The GOLD scream room

[iwealth]

When viewing the portfolio as a whole, I have 7.5% allocated to GLD and 2.5% to GDX (precious metals and mining). The balance is invested 50/40 (globally diversified equities, fixed income and cash).

The entire gold position is invested in a taxable account (GLD ETF) and periodic fluctuations of 3-4% equate to substantial losses. Perhaps I would feel less anxious holding physical gold (something tangible) as the weight of the coins remains constant as Cortopassi highlights below.

Investors generally have strong opinions on the value of gold in a portfolio asset allocation. I unfortunately am not swayed one way or the other. I question my decision to hold the metal when I hear gold advocates and there catastrophe theories. I am not in the doom and gloom camp and fear that I am holding the metal for invalid reasons. Hope this sheds some light on my thought processes.

Assuming I read this correctly and that across all of investments you hold 10% gold, why are you worried about the appropriateness of a 25% allocation? What difference does it make what you hold in taxable/tax-sheltered as long as you are spread out optimally for tax purposes? 3-4% daily fluctuations are very few and far between, but either way, is there a reason that those individual-asset fluctuations bother you more in a taxable account vs. tax-sheltered?

More importantly, is there a reason you think the gold advocate catastrophe theories are any more valid than the hyperinflation catastrophe theories, or the bond bubble bursting catastrophe theories, or the stock overvaluation catastrophe theories, or the "QE ends and -everything- is going to collapse" theories? I'm prone to picking and choosing which catastrophe seems most imminent, but I know it's just a form of mental market timing so I'm trying to stop.

Lately I've been asking myself...knowing what I know now about portfolio diversification, could I stomach a repeat of 2008 while invested in a 60/40 portfolio? Back in 2008 I was OK but only because I didn't know any better. Everyone was suffering so why not me? But today, while my stock/bond portfolio was kissing the dirt, I'd be furiously questioning why I didn't stay invested in the PP.

Pick your poison I guess.

[buddtholomew]

When viewing the portfolio as a whole, I have 7.5% allocated to GLD and 2.5% to GDX (precious metals and mining). The balance is invested 50/40 (globally diversified equities, fixed income and cash).

The entire gold position is invested in a taxable account (GLD ETF) and periodic fluctuations of 3-4% equate to substantial losses. Perhaps I would feel less anxious holding physical gold (something tangible) as the weight of the coins remains constant as Cortopassi highlights below.

Investors generally have strong opinions on the value of gold in a portfolio asset allocation. I unfortunately am not swayed one way or the other. I question my decision to hold the metal when I hear gold advocates and there catastrophe theories. I am not in the doom and gloom camp and fear that I am holding the metal for invalid reasons. Hope this sheds some light on my thought processes.

Assuming I read this correctly and that across all of investments you hold 10% gold, why are you worried about the appropriateness of a 25% allocation? What difference does it make what you hold in taxable/tax-sheltered as long as you are spread out optimally for tax purposes? 3-4% daily fluctuations are very few and far between, but either way, is there a reason that those individual-asset fluctuations bother you more in a taxable account vs. tax-sheltered?

More importantly, is there a reason you think the gold advocate catastrophe theories are any more valid than the hyperinflation catastrophe theories, or the bond bubble bursting catastrophe theories, or the stock overvaluation catastrophe theories, or the "QE ends and -everything- is going to collapse" theories? I'm prone to picking and choosing which catastrophe seems most imminent, but I know it's just a form of mental market timing so I'm trying to stop.

Lately I've been asking myself...knowing what I know now about portfolio diversification, could I stomach a repeat of 2008 while invested in a 60/40 portfolio? Back in 2008 I was OK but only because I didn't know any better. Everyone was suffering so why not me? But today, while my stock/bond portfolio was kissing the dirt, I'd be furiously questioning why I didn't stay invested in the PP.

Pick your poison I guess.

Taxable and tax-deferred investments will likely have shorter and longer investment time frames respectively.

PP assets (ETF's) are held in taxable accounts, with the entire balance accessible (minus taxes and transaction costs) to cover expenses in the event of a job loss or other emergency (last resort - tier 3 EF). Alternatively, tax-deferred investments are inaccessible penalty free prior to age 59-1/2 (still 20+ years away) and therefore considered long-term retirement assets.

So, a dollar invested in taxable is more valuable to me today than a dollar invested in tax-deferred. Also, a loss in taxable invokes a greater visceral reaction than a loss in tax-deferred.

[murphy_p_t]

budd...how u feel today?

[annieB]

I'm feeling the luv...

[buddtholomew]

budd...how u feel today?

The insurance policy paid off and I have a deeper understanding of the role gold is intended to play in the portfolio.

[goodasgold]

budd...how u feel today?

The insurance policy paid off and I have a deeper understanding of the role gold is intended to play in the portfolio.

Class dismissed!

Seriously though, Dr. Bernstein, in his review of Craig and Medium T's book, stated that the PP's weakness is that people will drop the portfolio when results are disappointing. True enough, but it needs to be pointed out that the same holds for *all* portfolios. When stocks are booming, the Boglehead board abounds with posts asking: "Why not hold 100% stocks?" Time, if these posters persist in following the BH board, heals all wounds and re-emphasizes the age-old lesson of d-i-v-e-r-s-i-f-i-c-a-t-i-o-n. Why so many BHers are dead set against gold as a wonderful diversifier is a mystery to me.

[modeljc]

budd...how u feel today?

The insurance policy paid off and I have a deeper understanding of the role gold is intended to play in the portfolio.

How long is your understanding?  I have followed your posts and I don't ever believe you can be happy with the PP.  Ever body on this board tried to help you with a lot of patience.  They have helded your hand many, many times.  Please believe that I not trying to beat up on a weight lifter for sure.  Either you get it or not.  Are you looking for love or attention?

Please let me off easy as I have had a couple of beers.

[buddtholomew]

budd...how u feel today?

The insurance policy paid off and I have a deeper understanding of the role gold is intended to play in the portfolio.

How long is your understanding?  I have followed your posts and I don't ever believe you can be happy with the PP.  Ever body on this board tried to help you with a lot of patience.  They have helded your hand many, many times.  Please believe that I not trying to beat up on a weight lifter for sure.  Either you get it or not.  Are you looking for love or attention?

Please let me off easy as I have had a couple of beers.

Who isn't looking for a little love and attention especially after drinking a couple of beers...

I'm not responding to this question on a day when gold is up...catch me on a day when it is down :-)

[dualstow]

budd...how u feel today?

The insurance policy paid off and I have a deeper understanding of the role gold is intended to play in the portfolio.

Class dismissed!
...

LOL

[Reub]

Gold actually wasn't up that much today considering the geopolitical events. It still is underwhelming me.

[dragoncar]

Gold actually wasn't up that much today considering the geopolitical events. It still is underwhelming me.

It's up less today on actual news than it was down a few days ago on... Nothing.

[Reub]

Don't read this , Budd!

[modeljc]

The insurance policy paid off and I have a deeper understanding of the role gold is intended to play in the portfolio.

How long is your understanding?  I have followed your posts and I don't ever believe you can be happy with the PP.  Ever body on this board tried to help you with a lot of patience.  They have helded your hand many, many times.  Please believe that I not trying to beat up on a weight lifter for sure.  Either you get it or not.  Are you looking for love or attention?

Please let me off easy as I have had a couple of beers.

Who isn't looking for a little love and attention especially after drinking a couple of beers...

I'm not responding to this question on a day when gold is up...catch me on a day when it is down :-)

Budd I am sorry that I posted this and hope you can forgive me.  I was out of place. 

[buddtholomew]

Don't give it a second thought 

Apology accepted. Happy Friday!

[Libertarian666]

Ugh.
If I were drawing down my portfolio it would be painful.
Luckily I don't have to sell anything because I'm working.
Maybe I'll even be able to buy!

[buddtholomew]

PP down .06%

Gold and miners on the other hand are fairing less well for sure. The lack of diversification hurts on days like today.

[dualstow]

Strong dollar today.
Looking forward to buying more gold @ US$1200-1210 per oz.

[barrett]

Dualstow, Looks like everything is cheaper today. Either that or I just got poorer. Gonna have to read the fine print on this PP thing.

[Pointedstick]

Ooooooh what a beautiful day to buy some gold!

[mortalpawn]

Days like this (where everything in the PP is down) are the exception.  They often mark a turning point for the markets, so you may see a significant change in direction soon.

[buddtholomew]

Dualstow, Looks like everything is cheaper today. Either that or I just got poorer. Gonna have to read the fine print on this PP thing.

Gold is the only asset that I am unable to hedge appropriately. As mentioned in other threads, I hold sufficient cash to dampen the volatility of long-term treasuries so that my daily performance is similar to the total bond market index (5.6 years). Today is no exception, as BND declined -.58% and TLT/Cash -.63% (includes NAV reduction to pay month-end dividend).

Gold is, and always will be, the wildcard when it comes to the success of the permanent portfolio. Unfortunately, I would have been better off financially not investing in the metal as I have been paying premiums over the last few years without collecting on the insurance policy. The dollar was not strong enough to warrant an approximate 2% decline and what about the turmoil in the Middle East and Russia/Ukraine. I'm not asking for a full-blown bull market in gold as HB suggested this only occurs during a bout of unexpected inflation. But come on...

With that said, mortalpawn is correct -  we have definitely seen days like this before and it does not invalidate the PP philosophy.

For those interested:

Globally diversified BH portfolio 65/35/5 equity/fixed income/PM&Mining returned -.14% today (this is with a 3.3% decline in GDX). YTD = 7.26%
HBPP returned -.82% today. YTD = 6.63%

First time this year that the BH portfolio has overtaken the HBPP. I hope we don't have a repeat of last year.

[dualstow]

Dualstow, Looks like everything is cheaper today. Either that or I just got poorer. Gonna have to read the fine print on this PP thing.

Ah, that pesky fine print! 

[Reub]

Dualstow, Looks like everything is cheaper today. Either that or I just got poorer. Gonna have to read the fine print on this PP thing.

Gold is the only asset that I am unable to hedge appropriately. As mentioned in other threads, I hold sufficient cash to dampen the volatility of long-term treasuries so that my daily performance is similar to the total bond market index (5.6 years). Today is no exception, as BND declined -.58% and TLT/Cash -.63% (includes NAV reduction to pay month-end dividend).

Gold is, and always will be, the wildcard when it comes to the success of the permanent portfolio. Unfortunately, I would have been better off financially not investing in the metal as I have been paying premiums over the last few years without collecting on the insurance policy. The dollar was not strong enough to warrant an approximate 2% decline and what about the turmoil in the Middle East and Russia/Ukraine. I'm not asking for a full-blown bull market in gold as HB suggested this only occurs during a bout of unexpected inflation. But come on...

With that said, mortalpawn is correct -  we have definitely seen days like this before and it does not invalidate the PP philosophy.

For those interested:

Globally diversified BH portfolio 65/35/5 equity/fixed income/PM&Mining returned -.14% today (this is with a 3.3% decline in GDX). YTD = 7.26%
HBPP returned -.82% today. YTD = 6.63%

First time this year that the BH portfolio has overtaken the HBPP. I hope we don't have a repeat of last year.

With all due respect, I would argue that the PP is a much safer, more stable, more useful portfolio than having 65% in equities as in a BH. I prefer that!

[dualstow]

The reality, Budd, is that gold could stay low for a loooong time. One never knows.

[Xan]

Unfortunately, I would have been better off financially not investing in the metal as I have been paying premiums over the last few years without collecting on the insurance policy.

But isn't that the nature of insurance?  You don't pay your homeowner's premium and complain that your house didn't burn down that year.  You don't pay your life insurance premium complaining that you didn't die.  Or do you?