RetireJapan

I thought the blog post Ben linked to was pretty serious about wanting to own gold!

Deep Blue wrote: ↑Thu Aug 10, 2023 1:26 pm Just imagine how much foregone profits gold bugs have lost wasting their time "investing in" (I prefer the term speculating in) gold.... an asset that not only has zero yield but actually costs you money every year to store.

For anyone with any reasonable time horizon (10 years+) their allocation to gold or silver should be exactly 0%. Everything in low cost equity trackers and diversify into low cost bond funds as your investment horizon shorterns.

Well, the myindex.jp asset allocation simulation suggests one could have done worse things than having some gold in ones JPY based portfolio over the past 3 decades.

My primary interest has been in speculating in gold futures, but have recently thought I should give it more love in my actual asset allocation, after seeing that. Still, gold is in a good spot right now and it might look terrible a year from now… perhaps…

sutebayashi wrote: ↑Fri Aug 11, 2023 12:54 amWell, the myindex.jp asset allocation simulation suggests one could have done worse things than having some gold in ones JPY based portfolio over the past 3 decades.

Yes, there are many worse things one could have invested in. This is a very low barrier to jump over!

There are far better things to have invested in, that is for sure. And there will be in the future, as gold is a non-productive asset that costs money to own rather than generating income.

sutebayashi wrote: ↑Fri Aug 11, 2023 12:54 am Well, the myindex.jp asset allocation simulation suggests one could have done worse things than having some gold in ones JPY based portfolio over the past 3 decades.

Average annual return of gold in yen terms:
5 years: 14.2%
10 years: 8.6%
20 years: 9.8%
30 years: 6.5%
* This is a gold fund, not physical. Fees not included - let's say 0.4% per year.

Deep Blue wrote: ↑Thu Aug 10, 2023 1:26 pm For anyone with any reasonable time horizon (10 years+) their allocation to gold or silver should be exactly 0%. Everything in low cost equity trackers and diversify into low cost bond funds as your investment horizon shorterns.

If this is your opinion then fair enough. But as investing advice...
In my opinion gold adds a great diversification element to your portfolio, despite its shortcomings. I'm very happy with my current gold allocation and see no reason to change it as I near retirement.

I always think a lot of diversification is actually deworsification... and certainly I would consider gold as a terrible long term investment in any portfolio. Shorter term, I would always almost prefer cash or a money market fund.

Deep Blue wrote: ↑Fri Aug 11, 2023 2:23 am Yes, there are many worse things one could have invested in. This is a very low barrier to jump over!

Well, consider what those things might be.
Japanese equities is one of them, on the 3 decade scale.
On a 1 decade scale then Japanese equities do get slightly ahead, but then emerging market stocks have done worse over that time frame.

There are far better things to have invested in, that is for sure.

Yes, but what if one’s asset allocation is already full of those better things. If the plan is to go all in and to heck with risk and diversification, we’ll sure - but that isn’t for all investors.

Anyway, if one hasn’t already, I do recommend plugging a 5% - 10% gold allocation into myindex.jp asset allocation, modifying either one of the model portfolios there, or one’s own, and see how that would have affected the return, risk numbers.

For example, modifying the model global equities portfolio there to eliminate Japanese equities and reduce global equities, to make for 10% gold allocation, both increased the returns and reduced the risk of the portfolio. No need to own it of course, but that’s what the numbers show.

There is no reason to own gold over any time frame for any normal investor in my view. Long term it underperforms equities massively. If you are trying to time markets, or take risk out of your portfolio then cash, bonds or money funds are better. If you want inflation protection, equities or real estate are better.

Ultimately gold is a non-productive asset and doesn't generate income. People buying gold are speculating rather than investing... that is fine, we can all speculate and anyone who speculated in crypto early on would have made a packet.... fair play to anyone who did. It is the same as someone who bets on 15 at roulette and sees it come up... or a keen sports fan who takes a punt on which team will win the cup.... great returns, and absolutely fine for anyone who wants to indulge.

Don't confuse any of these with investing in productive assets that generate an economic return though - equities, bonds, real estate etc.

sutebayashi wrote: ↑Fri Aug 11, 2023 5:30 amYes, but what if one’s asset allocation is already full of those better things.

I would say don't turn diversification into deworsification. There are plenty of things you can add to a portfolio that make it worse.

Deep Blue wrote: ↑Fri Aug 11, 2023 5:55 am

sutebayashi wrote: ↑Fri Aug 11, 2023 5:30 amYes, but what if one’s asset allocation is already full of those better things.

I would say don't turn diversification into deworsification. There are plenty of things you can add to a portfolio that make it worse.

In Japan, where interest is near zero, having a chunk of your cash/cashlike assets in gold seems perfectly reasonable. I know those that are 100% invested in stocks, millions of yen in the bank, and a few 100 grams of gold at home.

It seems to give people a primal sense of security, perhaps due to the global cultural and historical obsession with gold, and of course its very real weight and luster.

Sure, you could tell someone in that position to have 6 bank accounts all with 10 million yen each to maximize insurable deposits, but some people just want to hold a part of their wealth.

*I own no PM or crypto. (Do wedding rings count?).

My most precious metal is the cobalt chromium in my artificial hip (some bits of Ti on the side).