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Re: Considering PP; have questions
Posted: Thu Nov 14, 2013 1:41 pm
by Ad Orientem
Gold is disaster insurance. Think of it as your portfolio's catastrophic health plan. It's track record as an inflation hedge is checkered. But it has intrinsic value. And a person who owns physical gold and is not in debt is never broke. The other three assets can under certain circumstances become worthless, although that is extremely unlikely. But I cannot envision the circumstances under which gold would become worthless.
For the record, I am no gold bug. Of the the four assets it's the one I have the most trouble with, at least at the 25% level. But it's hard to argue with a forty year track record. The PP has held up very well in all reasonably foreseeable economic conditions. Gold was a big part of that success for two of the four decades.
And of course, if you have a VP your total gold allocation is likely to be less than 25% (unless your VP is mostly gold).
Re: Considering PP; have questions
Posted: Thu Nov 14, 2013 2:17 pm
by rickb
Ad Orientem wrote:
Gold is disaster insurance. Think of it as your portfolio's catastrophic health plan. It's track record as an inflation hedge is checkered. But it has intrinsic value. And a person who owns physical gold and is not in debt is never broke. The other three assets can under certain circumstances become worthless, although that is extremely unlikely. But I cannot envision the circumstances under which gold would become worthless.
For the record, I am no gold bug. Of the the four assets it's the one I have the most trouble with, at least at the 25% level. But it's hard to argue with a forty year track record. The PP has held up very well in all reasonably foreseeable economic conditions. Gold was a big part of that success for two of the four decades.
And of course, if you have a VP your total gold allocation is likely to be less than 25% (unless your VP is mostly gold).
IMO, this point is under-appreciated. Gold's role in the PP is twofold. As an investment it acts as a diversifier, smoothing out your overall returns. In addition, if you buy actual gold coins that you can hold in your hands, this portion of your net worth is yours and yours alone, and will almost certainly survive virtually any SHTF scenario. The stock market can crash by 90% (as it did between 1929 and 1933). Hyperinflation, or revolution, can make money and bonds issued by the government worthless (numerous examples throughout history). These are not pleasant things to ponder, but ignoring SHTF risks does not make them go away. If you hold 25% of your assets in physical gold you're basically getting fairly substantial SHTF insurance for free.
Re: Considering PP; have questions
Posted: Fri Nov 15, 2013 1:34 am
by Rien
I think that gold's value is inversely correlated with the trust in society (and thus by extension governments).
Gold tends to do well during high inflation and during deflation. Only in a Goldilocks economy will the price of gold lag or fall. This of course excludes price manipulations.
Re: Considering PP; have questions
Posted: Fri Nov 15, 2013 12:42 pm
by Ad Orientem
Rien wrote:
I think that gold's value is inversely correlated with the trust in society (and thus by extension governments).
Gold tends to do well during high inflation and during deflation. Only in a Goldilocks economy will the price of gold lag or fall. This of course excludes price manipulations.
Gold can go through long cycles like other assets. It did quite poorly for most of the 80's and 90's and has yet to regain it's inflation adjusted highs from early 1981.
Re: Considering PP; have questions
Posted: Mon Nov 18, 2013 1:20 am
by Rien
Ad Orientem wrote:and has yet to regain it's inflation adjusted highs from early 1981.
That is the strange thing about gold. I think that it's absolute value is irrelevant, but that the increase or decrease of its value is the deciding factor. I.e. the differential of the price.