Hedging, Hoarding or Capital Appreciation?

Monday, 13 August 2012
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Published in From The CEO

While gold remains placid during these summer months ($1,620.9 per ounce as I write today’s column), it may be a good idea to settle back and ponder the percentage of your portfolio you should maintain in the yellow metal.

If you can bear a moment’s worth of frustration, the answer has to be “it depends.”  Investment gurus are often fond of recommending a fixed percentage – a one-size-fits-all approach for each and every investor.  But I’d like you to come at it from another angle.

A good place to start is to consider what successful investors do with their money.  That doesn’t mean we should blindly follow the rich and the famous down to the penny with our own money.  Nor does it mean that successful investors don’t make mistakes.  It simply means we choose to learn something from those who have a lot of money and are obviously concerned about keeping it and making it grow.

The Wealth Report 2012, published by Knight Frank and Citi Private, offers some provocative statistics about high net worth individuals (a “high net worth individual” is defined in the report as someone having at least $100Million in assets):

  • 40% already own a ski chalet.  23% are interested in owning some.
  • 20% invest in sports teams.  16% are interested.
  • London and New York are the most important cities to these individuals.
  • 37% invest in wine.  22% are interested.
  • The average portfolio consists of real estate (23%), equities (21%), bonds (21%), cash (15%), currencies (3%), commodities (2%), gold (3%) and “other” (12%).

Fascinating, isn’t it?  A ski chalet and sports teams.  Who would have thought? And don’t you wonder, in this depressed real estate market, where exactly are the properties owned by this elite group of investors?  And how does this all translate for you personally?  Should you start storing wine in your basement?  Should you look for a sports team to invest in?  Should you move to London or New York?  You’ve probably already figured out that the answer is probably “no” to these questions. 

But one of the investments on the list is intriguing.  Gold at 3% of a total average portfolio for a high net worth individual seems kind of low.  On the other hand, 3% of a $100 million is an awful lot of gold for any one person to own.  (There are a lot more equities, bonds and easy cash loose in the world).

Still 3% is a good place to start at the very least.  And if you’re fearful that some of your equities might top out once the Fed makes paper currency too easy a game, you can move over some of your equities to gold with confidence that a $1,620 gold price is overdue for a breakout.  And of course if you’re flush with enough cash to the point that a financial collapse wouldn’t force you to sell your gold, a portfolio with a percentage of 10-25% in gold is a solid, conservative goal to strive for.  You can then tweak that percentage, once you decide on your financial goal:  hoarding, hedging or capital appreciation.  More though about your financial goals in a future column.

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.