Have you seen this? Gold prices are at record highs these days.
Gold is now worth US$2,511 per ounce. Its price is up 22% since the beginning of the year.
Gold is so expensive that its price has caused jewelry sales to decline worldwide. It’s like Yogi Berra’s quote about a trendy restaurant: “Nobody goes there anymore; it’s way too crowded!”
Yet, apart from my wedding band which is made of gold – and which is not for sale, I should point out before you impute dark and mercantile designs to me – I have never invested in gold. I am not about to buy any either. And I have no regrets.
This is because gold is probably the most misunderstood of investments.
For example, even people who are not interested in it will tell you that gold is a safe haven. That you don’t lose by buying gold.
It’s true: over very long periods of time, we don’t lose. But we don’t win much either. And not winning can be a form of loss. We’re missing out on an opportunity to make our money work for us over time.
My favorite statistic about gold comes from Jeremy Siegel, author of the book Stocks for the Long Run.
By his calculations, $1 invested in gold in 1801 is worth $127 today. But $1 invested in U.S. stocks in 1801 is worth $42 million today.
These calculations do not take inflation into account. But they show that in terms of growth, we are in another galaxy.
Aswath Damodaran, a professor at New York University, has calculated that the purchasing power of a dollar invested in gold has increased sixfold since 1928, net of inflation. But the purchasing power of a dollar invested in stocks has increased 442fold, net of inflation.
You will answer me that gold is more stable and less volatile than the stock market. That the returns are perhaps not enormous, but that at least, we sleep better with gold.
In fact, gold is more volatile than stocks. For generations, its price has been a succession of peaks of happiness and valleys of despair.
From 1971 to 2023, gold’s annualized monthly standard deviation (a statistical measure used to assess the volatility of a financial asset) was 20%, compared with 15% for U.S. stocks in the S&P 500 index, according to Morningstar.
Finally, gold has a reputation for excelling during bouts of inflation. In the late 1970s, when inflation soared, gold outperformed for years. That lesson has been branded into people’s minds.
But in February 2022, as central banks began panic-raising rates, gold began to plummet. It lost 17% of its value in six months, while inflation reached highs not seen since the 1980s.
Recently, the price of gold has been rising. It seems that people are becoming interested in gold now that interest rates are falling and investments like bonds and GICs are going to pay less interest in the future.
What can we conclude from this?
If having gold in your portfolio allows you to let your stock funds work in peace, I think that’s entirely defensible.
If we were robots, we would still invest 100% in a diversified basket of stocks in Canada, the United States and internationally, because that is what has paid off the most in the long term. But we are not robots. Everyone has to find the investment portfolio they can live with.
Also, I am personally optimistic about the future. But if you believe the world is coming to an end, I understand that you want to hide gold in the basement ceiling or the toilet tank at the cottage. But please, do it with a small portion of your net worth, not all of it.
Otherwise, as an asset, we have historically been able to find better. Even if an equity fund does not make such a beautiful wedding ring.
The FIRE movement in French on TV
Do you know the FIRE movement?
It is an acronym for ” financial independence withdraws early ” This refers to people who save and invest often more than half of their paycheck with the goal of having a fire under their belts and achieving financial independence earlier in life. They are then free to continue working or not, change fields, take a lower-paying job, etc.
Concretely, how can this be achieved? This is the subject of the new documentary Young people and retirees directed by Gwenael Lewis and written by Lucas Pilleri — one of the few documentaries to address the issue of financial independence in French with a Quebec and Canadian perspective. Full disclosure: I make a brief appearance in this documentary.
The authors followed Quebecers who achieved financial independence before their forties, and who pass on their knowledge to a young French-speaking family from British Columbia who are trying to clean up their finances.
The three episodes of the documentary Young people and retirees will be broadcast on Thursdays at 7 p.m., starting September 5, and will be offered free of charge on the TV5Unis website.