It is estimated that 97% of the general population does not own any physical gold or silver, an outstanding and shocking fact. Why? Because most people simply don’t understand the shiny stuff.
During my time in the industry, I’ve had the privilege of meeting with thousands of investors, wealth managers and other financial types. After all this time, I’ve come to the conclusion that the reason why most people don’t own physical precious metals is simply because they lack a clear understanding and appreciation for the metals. Most investors have very little knowledge on the subject, and those who pretend to, often discount gold as a one-trick-pony that is only beneficial if you expect the global financial system to collapse, in which case you’d trade in your 1 oz Gold Eagles for a bag of groceries.
In part, the industry itself can be blamed for its lack of a clear and uniform message to investors as to why and how they should own gold, but the majority of the blame can be placed directly on the shoulders of mainstream financial professionals who have provided widespread misinformation to their clients about gold ownership for several decades now, or worse yet, no information at all. I’ll be addressing several of the most important topics surrounding gold ownership in the hope it will help others to understand why physical gold ownership is so critical in a well-diversified portfolio.
How Much to Invest
Traditionally, financial professionals and the mainstream media have reported and recommended that investors should allocate 5% to 10% of their portfolio to precious metals. This rubric represents perhaps the single most important piece of misinformation surrounding gold ownership today; because although those numbers were correct at one time, that time was the year 1980. The data used to compute the optimal risk/reward ratio that led to the infamous 5–10% was collected from 1968 to 1980. Leap forward to 2017 (see Figure 1).