PRECIOUS METAL SERIES – 6
If you’re persuaded by the argument that it’s important to diversify your investment portfolio with gold as an insurance against global gloom-and-doom scenarios, you need to consider how much gold is enough.
Roughly two years after the price of gold had declined from its all-time high in 2011, Professor of Economics at Harvard University, Greg Mankiw, concluded that it still made sense to hold a “small sliver” of gold in his portfolio. About 2 percent, he said.
In response, financial advisor, author and advisory board member Joshua M Brown argued that amount was nowhere near enough. “It’s not ever going to have a large enough impact on a portfolio to matter,” he stated. But in advocating 25 – 50 percent of total assets, was he going over-the-top?
The World Gold Council (albeit an industry body) is well respected for its research and analysis. Its suggestion falls into line with the many more moderate recommendations we’ve seen. Having crunched some relevant numbers, it states that “modest allocations to gold of 2 – 10 percent can protect and enhance the performance of an investment portfolio. A 5 – 6 percent allocation is optimal for investors with a well-balanced 60/40 portfolio.”
While warning that 20 percent is way too much, former hedge fund manager and now popular US financial commentator Jim Cramer also favours 10 percent as an upper limit. “I consider gold as an insurance policy and no worthwhile insurance policy should be 20 percent of the money you have invested," he said recently.
Ultimately, of course, it’s down to you, but take time to research the topic before deciding your personal ‘allocation to gold’.