5pm Friday 24th July 2020. My OOO went on and my team was politely requested not to contact me unless it was an emergency. Fourteen days of 100% downtime in North Yorkshire with my young family – and breathe!
Ten days into the holiday and I had finally unwound. My wife and I were sat in the sunshine watching our boys dig trenches in the sand. She was catching up on the weekend newspapers, reading out the odd snippet, as you do. Only one of the ‘snippets’ was an article in the money section of this particular national paper about how some investment managers were increasing their exposure to gold in their portfolios to “protect” their clients’ hard-earned wealth. My ears pricked up and my heart started to race. The more she read, the more irate I became. I resolved to set the record straight in my next article…
Contrary to popular belief, in my opinion, gold is not an investment at all. It is an inert metal which produces nothing, yields nothing, and is entirely without intrinsic value. Its reputed value exists only by common consent to the effect that it is allegedly an inflation hedge. That means, it is an investment that is considered to provide protection against the decreased value of a currency, made by investing in safe-haven assets and other less volatile things. In other words, gold doesn’t really “go up”; the value of the dollar (to which it is linked) just goes down.
Looking at some facts:
It is factually correct to say that gold – pushing toward $2,000 – has recently made new all-time highs. Its last “all-time high”, set in August 2011 at the height of the credit crunch, was $1,850. That being the case, gold has hardly produced any return at all over the last ten years or so.
Furthermore, the day gold hit $1,850 (11/8/2011) an index of some of the world’s biggest companies – the S&P 500 closed at 1,173. At time of writing it currently stands at 3,200. Who would have sold stocks and bought gold then? Why is it different this time?
Gold is often seen as a “hedge” against inflation. Some of you may remember the global inflation panic during 1979/80 when gold traded briefly above $800. It has gone up from $800 (1980) to $2,000 (2020) in 40 years. I calculate that as it being up circa 2.5 times. The UK Retail Price Index over the same span of time went up 4.1 times. You could have done better investing in vintage Beano comics!?
In January 1980 the S&P 500 was 111. At 3,200, it’s up 29 times compared to gold’s 2.5 times. Do you see a pattern here?
In my opinion – only a fool would invest in gold. But selling stocks to buy gold is beyond foolish; it’s historically bonkers. By far the greatest long-term inflation hedge ever has been a well-diversified portfolio containing (in part) an index of some of the world’s biggest companies – the S&P 500. This time is not different.
My question to you – “Do you want to invest in what’s working now or what’s always worked?”
A second opinion from a high-quality financial planner who challenges the opinions of “experts” in the money sections could be the way you pave your way to a retirement of independence and dignity.
The value of investments can go down as well as up and it is possible to get back less than
the amount invested.
Raj Shah is founder of Blue Wealth Capital and has been shortlisted for Financial Planner of the Year and Investment Adviser of the Year.
