In this episode of “Investment Management Foundations,” Aya Yoshioka, Portfolio Consulting Director at Wealth Enhancement, discusses how gold can be used as part of your portfolio.

VIDEO TRANSCRIPT BELOW

Hello, and welcome to today's segment of “Investment Management Foundations.” My name is Aya Yoshioka. I'm a Portfolio Consulting Director and Senior Investment Strategist here at Wealth Enhancement Group. In 2024 so far, gold is actually up a little over 30%, and it's far surpassed the S&P 500’s 20% return so far in 2024.

So, throughout history, gold has been valued as an asset, and societies and economies have used it as a currency, with coins containing gold dating back to 550 BC. Thus, gold prices tend to appreciate over long periods of time, and gold has been viewed as a store of value.

Looking at this chart, we can see that over the last 10 years, stocks have really done pretty good. And you know, especially when you compare it to other asset classes, whether it's real estate or bonds, gold has actually started to perk up here but in fact, the average annualized return over the last 40 years for stocks has been closer to 12%, while the average annualized return for gold over those 40 years has been closer to 4%.

However, there are some reasons to consider gold as part of an allocation to your overall portfolio. First, unlike paper currencies, which can be created and printed as needed, there is a finite supply of gold on this earth, and there have been fewer discoveries of large deposits over the last few years. This provides investors in gold with a way to protect themselves. If the U.S. dollar begins to weaken—weakness or strength in the U.S. dollar can happen for a variety of reasons, and therefore, the demand for gold and the prices of gold can ebb and flow with it.

Another reason to hold gold would be to have it as an inflation hedge. We've all seen inflation be pretty sticky over the last couple of years, and gold prices have tended to rise with the cost-of-living increases over time. However, this did not play out in 2022 as gold prices actually declined in 2022 when inflation really began to increase in 2022. But 2022 saw the U.S. dollar strengthen as interest rates increased, and those fast Fed interest rate increases were implemented in 2022 to combat high inflation. So, gold prices actually took their cue from the strengthening U.S. dollar in 2022 versus what inflation was doing that year.

Given all of the geopolitical uncertainty that is also going on in this world, gold can also be viewed as a defensive asset from a global perspective, but we should also look at the overall supply and demand of gold, as well. So, it has been reported that all of the gold that has ever been mined could fill three Olympic-sized swimming pools. And then on the demand side, all of that gold, most of it, or at least almost half goes towards jewelry. However, about 20% is held by central banks around the world, and the Fed actually holds over 8,100 tons of gold, which is more than two times the reserves of any other country.

So, should gold belong in your portfolio? Well, gold and ETFs linked to gold prices or gold miners can provide diversification to a portfolio, and an allocation to the asset really depends on your time horizon, your personal goals and objectives, as well as your overall tolerance for volatility and risk, all of which can be discussed with a financial advisor. So, we encourage you to reach out if you need to talk about this. Thank you again for joining me today, and please check out other episodes of “Investment Management Foundations.” Thanks so much and have a great one!

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.

There is no guarantee that asset allocation or diversification will enhance overall returns, outperform a non-diversified portfolio, nor ensure a profit or protect against a loss. Investing involves risk, including possible loss of principal.

2024-5893