January 27, 2022

Why Gold is STILL an Inferior Investment Choice, Ep #82

22 minutes

One of my listeners completely disagreed with what I said in episode #41, “Thinking of Investing in Gold? Think Again.” He was risk-averse and viewed gold to be a good hedge against inflation. He brought up the declining value of the dollar and how gold would react to that. In this episode of Retirement Made Easy, I’ll share the research I provided to this gentleman and why I STILL don’t believe gold belongs in your retirement portfolio.

You will want to hear this episode if you are interested in...

[5:22] A conversation about gold
[6:43] The average return on gold
[12:08] Most 401ks don’t include gold
[17:30] Pensions: lump sum or annuity?

The average length of retirement

The average age an American retires is 62. How long are people usually retired? Life expectancy tables of 62-year-old non-smoking couples show a joint life expectancy of age 92. That’s just the average. With that data in mind, you have to plan for a 30-year retirement.

The average returns on gold

Of all the possible 30-year rolling periods, how has gold performed against bonds and stocks? The article, “Rolling Returns: Gold Vs. Stocks And Bonds,” found that since 1973 there wasn’t a single 30-year period where gold outperformed stocks or bonds. But what about a 40-year period?

Kiplinger’s article, “Investing in Gold: 10 Facts You Need to Know,” found that from March 1980 through March of 2021, the S&P 500 returned 12.1% annualized. A 10-year treasury note delivered a 6.6% annual rate of return, and gold returned a measly 2.8%. The cost of living goes up about 3% annually. During the past 40 years, gold didn’t even keep up with the cost of living.

These articles share all of the evidence you need to know. Gold is NOT a better investment than stocks or bonds.

Gold is excluded from most 401ks

I recently reviewed retirement portfolio options for a major hospital in St.Louis, MO (they had 20–25 choices for investments). They didn't have a single option for gold. A Vanguard target-date retirement fund doesn’t invest a penny in gold, silver, or any precious metal. According to The National Study of Millionaires done by Dave Ramsey, 80% of millionaires invest in an employer-sponsored 401k. So most millionaires don’t invest in gold.

Secondly, Gold doesn’t pay interest or dividends. The only way you make money is if the price per ounce rises. You have to buy it low and sell it high. If you’re looking for an income from your investments, gold isn’t the right tool for the job.

All this being said, there is no evidence that gold is a better investment option than stocks and bonds. Will things be different moving forward? I don’t believe so. If history is any guide, then you should leave gold out of a 30-year retirement income portfolio. It’s an inferior choice.

Listener question: Annuity or lump sum pension?

If your pension was offered as a $1,000 per month payment or a lump sum of $240,000, which would be the better choice? This listener’s pension fund is 73% funded—and he’s hoping to avoid paying the enormous taxes on the $240,000.

Without knowing the entire situation, 73% funded isn’t a high enough percentage for me to feel comfortable. If an airplane pilot said there was a 73% chance of making it to your destination, would you get on the plane? I wouldn’t. Funding status may change—but you don’t know if it will be better or worse.

What do I believe he should do with his pension? Listen to this episode of the Retirement Made Easy podcast to find out!

Resources & People Mentioned