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How to balance Gold: iShares Physical Gold (SGLN)

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
TopOfDaMornin
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How to balance Gold: iShares Physical Gold (SGLN)

#393087

Postby TopOfDaMornin » March 6th, 2021, 1:19 pm

My original HYP, https://www.lemonfool.co.uk/viewtopic.php?t=17269, has now changed into a HYP with ITs, with a 79/21 split. I may sell more HYP shares and put them into the ITs as time goes by.

I notice a lot of successful long term portfolios tend to have Gold in them, for example:
Harry Browne's Permanent Portfolio (25% Gold) https://portfoliocharts.com/portfolio/permanent-portfolio/
Golden Butterfly (20% Gold) https://portfoliocharts.com/portfolio/golden-butterfly/

As a result I am considering adding iShares Physical Gold (SGLN), https://www.hl.co.uk/shares/shares-search-results/i/ishares-physical-metals-physical-gold-etc , to my portfolio. At the moment Gold appears to be at a 1 year low. I am undecided what percentage of the portfolio should be Gold, may be 5% to start.

I see that the price of Gold fluctuates a lot. My understanding is that the power of having Gold in a portfolio is within the regular re-balancing of it e.g. monthly, twice a year or annually. Just buying Gold and leaving in the portfolio is of limited benefit.


My uncertainty relates to balancing the Gold within the portfolio in the years after it has been bought.
When Gold is high: Do you sell some Gold and move the money into the other shares?
When Gold is low: Do you sell some shares and move the money into Gold?
The above 2 questions would return Gold to the agreed percentage of the portfolio.

TDM

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Re: How to balance Gold: iShares Physical Gold (SGLN)

#393091

Postby jonesa1 » March 6th, 2021, 1:29 pm

TopOfDaMornin wrote: Just buying Gold and leaving in the portfolio is of limited benefit.



Not necessarily. The hope is that at times when equities do badly, gold will do well (or at least less badly). You could adopt a strategy which takes income from dividends and selling stocks in the good times, but depletes a gold / bonds / cash reserve when equities are doing badly - possibly a one shot tactic to mitigate sequence of returns risk.

Andrew

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Re: How to balance Gold: iShares Physical Gold (SGLN)

#393346

Postby 1nvest » March 7th, 2021, 2:20 pm

Gold has very long cycles, with broad moves. 1980 for instance it cost a little over a ounce of gold to buy the Dow. 1999 and it cost around 40 ounces. Across those two decades and broadly you'd have been repeatedly selling some shares to buy more ounces of gold and would have accumulated multiple more ounces of gold in so doing. IF you had the patience. For many gold was seen a as a lag factor and money moved from gold into 'more rewarding' stocks. Sooner or later however and things turn around and all of the accumulated gold can see massive gains, typically at a time when stocks do poorly. Look back at historic "crashes", 1919, 1929, 1939, 1975, 1987, 1999, 2008 ...etc. Perhaps a 1 in 15 year average where being lighter into stocks and ideally holding some of a asset that moved opposite to stocks tended to be much better than being all in stocks.

Yes yearly rebalancing can be OK, and if you look at a equal capital allocation to stocks and gold on a yearly measure one will tend to have done pretty well in most years, sometimes that's stocks, other times its gold. 50/50 of both yearly rebalanced can work well, producing comparable overall rewards to all-stock

Not rebalancing can be OK. given a large lump sum and 50/50 into stock and gold reduces earlier years sequence of returns risk. If 100% into stocks one day sees stocks halve the next day !!! 50/50 stock/gold is more protective and if just held as is will tend to see the portfolio drift to being heavily weighted into one or the other. Lump sum in 2000, with a 4% SWR (withdrawal rate) into 50/50 initial stock/gold saw gold up at over 80% weighting by 2012 for instance. Or Repeat the same but starting in 1980 and by 2000 the 50/50 initial portfolio had drifted to being near 100% all stock. (Click the Allocation Drift tab in those links to see how the weightings drifted over time).

Others hold a little gold, 5% to 10%, as that historically has tended to be better than not. Such cases are more as a extreme insurance. If the domestic currency totally collapses then 10% in gold might double, double again and double yet again in price. Hyperinflation type events.

Personally I see gold as a partner to stocks that in equal capital amounts is a barbell that combines to a central bullet. Some investors for instance opt to hold 1 year and 20 year gilts in equal measure, which combine to being comparable to a central 10 year gilt/bond bullet. Similarly stock/gold combines to a central bullet that is more akin to a currency unhedged global bond. In that context, 75/25 stock/gold is similar to holding 50/50 stock/bond. A factor with bonds is that often when yields are high, so also are taxes, maybe 40% taxation or more for basic rate taxpayers, whilst stock and gold might be more tax efficient (gains compound rather than being paid out as interest).

Gold is both a commodity and a global currency. 1952 and it took around 7.5 ounces of gold to buy the Dow. Roll forward to 2011 and again it was around 7.5 ounces of gold to buy the Dow. If you'd held US$ hard currency stuffed under a mattress 50/50 with some gold buried in the garden and yearly rebalanced the two back to equal capital values, then over that period you'd have seen a 0.6% annulalised decline relative to UK inflation. Or been able to buy the same number of Dow shares in 2011 as in 1952. It's daft however, unless you're someone like Jason Bourne who wanted to remain off-radar, to just hold hard currency $ bills, so if you'd instead invested or deposited that cash and saw interest/gains, then so much the better. In some cases however you might want to put on a Jason Bourne hat, such as if the state transitions over to being more of a confiscator of assets/wealth https://lemonfool.co.uk/viewtopic.php?p=393338#p393338

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Re: How to balance Gold: iShares Physical Gold (SGLN)

#393348

Postby 1nvest » March 7th, 2021, 2:27 pm

TopOfDaMornin wrote:I notice a lot of successful long term portfolios tend to have Gold in them, for example:
Harry Browne's Permanent Portfolio (25% Gold) https://portfoliocharts.com/portfolio/permanent-portfolio/
Golden Butterfly (20% Gold) https://portfoliocharts.com/portfolio/golden-butterfly/

The golden butterfly was formed on the basis of being a 20/80 more volatile stock and Permanent Portfolio blend. The PP alone is very much a safe bond type holding, and broadly adding some stock to a otherwise all-bond portfolio is considered as being more appropriate than holding all bonds alone. (Similarly its suggested that adding some bonds to a otherwise all-stock portfolio is better than being all-stock alone).

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Re: How to balance Gold: iShares Physical Gold (SGLN)

#393362

Postby 1nvest » March 7th, 2021, 3:16 pm

US data, starting June 2004 with 7K and adding 7K inflation adjusted additional savings each year, into a 50/50 SPY (S&P500) and gold blend as of March 2019 was up at $236K value

Looking at £/$ https://fred.stlouisfed.org/series/DEXUSUK/ and it looks like that's declined from 1.85 down to 1.40 levels over that period. So additional $/£ gains on top of that (i.e. each £1 bought $1.85 at the start, but you only had to give $1.40 to get a £1 back at the end).

That's based on a very quick/dirty look at the link you posted viewtopic.php?p=215521#p215521 and some big assumptions of a comparison that looks to have accumulated £210K over the same time period using a similar sort of accumulation (adding savings). Broadly to me it looks like comparable outcomes based on yearly rebalancing stock/gold back to 50/50 capital values.

I like the Talmud asset allocation, a third in home value, a third in stocks, a third in reserves (gold). Not rebalancing home value, rebalancing liquid assets equates to 50/50 stock/gold being rebalanced yearly. IMO a £ home value, along with gold (commodity and global currency) is best partnered with US$/stocks (primary reserve currency). Asset diversification of land, stocks, commodity, currency diversification of domestic, primary reserve currency, global currency (gold). And sleep well. Rent in effect all paid (liability matched), reasonable growth/gains to cover disposable income being sliced out of that. SWR withdrawals are nice as they uplift the amount drawn each year by inflation, so consistent (rather than relying upon dividends that are more variable). BUT I appreciate that many wouldn't tolerate a third of wealth being in gold, or being 50% of liquid wealth.

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Re: How to balance Gold: iShares Physical Gold (SGLN)

#393478

Postby TopOfDaMornin » March 7th, 2021, 10:59 pm

1nvest wrote:SWR withdrawals are nice as they uplift the amount drawn each year by inflation, so consistent (rather than relying upon dividends that are more variable). BUT I appreciate that many wouldn't tolerate a third of wealth being in gold, or being 50% of liquid wealth.


Interesting views. I have seen some of your other comments on gold.

I was wondering what you would consider an ideal portfolio for someone with 10 years to retirement and no work pension.

I have saved for about 15 years into a HYP and am now moving more into global and income ITs. I am increasing thinking of selling the HYP and putting it into a Vanguard Targetted Retirement fund as this gives peace of mind. When my HYP performance is compare to a global tracker, it is somewhat lacking, although the HYP was designed as an annuity replacement.

TDM

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Re: How to balance Gold: iShares Physical Gold (SGLN)

#393619

Postby 1nvest » March 8th, 2021, 1:04 pm

Each to their own. Its important to hold a asset allocation/portfolio that you are comfortable with as otherwise moving things around repeatedly is more likely to act as a drag factor (perhaps profit chasing that backfires).

My personal preference is during accumulation, equal amounts of £, US$ (primary reserve currency) and gold (global currency/commodity). Alone £/$/gold three way equal split of currencies pretty much negated most of inflation and is diverse enough to not be too harshly hit by any event/circumstances occurring at any one time.

For me, FT250 for UK£, for US$ a blend of Berkshire Hathaway and S&P500 are my preferred stock holdings.

Image

That's a calendar year versus Terry's (TJH Accumulation HYP) fiscal years comparison, so misaligned years, but that broadly washes. So 2020 as such for TJH (fiscal) is a incomplete year. The 1990 high volatility for instance was a localised event, large up and then down again occurring at calendar year end point, that if recorded on a fiscal year basis would have seen those extremes diluted down.

Once at retirement, 75% in the above, 25% in a 10 year gilt ladder. For a 2.5% SWR that's pretty much the bonds maturing each year covering 10 years of income. Leaving the UK/US/gold 'growth' to "replenish" that. i.e. 25% in each of UK/US/gold/10 year gilt ladder. Typically there'll be more than enough real gains to enable further income to be drawn in a discretionary manner. The 10 year 'cash buffer' however will tend to pull down overall rewards

Image

I see that as a form of Permanent Portfolio 50% allocation, where that is holding 10 year Gilts instead of short and long dated gilt barbell; Along with 50% in a 75/25 stock/gold. As stock and gold 50/50 might be considered a form of bond bullet held via a barbell of two extremes, then that's akin to being a 50/50 stock/bond type allocation. The PP is also much like a 50/50 stock/bond allocation where in the conventional PP long dated gilts are held as a form of 'stock' holding (long dated bonds can be as volatile/rewarding as stocks/some stocks are more like bonds).

Along with owning a home (so don't have to find/pay rent). Occupational/state pensions on top are nice, more so if inflation linked.

But there are many roads. Others for instance are content with 50/50 stock/bond, and broadly it can all wash out to be much the same The core of my personal choice is the diversification across land (home), stocks, commodity, bonds; And currency diversification across domestic £, primary reserve US$ and global currency (gold). Concentration risk is a big risk factor, so not being heavily into any one asset or currency that endures a big hit ... type risk reduction concept. For instance I strive to keep Berkshire Hathaway stock risk down to 10% or less of total wealth, i.e. no more than what a broad stock index can have in single stocks at times. I see it as being a conglomerate that is a form of low cost/tax efficient 'stock/bond index fund' - for instance its much like primarily being a handful of diverse 'stocks' plus 33% cash or so as of recent.

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Re: How to balance Gold: iShares Physical Gold (SGLN)

#393720

Postby TopOfDaMornin » March 8th, 2021, 7:12 pm

1nvest wrote:Each to their own. Its important to hold a asset allocation/portfolio that you are comfortable with as otherwise moving things around repeatedly is more likely to act as a drag factor (perhaps profit chasing that backfires).

My personal preference is during accumulation, equal amounts of £, US$ (primary reserve currency) and gold (global currency/commodity). Alone £/$/gold three way equal split of currencies pretty much negated most of inflation and is diverse enough to not be too harshly hit by any event/circumstances occurring at any one time.

For me, FT250 for UK£, for US$ a blend of Berkshire Hathaway and S&P500 are my preferred stock holdings.

Image

That's a calendar year versus Terry's (TJH Accumulation HYP) fiscal years comparison, so misaligned years, but that broadly washes. So 2020 as such for TJH (fiscal) is a incomplete year. The 1990 high volatility for instance was a localised event, large up and then down again occurring at calendar year end point, that if recorded on a fiscal year basis would have seen those extremes diluted down.

Once at retirement, 75% in the above, 25% in a 10 year gilt ladder. For a 2.5% SWR that's pretty much the bonds maturing each year covering 10 years of income. Leaving the UK/US/gold 'growth' to "replenish" that. i.e. 25% in each of UK/US/gold/10 year gilt ladder. Typically there'll be more than enough real gains to enable further income to be drawn in a discretionary manner. The 10 year 'cash buffer' however will tend to pull down overall rewards

Image

I see that as a form of Permanent Portfolio 50% allocation, where that is holding 10 year Gilts instead of short and long dated gilt barbell; Along with 50% in a 75/25 stock/gold. As stock and gold 50/50 might be considered a form of bond bullet held via a barbell of two extremes, then that's akin to being a 50/50 stock/bond type allocation. The PP is also much like a 50/50 stock/bond allocation where in the conventional PP long dated gilts are held as a form of 'stock' holding (long dated bonds can be as volatile/rewarding as stocks/some stocks are more like bonds).

Along with owning a home (so don't have to find/pay rent). Occupational/state pensions on top are nice, more so if inflation linked.

But there are many roads. Others for instance are content with 50/50 stock/bond, and broadly it can all wash out to be much the same The core of my personal choice is the diversification across land (home), stocks, commodity, bonds; And currency diversification across domestic £, primary reserve US$ and global currency (gold). Concentration risk is a big risk factor, so not being heavily into any one asset or currency that endures a big hit ... type risk reduction concept. For instance I strive to keep Berkshire Hathaway stock risk down to 10% or less of total wealth, i.e. no more than what a broad stock index can have in single stocks at times. I see it as being a conglomerate that is a form of low cost/tax efficient 'stock/bond index fund' - for instance its much like primarily being a handful of diverse 'stocks' plus 33% cash or so as of recent.


Thank you for your detailed reply.
It makes interesting reading and gives me some confidence going forward.

TDM

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Re: How to balance Gold: iShares Physical Gold (SGLN)

#393726

Postby TopOfDaMornin » March 8th, 2021, 7:18 pm

1nvest wrote:
But there are many roads. Others for instance are content with 50/50 stock/bond, and broadly it can all wash out to be much the same


I was wondering if you know if the Portfolio Visualizer can model UK indexes e.g. FTSE100 or FTSE250? I could not see how to do this.

TDM


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