Transcrioption
Welcome to the Millennial Money Moves Podcast. On this episode, Blake and I are sitting down with Kenny Gatliff, CFA, to discuss whether gold is an investment you should be making.
There are many myths when it comes to investing, and putting your money into gold is certainly one of them. We hope that by the end of this conversation, you’re on board that gold is great for jewelry, but not for your investment portfolio.
This content is purely educational and does not tend to be financial advice or financial planning. Please consult your professional financial advisor or tax professional to receive tailored advice to your personal situation.
Babin Wealth Management is not responsible for actually taking my listeners based on educational content provided. If you would like to receive personal financial advice, please reach out to Babin Wealth Management directly at babinwealth.com.
Let’s make moves. Welcome everybody to another episode of the Millennial Money Moves podcast. I’m your host, Sean Babin.
We got Blake with us as always. Good to see you, pal. Come on.
Back at it again. I’m not going to say it. You got to say it.
And today, we have a very special guest. We got Kenny Gatliff, CFA, back on with us. And this episode, we are really going to be diving into the myth.
I’m going to call it a myth of investing in gold, demystifying kind of why people think gold is a good investment. Is it really? And should you put your money in it?
1:19
Why Clients Consider Gold
Well, I’ve been hearing a lot about gold from clients probably the last two years of, hey, it’s doing really well. Should I be putting my money into it? My family is saying, yes, here’s what they’re doing.
And I really think gold is an interesting one because for whatever reason, our society is programmed like that’s a good place to put your money.
But we’re going to show you that maybe it’s not and kind of give you some ideas and thoughts around what gold means as an investment and what maybe you should really actually be doing with it.
Well, Sean, I wish you had said that before I bought this gold chain for us, but it is what it is.
No, we did this for Kenny. We wanted to show him like we support gold and the listeners. This is what gold is good for.
This fake gold. This is what it’s all about. But Kenny, we loved the last episode with you talking about investing versus speculating your wealth of knowledge when it comes to building out investment portfolios.
You certainly help my firm out and our clients out and what we’re doing. And I know your background and the amount of conversations that you’ve had to have about this gold topic. We’re excited to dive into it, man.
So happy you’re here. Good to see you.
I just want to particularize you, Sam. I think in my 20-plus year career, I probably had more conversations if I’m kind of diving deep into explaining why I don’t do something within investing.
I would say gold is probably the number one conversations I’ve had over the time. And ebbs and flows based on how gold is doing, because obviously people only want it when it’s doing well.
But you know, it’s a common question, so it would be a great conversation to have. Looking forward to it.
Awesome. Well, let’s dive into it. What do you mostly see on your end from kind of clients that you’re talking to?
And then I’ll kind of talk to me or give my opinion on what I see from my conversations. But what kind of conversations have you been having with people kind of maybe the last year or two? As gold has honestly, it’s done really well performance-wise.
Yeah, and well, that’s kind of the conversation we’re having, right?
People have seen gold do well and they say, you know, is this something I should be investing in? Usually, this comes around, there’s usually a couple of different genesis of this conversation.
One is just if it’s in the news, people are asking questions about it. But number two, and this is a legitimate question, right? We saw inflation after the COVID bubble where in 2021, 2022, the inflation was as high as it had been since the 80s.
And people say, look, if the dollar’s weakness, if I see inflation hitting, is this the right time to own gold?
And like I said, that’s a valid question to have because if you’re looking at your investments and you think they’re all tied to the US dollar, and I see my dollar losing purchasing power, should I have a hard asset?
So those are the conversations I’m getting usually. And it’s a good conversation to have. And there’s a lot to kind of unpack there.
So I guess I’ll turn it over to you though, Shana. A lot of times I’m speaking with other advisors or institutional clients. What are you seeing on the Main Street conversations or those that might just be getting into investing?
And deciding if they want to put this in their 401k or initial portfolios?
I think it’s always about what’s done well for us lately. And people get excited about that. And I’ve always found it fascinating.
I think people just have this desire to hold something physical. I think when you buy a stock, it’s just a number on an app or in an account. But buying gold sounds cool.
I have gold bars or I have gold stored somewhere. But then there’s just the idea of just owning maybe just an ETF for gold. But anyways, however you want to access gold, there’s many different ways.
And I want to get into that too, because it’s very different and very different costs that come with physically owning gold. But I think where it starts is, hey, I’m nervous about the economy. I’d rather have gold.
It’s a physical thing. If the apocalyptic situation happens, at least I’ve got gold and some safe in Utah or wherever it might be, and I can go access it and retrieve it.
Versus if the stock market crashes and all my money does too, well, then I’m left holding a bag of nothing. And I believe just that physical nature of it is what attracts to people. Does that ring?
Does that theme ring clear to both of you guys? Do you feel that or see that on your ends as well?
Yeah. I definitely think that that rings true. There’s a couple of different of those conversations.
And you mentioned the apocalyptic scenario. And I honestly think those conversations are harder to have because I think if someone’s going down that road, I don’t think they’re necessarily being genuine or honest.
I think they’re just trying to back in to some rationales to why they want to own what’s been doing well recently. So what I usually try to do is move away from that conversation.
Like, look, if this is some post-apocalyptic time, like own your guns and your farming seeds and your land, like no one’s going to take your gold regardless of that time. So like that’s kind of a non-starter conversation.
But what I like to do is kind of dig more into that conversation. Like, okay, if we’re just in a bad economic time and the dollar weakens and the US economy struggles, is gold a good investment there?
And we try to, like I said, dig a little deeper to that conversation, because that’s a more real conversation to be having.
Yeah, I think it’s like a fleet of safety mechanism where it historically does do well in times where the stock market or investments are not doing well. And I think that is just what happens because of the shift of money.
Money comes out of stocks, goes into gold, because it’s a fleet for safety. And it becomes a timing mechanism, something that’s very, very hard to do with the stock market.
And so you’re selling out of one investment vehicle that has historically made really, really good rates of returns compared to gold.
And we’ll talk about the numbers in a little bit, into something that you’re just trying to time or weather a storm with. So I think it’s an emotional thing. That’s what I see on my end from in clients or the Main Street clients.
It’s an emotional thing of gold’s doing really, really well. I should buy more of it, just like anything. It was like the same thing when NVIDIA was going up crazy.
It was like, you know, can we, should we buy more? Same with the GameStop memes. Like everyone wants a piece of it after kind of those run ups have already happened.
After it’s hit the headlines, people are talking about it. And I think, like I said, there’s literally a fascination with owning a piece of physical gold commodity.
And if you can make money off of it, then they think that’s where they should put their money. And what we’re going to show you in this podcast today is, I don’t think you should. It’s not a great place to make money.
But there are inevitably moments in time where it will spike, just like anything does. And it’s always that hindsight, like, I wish I should have bought more of it a year ago.
And you’re kind of left, okay, sitting today, should it be where we put your money? And we’ll dive into that a little bit.
7:58
Gold Investment Methods
Hey, can we pause here and unpack this real quick from my lens?
If this is cool. When we’re saying investors looking into using gold for their portfolio, right? You keep flashing the jewelry, Sean, but we’re not necessarily saying it has to be to go buy physical gold, right?
There are investment mutual funds that invest in gold on your behalf. Is that fair to start with?
Absolutely. Yeah, there’s a couple of different avenues for buying gold. And that’s an interesting thing to talk about, too.
So yeah, you can just go buy a mutual fund, you can buy an ETF, and that trades all day, just like a stock does. It follows typically this price of gold.
Or what I’ve seen people do, too, is they’ll go buy actual physical gold, and it’s warehouse and stored somewhere, and they’re paying storage fees, and they’re getting statements every month based on the value of that gold.
So yeah, there’s many different ways to kind of own gold.
But is there an underlying difference in value of that gold, however you invest into it? Like, could you be more beneficial to own the warehouse of gold plates?
Or should you be looking at mutual fund companies that invest in gold and minerals, right? Is there an underlying difference between how you do that investment and what is the most bang for your buck? Is there a difference in that?
Is it just all about how much gold is actually owned, if that makes sense?
I think it’s a good question. It’s an interesting one. I think it’s a great question.
I don’t understand why the difference of it. I think people who quickly want to access gold and just ride out the price movements of it usually use an exchange traded fund or a mutual fund.
But then there’s people who literally want to own physical gold. They want to take their money that’s in their savings accounts or whatever the case might be and put money into physical bars of gold.
And I actually had a client come in about a year ago, and gold was near all-time highs. It’s gotten even higher since. But she had bought gold, and she was showing me her statement, and she was actually underwater.
Meaning, let’s say she put $2,000 into it. It was only worth like, her account was only worth $1,800. And gold had gone up a lot with that all-time high.
So she was very confused. And I was showing her that there’s what’s called a spot price, meaning what she bought it at and what she can sell it at. Sorry, that’s called a spread.
And so what she bought it at was higher than the spot price. So if gold, let’s say, was $100 per ounce, she had to buy it at $105. And then they were only willing to buy it back from her at $95.
So there’s this what’s called a $10 spread, which she has to cover. Like, gold has to continue to go up to make that spread go away for her. That happens in the stock market too, but it’s pennies versus dollars, multiple, multiple dollars.
So that was one factor of why she was still in her water. Basically, they weren’t willing to buy it back from her at what it was worth today, and therefore she still was down in her account.
The other thing that erodes your money when you invest in physical gold is a storage fee. They literally charge you a storage space to own these bars of gold somewhere.
So like, that alone to me shows just the cost of ownership of physical gold is very volatile and erodes your returns like right away, right there. Kenny, kind of jump in on that.
I’m sure you’ve kind of seen that before too, where people who really want physical bars pay a lot of money to get access to that.
They do. There’s a big initial upfront cost, and you’re right. There’s always a broker in that deal, and the most basic concept, and this is usually for your regular mainstream people.
If I’m in an institution, buying gold blocks or bullion, I have better ways of doing it than this.
But if I’m some guy off the street trying to buy a few thousand dollars of gold, yeah, I’m running into issues where you go to essentially a broker called a pawn shop for gold, and they’re trying to make money, so they’re going to sell it to you for
less and buy it off you for more. And so there is that inherent spread.
Depending on how you do it, sometimes there’s storage costs, sometimes you actually just go home and take it and put it in the safe, and then there’s no ongoing cost until you do try to sell it back and then you run into that same issue.
The problem with the ETF, one, you’ve got your more conspiracy theory concerns of like, look, you don’t actually own it.
So when, in that time where you actually need it, where it is that somewhat of apocalyptic society, you’re not able to, what you own is an ETF. It’s a derivative product essentially, so you don’t truly have rights to that.
So there is some scenario where the market dictates that, yes, this is technically tied to gold, but in the end, it’s a secondary market with a lot of other people, and you have to have enough buyers and sellers to meet the equity demands and all
that. So there’s counterparty risk involved with it. There’s ongoing fees with holding that ETF, over holding the bars.
But realistically, for the sake of conversation, if you want access to the price of gold, you can do it fairly cheaply and without risk by doing the ETF. So then I do think it kind of comes to the conversation where is that worth doing?
And I think that’s probably going to be the next step within our conversation today. But if you do want to buy those gold bars or gold bullion and have it in your safe, like because you think it feels good, there’s a way of doing that.
Just know that there is a cost associated with that, especially the smaller the investor you are, the more of that spread you’re paying.
That makes perfect sense, Kenny. I would actually ask, again, trying to dumb it down here.
But when we look at gold as an investment opportunity, is it boiled down to the supply and demand of it, aka people start moving their portfolios to more physical or ETFs of gold?
We see the price of gold go up and the market’s going down with equities and vice versa. If we see the stock market’s flourishing, is that when we start seeing the value of gold and physical minerals, things like that, start to decline?
Is that what really dictates the market of gold? Is that fair to say?
13:36
Gold: Speculative Asset
A hundred percent, and that’s a great lead in to part of the reason why we generally don’t recommend gold as an investment, certainly for someone trying to grow assets, is that to some degree, it’s a zero sum game with the risky markets.
And the reason being is that if I buy a stock, what am I actually buying there? I’m buying the future profits of a company.
If I go buy P&G or NVIDIA or Apple, well, as that company theoretically grows in the future, I’m a small owner of that, and I take part in that growth as they generate future profits.
Some small piece of that is earmarked for me as an owner of the company. When I buy gold, the only way that appreciates is if I can sell that to someone in the future for more than I was willing to pay for.
There’s no dividends, it’s not producing profit, there’s no goods and services out there. It’s truly a speculative asset. And what a speculative asset means is that the price is 100% dictated by supply and demand.
And another way of saying that would be by the whims of the overall people in this case, whereas you can say the price of Apple is supply and demand, to some degree it is, around the target.
It can go up or down 20% based on its relative fundamentals. And yes, that moves up. But in the end, Apple has an intrinsic value, and that intrinsic value is going up assuming that’s a profitable company.
Gold does not have an intrinsic value. And so its long-term expected return is that of inflation.
But just with big changes based on the whims of those people, and to your point, Blake, the whims of those people is going to be counter to what risky assets are doing.
And by risky assets, I mean stocks or other assets that do well during growth period and can be hurt during down periods. So that’s where it comes down to. In some ways, if you say, look, what you’re telling me Kenny is it’s a great diversifier.
So you know what, if you’re 65 years old and have a great stock portfolio and want to throw 10% in gold, yeah, that can be a reasonable piece of the portfolio. Again, I think there’s better ways of doing it.
But I think for the sake of this conversation saying, look, I’ve seen it go up 40% in the last year and double in the last year, whatever, two and a half years. Sean can check me on that. I haven’t really checked it recently.
But is it the best growth asset? If I’m 25 and 35 years old, wanting my assets to grow, should I include gold? That’s where you have to scale it back and understand what you’re buying.
And what you’re buying is just going to be the hard value of a dollar in the long run, but just with a lot of volatility.
It doesn’t sound like gold is the route I should take because it almost sounds like you have to know so much more variables to actually make money back on your gold purchases, is what I’m hearing.
Yeah, you have to figure that you know something different than the person on the other side of that trade. You know, someone’s selling you the gold that thinks that they’re getting a good deal by you paying for it at that time.
Right.
And that’s not the case. And I think that this is where it’s different with stocks, and people truly don’t understand that. You know, if I’m buying Apple stocks, someone might just need that money, whatever.
It’s not them telling me that that trade is wrong. Whereas if someone’s, you could make a little bit of the same argument, someone’s selling gold, maybe they need to.
But the way we see gold prices move so dramatically, that’s truly just someone saying, hey, I think I can buy it now because I think it’ll be worth more later.
And the vast majority of people selling gold are saying, I’m selling it now because I think it’s at the right price to sell. I think that, you know, I’ve made enough off of it. That does not ring true for the stock market.
The stock market always kind of goes in the long term up into the right, whereas gold does not do that. It goes in big spikes up and big spikes down.
And it just sounds like a very tough vehicle to try to guess, to guess on, right? Because maybe you thought you did get a good deal on your gold that you had purchased, but who knows what it’s going to look like five, ten years, a year from now.
So it sounds like it’s a very tough investment to try to predict.
Right. And we’re talking about it now. And, you know, it’s kind of an old rule of Thomas.
Once you hear people talking about it, you’re too late to party. Maybe you could say maybe it’s got a little bit more room to grow.
You never know where the top is, but you certainly know we’re not at the bottom right now of, you know, the current bubble of the gold price.
And I feel like we’re kind of picking on gold right now.
But I guess on the flip side, Kenny, especially from your experience and even you, Sean, when do you think it is a good time to tell a client or investors, like, hey, maybe we should start looking at gold?
Is it inflation, looking at inflation and how the country is doing and how the stock markets are doing? Is maybe that’s a good time to buy it? Or like, when is on the flip side a good time to start looking at gold as an investment for your portfolio?
18:09
When Gold is Suitable
When you have so much money that you need other avenues of diversification.
Like, I literally won’t look at gold or entertain gold for anybody that doesn’t have less than $10 million.
Wow.
Yeah, I would say if your financial plan is 100% perfect, and just reiterating what Sean said, and then outside of that, there’s access.
Sure, you want something that maybe moves a little bit different than optimal assets, but you optimize your portfolio until it doesn’t make sense to. And I know that’s a little bit counterintuitive, but that’s definitely my answer.
And it would be only for someone who is going to be spending down their portfolio sometime in the near future. Either someone in retirement or very close to retirement, where they want some sort of hedge or diversification benefit from it.
But again, this is the Millennial podcast. Most of us aren’t anywhere close to retiring. You’re just hindering your return by investing in something that has a long-term expected rate of return of 0% relative to.
Which is crazy to think about, right, as an investment.
Yeah, and people will argue with that because they see how much it’s spiked up now, but you have to extend that window and that timeframe out longer.
You say, oh yeah, it’s 100% now. Well, that was because it was down 50% right before that. It’s just made itself back.
It’s just back to that flat line with, as I’ve said a couple of times here, with some spikes up and down. And I think Sean’s got some good data looking kind of back at the history of it.
But it truly just depends when you bought, whether you had a really good return or whether you had just a horribly, horribly bad return for long periods of time.
Yeah, it’s beautiful. I mean, investing is all about opportunity costs. So whatever you put your money into, what have you foregone by that decision?
And we’ll show you what the numbers of why we think gold is a wasteful time or in place for your money because of all the different options available to us as investors that have proven to make a lot more money or other areas of the market that make
the exact same amount of money as gold, but with such less risk involved, meaning like waves, like volatility waves. Question for you, though, Kenny, I was thinking about this while Blake was talking, was does gold have any kind of like predictive
power, predictive ability for kind of the future of the stock market? Because like we’re seeing now in the last year and a half is, OK, the dollar, the dollars just started to get weaker lately in the last six months since all this trade stuff.
But maybe stocks are overbought and people shifting money from stocks and other more traditional investments into a commodity like gold. Has that had any ability to kind of predict what might happen the next six months to a year for the stock market?
Not short term. That’s a really good question. And to Blake’s point earlier, that they do seem to be a little bit at odds with it, with each other.
And it does make sense. There’s a finite pool of assets out there.
And so if a couple of trillion dollars go into gold, that means it comes from somewhere, it means it came out of stocks, which means stocks are undervalued, quote, unquote, to what they were before.
There is some idea that it works as like a market indicator, saying, okay, it moves quickly, so it means we’re going to head for a recession. But it also means now once that move has happened, it means stocks are a little bit less expensive.
But honestly, there’s not enough data. I mean, realistically, we came off the gold standard in the late 60s. So before that, the government arbitrarily tied the ounce of 1 ounce of gold to a dollar type of thing.
And so we didn’t, there was no free market mechanism controlling that. So we only have about 55 years of data in which there’s been three big spikes of gold where it’s gone up and a bunch of flatline times.
And those were loosely tied to different market conditions, whether that be inflation or stagflation or market recessions, but not enough to really get glean any understanding of it.
The only thing I would say that is actually somewhat meaningful is, if you do look currently when gold has spiked up, that’s a lot of assets that could move to the stock market.
And anytime there’s that powder keg and you have actual kindling to be thrown in there, that provides opportunity.
And so, while I would never say time in the market is the result of this, because it might happen in three months, it might happen in three years, it gives you a little bit of sense that there is that kindling on the sideline that could fuel a stock
market rally. But again, that’s kind of a pretty loose interpretation.
Yeah, because just like people flee to cash, they think, especially when gold is doing well, and it’s proved in the last year to make 40% of people go, well, let’s instead of cash, let’s put it into gold.
So I think that even, like you said, it adds more money on the sidelines, meaning out of the stock market and sitting idly by.
And then like Kenny said, with gold being extremely speculative, once people have made their money in it, if it is going for them, then they’ll be like, okay, we’ve had our fun. Stocks look relatively cheaper now than they did six months ago.
Let’s put our money back into kind of the stock market. And then that in turn, just the demand for it pushes up stock prices and stocks go higher. That’s kind of what you’re alluding to, right, Kenny?
23:23
Goldʼs Historical Performance
Absolutely.
All right.
Well, let me share my screen. And we’ll just show some actual numbers and growth of wealth numbers for gold. So here is a growth of wealth graph going back to 1979.
Arbitrary number, but it’s as far back as I believe these Bloomberg US. Treasuries and credit indexes go. But the theme is the same if we go back even further.
And this is a growth of a dollar invested in the S&P 500, the Russell 1000 growth, which is like your technology, your big growth companies, the Russell 2000, which is smaller, small cap companies.
And then I wanted to show for diversification purposes, and we talked about it on last week’s episode, how it compares to bonds, like credit. So those are your company debt, and then the US.
Treasury bond market, and how gold stacks up to those sort of investments. And then we’ve got gold there at the bottom, this flat price of gold.
So as you can see, going back from January 1 of 1979 through the end of March of this year, gold is the worst performing asset over this 46 year period. A dollar invested in gold in 1979 would have grown to $13.76.
Versus for the listeners out there, a dollar invested in the S&P 500 would have grown to $194.32. So these are those mountain charts, as they’re called, kind of in our industry that are really shocking when you kind of unwind time.
Now again, everyone likes to quickly focus on the what have you done for me lately? What have you done two years ago?
But when we are building portfolios for our clients and recommending to people whether to buy or sell gold, I don’t care what happened in the last two years.
That’s not a statistically significant data set for me to make a recommendation to you off of. So I want to go back through time as far as I can and see how gold and stocks have performed in many different market movements.
And this graph alone is the reason why I don’t recommend gold to anybody because there is so much other areas of investing, whether it’s stocks and even bonds here, that make more money than gold does.
So I’ll kick it, Kenny and Blake, any eye-opening things for you guys on this slide here?
Yeah. So this is always what the conversation always leads to, right? We try to go through part of the conversation.
We say, okay, what is gold? What’s the expected return? It’s speculative.
It doesn’t have dividends, all the things we’ve talked about. But what it comes down to is, okay, what has it actually done? You’re telling me a lot of theoretical information, but what has it done?
And these graphs, I think, do tell that whole picture, and they might be deceptive depending on what different time periods you look at. You know, there’s no perfect endpoints that you can ever point to.
But when you scroll out and have 50 years, almost 50 years of data here, and you see the result here where essentially gold makes the same as a Treasury bill, that’s kind of what we expect, right?
A Treasury bill and gold, long-term, we expect them to keep up with inflation, with the Treasury bill paying a little bit above inflation for the risk of loaning that money out for a short period of time.
And what’s an even more compelling stat, because this is one I’ve had the conversation before, is if you look, you know, this is after gold has spiked up, right?
But if you look from 1980 through the next 20 years, so I don’t have the exact endpoints, but essentially a 20-year period, gold lost about 60% of its value during that 20-year time period.
If I adjust that for inflation, it loses over 85% of its purchasing power. So if you buy gold, and I don’t remember if it’s 1-1 of 1980, again, this is kind of picking endpoints.
Yeah, I’m having fun now.
But if you essentially bought gold, you know, at the start of the 1980s, held it for 20 years, you lost 85% of your purchasing power.
Think if the stock market had a 20-year run like that, what people would say about it, what it would do, but somehow people would just ignore the fact that that occurred not that long ago and say, yeah, but the last couple of years it’s been great.
And even with the big spike up in the early 2000s coming in through the great financial crisis, it took 27 years for gold just to break even.
You know, again, I feel like those are compelling, saying, okay, if that happened in the past after a big spike up, it spiked up throughout a lot of the 70s after getting un-pinned to the gold standard, and then it came crashing down.
Because we have that historical precedent is saying, am I saying right now that gold is now spiked up and it’s going to go to the next 27 years without making money, and it’s going to lose 80% of the next 20 years? Probably not.
But the fact that it happened in the past is, we know it could happen again or something, some smaller version of that can happen again. And that does show us the pattern of gold.
It shows us that pattern of being amazing in the 70s, then being really bad for 20 years, and then being pretty good in the 2000s through the great financial crisis, and that 2000s was a hard time for stocks.
And then from 2010 to 2020, being really bad again. And now these last few years, when we had COVID and we’ve had inflation, it’s been good again. So if you can time it right, yeah, it does have these spikes.
But man, outside of those three different spikes, gold has done nothing but lose value over the vast majority of its time period since it’s been on the free market standard, so to speak.
Yeah, it would be a wild thing to put your money into something, and then for 20 years, you don’t make any money off of it.
Those are those investing mistakes, though, that we’ve alluded to time and time again that people will make or they’ll call it quits on investing because they put their money into gold and it didn’t make money for 15 years, and the market went
haywire against them, meaning they made a lot more money, and they’re seeing everybody else make money, they’re losing. Well, then they go put it in at the top, and then the market goes down, and then they take it out, and then they put it in back
into gold, and they just play these vicious games with themselves because of this fear of missing out moments, or you’re just chasing the wrong things at the wrong time. And this is just that 20 year period alone, it’s hopefully proof to you enough
if like, this is why we don’t even include it in people’s portfolios or recommend it at all. If there was a 20 year time period in stocks that didn’t make money, I’m not sure I’d have a job. I don’t know if this would work.
There’s been the last decade from 2000 to 2010 pretty much, where US stocks didn’t make money, but there was international stocks making money.
So there were stocks in other areas of the world making money, and that’s again the case for diversification, but the reason why we just leave gold out of this completely.
Another thing I wanted to highlight, I went back to up to the most current time frame because I wanted to recognize, yes, here I just filtered by a one year rate of return and gold’s at 40%.
So from March 31st to 2024 to March 31st, 2025, gold’s up 40%. That’s why we’re talking about. That’s why I’m hearing it from clients all over the place is because it’s in the news.
It’s usually when stocks lose money and gold makes money, people start thinking, well, maybe I need more gold or any gold. But here is where I go to point out why we don’t do this at all for people.
And it’s going back to the beginning of the data set 1980, looking at the rate of return. So again, we got gold down here. It’s averaged a little over 4%.
If you took out inflation, it’d be pretty much zero. And we use this terminology in finance called standard deviation. And standard deviation is a measure of risk, meaning volatility.
So just know the listeners out there, the higher the number, the higher the standard deviation number, the more volatile it is. So gold has a standard deviation of 18.5.
It is almost as risky or volatile as the small cap section of the stock market, which is at 19.87, going back to 1980. But its return is less than 6% each year. So its small caps has averaged 10%.
Gold has averaged 4%. So you are putting your money into one, something that doesn’t really make money historically, and is too extremely volatile. That’s why I threw the bonds in there.
Bonds have very low standard deviation numbers, a 4 for Treasuries and a 7 for US. Corporate Bonds. And they make more money than gold long term.
And they are way less than half the volatility of them. And that I had to highlight, because that’s again, that’s what I point out every single time.
I don’t want to own gold because look at how volatile it is, and look at what we are rewarded for it. Pretty much nothing.
I think the best part of all this, what I find the funniest is, we mentioned it’s up 40%, but that’s because now all these people that held on to gold for the last 10, 15 years are finally finding people that are willing to buy it at a premium so
that they can only unload it from themselves, right? Because that’s what’s dictating the market. It’s finally people want to buy gold again.
So all you’re really doing is benefiting all those past investors who probably have been sitting on gold and now are seeing the increase of their investment.
So those that are buying it are going to be the next generation of having to hold on to until there’s another spike. I think that’s hilarious. Stop me if I’m wrong.
No, that’s well said.
I think that could potentially be very accurate. That’s what happens when you buy high and sell low.
It also kind of reminds me of Sean. I don’t know if this is fair to say, but when an insurance company tries to sell you on an annuity, and don’t get me wrong, there’s right scenarios for a guaranteed annuity fixed interest rate.
But when you’re in our age group and you’re buying a guaranteed 3% interest on your annuity, think about all the market you just missed out on even in the next five, 10 years.
But it almost kind of feels some type of similar to like the gold perspective. It’s like, hey, it’s a steady investment, right?
But like think about all the market potential you may have missed out on holding on to that gold, aka holding on to that guaranteed interest rate on an annuity, right?
Again, investing is all about opportunity costs. It’s what you’re comfortable with. It’s what you’re not comfortable with.
The annuity conversation is one we will certainly have because wow, that’s a complex space and people can get sold bills of goods. Anyways, but gold and this conversation is exactly what you said.
If you think or you got sold that gold is the thing, you can catch runs with it. Like in the last year, if you put your money in gold two years ago, you’re feeling pretty damn good about yourself.
Right.
But if you put gold in the 80s, 80s, you weren’t feeling too good for it.
No.
And so we use these kind of rule-based and just return numbers. Like it’s data, it’s black and white. Yes or no kind of is the output for do we invest or do we not?
And Kenny, I want to kick it back to you on that kind of volatility conversation of the standard deviations or the risk measures being so high for gold and the overall return being, if you remove inflation, you’re probably looking at half a percent a
Yeah.
And that’s what, when we talk about risk, what does risk actually mean for you? It means that it’s going to have some negative consequence on you as an investor.
And that’s where I look at this twofold and say, okay, what if I’m a millennial, someone who’s young in my career, investing in gold, will blank it on the head that you’re giving up a ton of opportunity cost unless you time it exactly right.
Get in at the bottom and get out at the top. You have to get both of those things, right? And that’s one thing we haven’t talked about as well, saying, okay, so it’s run up 40% since you bought it a year ago.
Are you selling now? When are you selling? Did you sell six months ago when it was only up 10%?
Are you going to wait until it’s up some magic number?
Knowing when to sell and maybe you hang on for another couple of years and maybe it goes down 10% and you say, I’m going to wait till it’s back to its top peak and it doesn’t come back for 10 years.
And so, yeah, maybe you bought it the right time, but you didn’t sell the right time. So you still missed it. So, you know, the separate topic.
Going back to what I was saying, if I’m young investing in something that’s suboptimal, which I think we’ve kind of described gold as pretty suboptimal, I’m missing a ton of opportunity costs. And that’s a huge difference.
You know, the idea of, I think, Sean, your growth of wealth numbers over 45 years there, it went from gold grew $1 to 13, whereas, you know, the S&P grew to 190. You know, think if that’s real money, think if that’s $10,000.
You either have 130,000 in retirement or you’ve got, you know, seven, eight figures.
Yeah, I was gonna say, I can’t even do that, man. That’s a lot of money. It was $19 million.
That’s a gigantic difference in your overall net worth in retirement.
But to flip that on its head a little bit, what if you are entering retirement where you say, you know what, I’m just putting this gold in for diversification. I’m gonna put 20% of my portfolio.
Again, this is worst case scenario, but think if you did that in 1980 and for the next 20 years of your retirement, that 20% of your portfolio lost 80% of its value. You did not have the kind of retirement.
In fact, you might have had to go back to work if that piece of your portfolio that you thought was gonna be pretty good, that was gonna be kind of your stalwart that you thought was gonna be consistent no matter what else was going on, just
absolutely tanked for 20 to 25 years. So I think those are the two things that are actually measurable risks.
One is, you know, if you’re missing out on opportunity costs, and two is, if you have this long sustained underperformance where you can’t have the withdrawal rate you need, you don’t have the spending money that you need.
And so if I’m looking at gold as a risky asset, you might say, no, it’s not risky. It’s a hard asset. It’s just gonna plug along next to the dollar.
Well, it’s not. And those are the two ways where it’s risky. And those are really the only two salient measures of risk in a portfolio, and it fails on both of them.
37:54
Gold: Not an Investment
Yeah, well said.
If you get in it at the right time, it becomes a timing element. And timing elements equals speculation. That’s all it is.
It’s no proven kind of track record of making money. We just showed you it’s proven track record is to lose you money if you add inflation in the mix.
So when Kenny and I talked about investing versus speculating and building portfolios for our clients, it’s adding different areas to a client’s investments that one reduces the risk while increasing the expected rate of return of a portfolio.
If we were to add gold to our client’s portfolio, we would be increasing the risk and decreasing the expected rate of return to a portfolio. And that is case number 1,000 while we do not put gold into client’s portfolio.
So I hope that listener out there gathered from this conversation that, one, gold is just pure speculative investment. It doesn’t come with any metrics or growth or dividends, or you’re not buying into any equity stake.
It is just purely supply and demand. And if enough people run into gold, meaning put their money into gold, and you’re in gold, the price should go up. If enough people come out of gold, meaning sell gold, the price will go down.
There’s no fundamentals that you’re buying. The second piece is, I hope you saw that over a long period of time, gold doesn’t return much for us. And that’s the reason why we can’t recommend it to anybody.
And even as you get older, and you want to reduce the risk of your investments or your portfolio, there are plenty of other ways to do that, and put your money into a commodity that has proven to lose money over a 20 year period.
So those are kind of my closing thoughts right there.
Anything else from the both of you, before I let you guys go, like again, this has been awesome, and I really hope people get out of this kind of gold fathom, and we put some really good data out there for them.
Thought that was awesome.
I got nothing to add. I think you said it perfect.
Dang, I crushed the exit. All right, let’s go.
Kenny, great to see you, man. Thanks for jumping on. Always appreciate it.
But yeah, Sean, way to nail on the head there. We appreciate it.
Remember, gold is good for jewelry, but not for your investment portfolio.
Don’t go buy gold for your loved ones right now. Wait till the market stabilizes a little bit, and then go to your pawn shop. Thanks, Kenny.
Thanks, Sean.
Appreciate you guys.
Have a good week, everyone.
