BullDog wrote:Spet0789 wrote:BullDog wrote:Overall, with gold not paying any income, that means the remaining portfolio assets have to sweat harder to produce the income. A higher yield often means higher risk and lower capital growth. So, as a consequence, I can easily imagine that in many portfolios where only natural yield is being withdrawn, holding gold is going to be a significant drag on SWR?
If only natural yield is being withdrawn, then holding gold (a non-income paying asset) in a portfolio is identical to burning the money!
But if the portfolio is rebalanced regularly and viewed on a total return basis then including gold exposure does seem to have allowed materially higher SWRs historically.
Agreed. Though I am not sure how many of your typical DC pension beneficiaries are sophisticated enough to pull that off? I have been investing since 1974 and I wouldn't try it. Neither would I hold bonds. I remain fully invested in shares/funds and take a modest natural yield drawdown from a total return portfolio. I guess I am lucky enough that my DB pension is enough for me to live on. The drawdown is spending money.
Depends upon the era you live through. Groucho Marx having been burnt by stocks (lost around $12M or present day money in the 1920/1930's) opted for a retirement portfolio of purely treasury bonds. As did many retirees burnt by stocks in the 60's/70's opt for bonds. What is bad for retirees can be good for accumulators, average in over a time of poor stock performance accumulates above average amounts, which is pretty much what has occurred across the 1980's/1990's.
The first 15 years of retirement has a high correlation to SWR success/failure (as per highlighted by Kitces). If say you lose 2% real total return for those first 15 years along with drawing a 4% SWR you'd be down at 25% of the inflation adjusted portfolio value remaining at the end of the 15th year and be expecting a effective/equivalent 16% SWR to last 15 years. In cases when stock/bonds have yielded such low/poor outcomes gold has performed very well. In cases when stock/bond or stock/gold or bond/gold have performed poorly so the third asset has tended to perform well enough to float the SWR/portfolio. Viewed as one asset floats the SWR over the first 10 to 15 years I can't see that being bonds in forward time from present valuations, potentially accompanied by poor stock rewards from relatively high valuations such that gold might be 'the asset'. But predictions more often turn out wrong, so could see stock/bonds do well and gold poorly, nobody knows until after the event.
Gold commodity currency unlike stock/bond fiat currency doesn't need to pay dividends/interest. When on the gold standard there was broad zero inflation (but in a volatile way). Since having ended that convertibility in the early 1930's fiat currency has broadly only been progressively deflated in most if not all currencies relative to gold. Fiat currencies have to pay interest/dividends to try and mitigate such loss of purchase power (inflation) and in having to 'invest' others take a slice out of those 'gains' ... taxman, market makers, brokers, fund fees ...etc.
Harry Browne's Permanent Portfolio that invests equally into cash/stock/bonds/gold came with the indication of expecting one asset to endure a Bear phase, lose 20, 30, 40 maybe even 50% in his words. Partnered with one of the asset having a Bull phase, rising 100, 200 or 300% or more. Cash is most unlikely to be those candidates so primarily its one of stocks/bonds/gold that is more likely to see one perhaps lose 50%, another gain 100% type movements. Similar to stocks, if you don't hold the good ones then the bad ones can drag you down. Viewed as a third in each of stocks/bonds/gold then if one loses half, 33 down to 16, another doubles from 33 to 66 and assuming the third remains flat at 33, you're up at 116 total levels, rather than perhaps 50/50 of just two of the assets seeing one halve, the other flat and being down at 75 levels. Deducting say 40 from those values in reflection of SWR withdrawals, 35 remaining versus 75 remaining type values.
It's only really applicable to those transitioning into retirement. Once 10 years or so into retirement more usually good gains have you relatively ahead, a buffer of 'other peoples money' having been built up such that you can more reasonably afford to take a 33%/whatever hit without it being critical (more a case of just giving back some/all of other peoples money rather than eating into your own capital).