safety in inflation performance, but my concerns are about how it is held could also be a safety consideration to consider.
One thought I had about safely keeping the Gold is to just divide it up into all the different Gold ETF's available. It would be hard to imagine all of them getting robbed or failing to hold what they say they do. I also thought of adding Gold Miners, I know it doesn't track gold well, but at least they are equities that fall under SPIC. Yet I don't love either of those ideas either as now you don't have anything "outside" the system.
Maybe a combination approach would work best my first thoughts being adding exposure to Energy Stocks. Also from reading some posts about international stocks and currency risk on here it got me thinking that would provide some inflation protection as well. The risk is if the dollar gets stronger then Energy prices and international stock values would fall, but likely Gold would be falling as well so I don't see that as an added risk if the swap was made.
My rough idea for the 25% Gold portion
15% Gold (In whatever form(s) your prefer, hopefully multiple ones)
5% International Stocks
5% Energy stocks
Browne said once said on his radio program that although he fully believe in 25%x4, that if one wants to change the allocation percentages he is okay with that so long as they keep at least 15% in all of the 4 and no more than 35% in any one item. If we look at my example the gold would still fall under these guidelines at 15% and the stocks at 35%, but 10% of that stock portion would at least be tilted toward inflation protection to effectively narrow the divergence between allocations.
Sorry for the long post. I just wanted to be sure it is understood that I am not an anti Gold person. I actually believe in Gold more than any of the other 3 parts, but its 100% safe keeping is what I cannot seem to figure out. Maybe for me the best approach is to keep the 25% allocation, but just spread across as many ETF's as possible.
What do you guys think is safer, and the most likely outcome? Financial Collapse, or losing your gold holding? I think if we can answer that question that will help me decide if I should cut the pure gold percentage or not.
I fully agree with the importance of having Gold in the PP. I think it is the most important component as it is the only one that doesn't have counterparty risk. But for this benefit you are responsible for its safe keeping and are not afforded the benefits of SPIC investors insurance from brokerages or FDIC insurance in banks.
Of course having 25% in physical gold shields you the best in a absolute Armageddon as you would still retain some of your wealth while the other 3 pots could vanish. But there are also risks even in good times that if you keep it at home that you get robbed or forget where you put it later in life when you need it. If using a safe deposit box there is the risk it gets raided or mishandled by an employee. A private vault could defraud you just as well. The ETF route has issues since it is only paper, but would at least fall under SPIC like your stocks, but if the ETF custodian had their gold stolen then SPIC would not help anymore than it would if you were holding Enron. Now, in an Armageddon situation the exchanges could shut down for a period of time, so that is why having Gold outside the financial system is important, but are the risks in doing so worth?
In all of the situations above I see real risks to losing ones Gold holdings that could occur in non financial collapse times. So I wonder is it not smarter to keep a smaller percentage in gold and try to get the inflation protection in other ways?
So unless you want to keep 25% of your wealth in the form of Gold in your house, which to me seems extremely risky, then it might make sense to use other safer forms of inflation protection, albeit not as good of protection. The PP is all about safety. Gold has the best safety in inflation performance, but my concerns are about how it is held could also be a safety consideration to consider.
One thought I had about safely keeping the Gold is to just divide it up into all the different Gold ETF's available. It would be hard to imagine all of them getting robbed or failing to hold what they say they do. I also thought of adding Gold Miners, I know it doesn't track gold well, but at least they are equities that fall under SPIC. Yet I don't love either of those ideas either as now you don't have anything "outside" the system.
Maybe a combination approach would work best my first thoughts being adding exposure to Energy Stocks. Also from reading some posts about international stocks and currency risk on here it got me thinking that would provide some inflation protection as well. The risk is if the dollar gets stronger then Energy prices and international stock values would fall, but likely Gold would be falling as well so I don't see that as an added risk if the swap was made.
My rough idea for the 25% Gold portion
15% Gold (In whatever form(s) your prefer, hopefully multiple ones)
5% International Stocks
5% Energy stocks
Browne said once said on his radio program that although he fully believe in 25%x4, that if one wants to change the allocation percentages he is okay with that so long as they keep at least 15% in all of the 4 and no more than 35% in any one item. If we look at my example the gold would still fall under these guidelines at 15% and the stocks at 35%, but 10% of that stock portion would at least be tilted toward inflation protection to effectively narrow the divergence between allocations.
Sorry for the long post. I just wanted to be sure it is understood that I am not an anti Gold person. I actually believe in Gold more than any of the other 3 parts, but its 100% safe keeping is what I cannot seem to figure out. Maybe for me the best approach is to keep the 25% allocation, but just spread across as many ETF's as possible.
What do you guys think is safer, and the most likely outcome? Financial Collapse, or losing your gold holding? I think if we can answer that question that will help me decide if I should cut the pure gold percentage or not.