Gold has been in the headlines lately. Maybe you’ve noticed. I’m specifically talking about the shiny metal being sold by warehouse giant Costco. The bars are selling out within hours, if you can get them at all.
With so much enthusiasm around gold, it begs the question: Should gold be a part of your retirement plan?
Gold prices over the decades
It’s important to recognize how gold behaves. If you pull up a price chart that spans several decades, you’ll notice something. Gold has relatively short periods where it rockets up and then longer periods where it does nothing (or worse).
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you’re an expert market timer, then you can obviously profit from buying during the uptrends and avoiding those long periods of underperformance. Unfortunately, during my time in this business, I’ve noticed something. There are very few investors who have even a remote shot at successfully timing the market. For most of us then, it’s the long term that we should concern ourselves with.
So how does gold do over the long term?
Here is one way to think about gold prices. Two hundred years ago, an ounce of gold could have afforded you one quality men’s suit. Today, that same ounce of gold will also buy you a high-quality men’s suit. In other words, it does a fantastic job of preserving purchasing power over the long term.
Physical gold has its plusses and minuses. There’s nothing quite like holding a bar of gold in your hand. And if we’re ever in some sort of doomsday scenario — the grid has collapsed, paper currency is worthless and so on, you’ll likely want your gold close at hand. Of course, hoarding coins and bars can make you a target for thieves. And since the IRS classifies physical gold as a collectible, you may be taxed at a steeper tax rate (currently as high as 28% on long-term gains) if you ever need to sell your gold.
Investing in gold without buying bars
Fortunately, there is more than one way to invest in gold. At SAM, we take a four-pronged approach. Part of that is owning physical gold, but there are three other categories that can benefit when the price of gold appreciates:
Major miners. Stocks of the largest companies that explore and produce gold, like Newmont Corp. (NEM) and Barrick Gold Corp. (GOLD), can be attractive at the right prices. They have operational leverage, meaning that while the price of gold rises, their costs stay the same, which can result in windfall profits when gold is a hot investment.
Emerging producers. This is the high-risk, high-reward part of the gold universe. Some of these companies don’t even produce gold. Rather, they are valued on their “pounds in the ground.” The lack of an operating history means these stocks carry greater uncertainty, but they can trade at a fraction of the value of their proven gold reserves.
Royalty companies. These are like banks for the mining industry. They provide capital to miners in exchange for a percentage of their production. Royalty companies have few employees and low overhead costs. When they’re not hunting for deals, they pretty much sit back and collect money. This superior business model has resulted in high profit margins and outstanding returns over time.
Is gold for you?
Whether you should own gold, how you should own it, and how much you should own ultimately depends on you and your financial goals. If capital preservation over the long term is a top priority for you, that argues for a larger allocation. But if you are growth- or income-driven, perhaps a small bit of exposure makes more sense for you. This sort of planning can be done on your own or with the assistance of a financial adviser.
Just know that if Costco is yet again out of stock or limits how many gold bars you can buy, you have many other options.
Related Content
-
Are Palantir and Dell Buys on Being Added to the S&P 500?The S&P 500 is getting three new members this month but investors need to do their own due diligence.
-
Will North Dakota Property Tax Be Eliminated?Property Tax A new property tax proposal will be a key ballot item for the Peace Garden State.
-
In Family Philanthropy, Embracing Differences Can Pay OffDifferent approaches to charitable giving among generations and individuals can actually enhance the family's giving. Here's how.
-
Grow Your Investments Like Yale, Through a Self-Directed IRAYale's successful endowment focuses on alternatives. With a self-directed IRA, an individual investor could design a portfolio based on similar principles.
-
Five Things About Annuities That May Surprise YouThey're more varied, flexible and cost-effective than most people think, so don't let their complexity scare you off.
-
Why a 15-Year Mortgage Could Be the Key to a Larger Nest EggYour mortgage payments would be higher, yes, but you'd save quite a lot on interest and be mortgage-free 15 years sooner, freeing assets for other investments.
-
How to Deal With Inflation: Advice From a Financial AdviserHigher prices are hitting everyone, but if you're especially hurting, here are some ways that could help you to cope.
-
Recent Graduate? Financial Fitness Starts HereOnce you've landed a job, it's time to optimize your starting salary with a focus on creating a budget, paying off student debt and saving for retirement.
-
Finance 101: Money Skills Every New College Student NeedsCollege is a perfect time to put financial know-how to the test. Here's how parents can set their kids up for success by making smart money choices.
-
Does the Government Insure You?It might surprise you to learn that you could be relying on Uncle Sam for some of your insurance needs.
