Many investment experts recommend that savers and investors can reserve any portion of their retirement portfolio as they see fit for gold. A select few argue that investors should avoid physical gold altogether if they can’t hold it for at least for 5 to 10 years.
Such a diversity of opinions may leave you feeling confused about how much gold you should own at retirement. The truth is each individual retiree’s needs are different. Use this American Bullion article as a an informational guide to your precious metals purchases from now until your actual retirement.
How Much Do You Need to Protect?
It’s best not to think in terms of physical ounces of gold. There are two reasons for this. First, the value of an ounce of gold is not fixed. For example, 100 ounces of gold may be worth $100,000 in one year and either $120,000 or $200,000 in a decade. Second, the amount of bullion gold or proof gold you should own depends on the size of your nest egg and your goals in retirement.
Physical gold acts, at least in part, as an insurance policy for the rest of your retirement assets. If those assets (stocks, mutual funds, cash, Social Security) fail, gold can act as a backstop and will most likely appreciate in value in the long term, thanks to its safe-haven status.
Remember, gold hit a record price of $850 an ounce after the oil and inflation crises of the late 1970s. It hit over $1,900 an ounce in 2011 the years after the 2008 financial crisis.
The more assets you need to protect, the more gold you should think of owning. So, rather than identifying ounces of gold to own, think in terms of what your retirement goals are for your later years. (We offer a handy Retirement Calculator for you to guestimate approximately what you might need during your retirement.)
Also, customize based on your own retirement timeline. If you want to retire in the next five to ten years, you have less time to absorb a stock market downturn or crash in real estate prices. This means you should potentially need to make a sound decision for yourself. If you have years wait, maybe you can wait to find the most comfortable times to add gold to your portfolio.
Gold’s Role in a Retirement Portfolio
Gold (and other precious metals) maintain a unique role in the investment world. First, gold has held exchange value for more than 5,000 years—the likelihood of your gold holdings losing all of their value is virtually zero. Second, gold is tangible and scarce, making the supply of gold in the world pretty stable.
The stability of gold makes it an agent of cohesion in your portfolio. Other asset classes can change dramatically over the course of a decade or two—consider the dramatic fluctuations in the equity and housing markets between 1998 and 2008—but gold is made to endure (and even possibly thrive during) unexpected swings.
Gold values have almost no correlation with stock or bond values. Big movements in one class are unlikely to impact gold in the long run. This is important because it is very challenging to anticipate how healthy or rational the markets will act during your retirement. Without a safe, physical asset as the bedrock of your portfolio, then you leave your retirement income entirely dependent on the management skills of the U.S. government, Federal Reserve, uncertinty around the world and maybe a pension provider.
Gold also acts as an inflation hedge, albeit an imperfect one, meaning there is not a direct one-for-one exchange between gold increases and any loss in the value of the dollar. Since the Federal Reserve Act of 1913, the U.S. dollar has lost merely 90% of its purchasing power. There is no proven reason to believe that the future holds a stronger dollar—this is great news for gold.
5 Questions to Ask Yourself
Here is a short list of questions designed to help you identify the proper amount of gold to hold for your retirement.
- Can your portfolio survive swings in any of the major asset classes (equity, debt, real estate, commodities, etc.)?
- How concerning is the current/projected geopolitical climate?
- Can you identify where is your guaranteed retirement income will come from?
- How much liquidity will you need in retirement?
- Can you find reputable and relatively inexpensive gold storage/security?
As geopolitical risks increase, so too does the practical value of gold or silver (alongside other commodity assets). You should also think towards a possibly more gold-heavy portfolio when your asset holdings are not particularly diverse and when you can’t identify reliable retirement sources. Examples of reliable income sources include pensions or annuities with guaranteed payouts.
Alternatively, you may shy away from gold if you have limited assets and a strong need for liquidity (perhaps due to high medical expenses or dependant relatives, etc.).
It is prudent to maintain a flexible mindset with your precious metals allocation. Do your homework and ask as many questions as you can possibly ask to your gold broker about purchasing physical gold and silver.
American Bullion can discuss owning type of gold and help you every step of the way. Our #1 goal is to help you take control of your own finances – and we promise to be transparent, safe, and efficient in the process.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy, and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals. We, at American Bullion, are not financial advisors or tax advisors. Past performance is not indicative of future results. Please do your homework before diversifying with precious metals.