(VIDEO) Is Gold a Good Investment? The Question All Retirees Should Ask
People ask me all the time, "Is gold a good investment?"
My answer is yes—when you understand what job you're hiring gold to do. And I would say the same for stocks, bonds, or real estate. They can all be good investments, but good for what?
A successful retirement portfolio isn't one investment doing everything. It's different investments working together.
Imagine a couple who have just retired.
They kept some money in an emergency fund. Then stocks have a terrific year, and they wonder, "Did we make a mistake? Look what we missed!" A few months later, their air conditioner quits in the middle of July, and the stock market happens to be down that week.
Since they have an emergency fund, they're able to pay for the replacement of the air conditioner without having to sell other investments at a bad time. Was the emergency fund a disappointment because it didn't earn as much as stocks? Of course not. It did exactly what they needed it to do. You wouldn't fire your accountant because he can't fix your plumbing.
So why judge every investment as though it has the same job? Which brings me to the number one question I wish all retirees would ask.
What job am I hiring this asset to do?
Growth. Some money needs to grow for the years ahead. Stocks and gold often do that, even though prices can swing.
Income. Some investments help pay the bills through interest, dividends, or rent.
Keeping money accessible. Emergencies call for money you can reach without a difficult sale or selling at the wrong time.
Stability. Money you may need soon shouldn't be exposed to big swings.
Purchasing power. Inflation can erode what your savings will buy down the road.
Diversification. Different investments may respond differently when conditions change.
These jobs can overlap, but no single investment performs all of them equally well.
And consider the future.
None of us knows what the economy will look like five, ten, or 15 years from now. We could see tremendous growth, a recession, persistent inflation, or something none of us sees coming.
That's why I don't believe in building a retirement portfolio around one prediction. Different investments performing different jobs help us prepare for more than one outcome.
If the jobs are diversification, tangible ownership, and the potential to preserve purchasing power and appreciate over time, gold is a good investment for those jobs. It doesn't have to do every job to do an important one.
Some assets send you cash. Others offer you the potential to grow.
So before you chase any investment, ask yourself, "What job is my money supposed to perform?"
Then ask yourself, "What risks am I taking, and how much of my portfolio should do that job?" You don't build a retirement portfolio because you know what the future holds. You build one because you don't.
During a three-decade financial services and economics career, Devlyn Steele has processed financial assets worth more than $2 billion. As Augusta’s director of education, Mr. Steele now leads an education team dedicated to enlightening fiscally conservative Americans about savings diversification through alternative assets. In his pivotal role at Augusta, Devlyn reveals his insights about what’s happening behind the scenes in the economy and helps Americans diversify their savings to potentially offset economic concerns. His informative web conferences have attracted wealthy and successful customers. Mr. Steele is a member of the prestigious business analytics program at Harvard Business School.
