Q: What part should gold play in aggressive portfolios? Long-term conservative portfolios?
A: The goal of an aggressive portfolio is appreciation with a high degree of tolerance for risk. This is accomplished with a greater weighting toward stocks with some consideration toward bonds, cash and gold. Given the recent stock rally and what some assume to be the end of gold’s dramatic bull run over the last few years and the gold price plateau over the past few months, it would be easy to minimize any position in gold. But that would be a mistake.
From January 2000 to December 2011, gold was up 440.4% while the Dow was up 5.5%, the S&P down 14.1% and the Nasdaq down 37.3%. As recently as 2011, gold still outperformed all three stock indexes: gold up 10.3%, the Dow up 5.1%, the S&P down 1.6% and the Nasdaq down 2.5%. Because our deficit and national debt is at record levels, coupled with Congress and the president unlikely to meaningfully address the fiscal policies that led to our problems, gold prices have room to rise.
The goal of a long-term conservative portfolio is to generate returns and provide a stable income while reducing the likelihood of a significant drop in the value of the portfolio. This is mostly accomplished with a greater weighting toward bonds and an appropriate allocation in gold. In addition to buying gold bullion coins and sometimes gold bullion bars, many investors elect to convert a portion of their IRA into a gold IRA.
Depending on the size of the portfolio and the goals of the investor, the gold allocation is usually between 5%-10% but can be as high as 15%. If we are entering into a new era of prosperity with a long bull market for stocks, a robust economy, federal budget surpluses and declining national debt, an investor might consider a gold allocation closer to 5%. But if we are entering into an era of greater economic and political instability with a bear market for stocks, a slow economy, big federal budget deficits and growing national debt, an investor might consider a gold allocation closer to 15%.
Personally, I am 10 to 15 years away from retirement and have a moderately aggressive portfolio that is adjusted for a lower tolerance for risk. I have set my goal to allocate 10% of my portfolio in gold and own both a gold IRA and gold bullion coins (made by the United States Mint), which I purchased from Morgan Gold.
Q: Not wanting to miss the opportunity to ask someone with extensive knowledge of coin currency … What are your thoughts on Canada’s discontinuance of the penny, and whether the U.S. should follow suit?
A: The trend among economically developed countries is to eliminate their lowest-denomination coin, add a high-denomination coin and shed their lowest-denomination bill.
The reason is economic. Due to inflation, the lowest-denomination coin has little utility, yet because it is made of metal, costs more to produce than what it is worth. And because bills are made of paper, their lifecycle is much shorter than their equivalent coin, making coins much more economically feasible over time. Canada, Australia, New Zealand and the euro are all variations on this theme.
But here in the United States, old habits die hard. Usually obsolete coinage (does anyone remember a half-penny or half-dime?) ceases to be made by the United States Mint due to lack of demand. Congress does have the ability to eliminate them, but they have seldom exercised that authority. Who wants to go down in history for getting rid of Abraham Lincoln? Or getting rid of the greenback, which has been the symbol of American economic strength around the world?
Eliminating the penny would save the taxpayers $60 million per year. Eliminating the dollar bill and substituting the dollar coin would save the taxpayers $184 million per year. That is $2.44 billion over 10 years, which is not exactly chump change.
Recently, because of the potentially harmful impact of the next round of budget sequestration, Congress is starting to look at alternative ways to cut the budget and is debating a proposal to eliminate the dollar bill and substitute it with the dollar coin.
Ready to jump in? Here’s two easy ways to invest in gold.