⛏ How much GOLD should you have?

Greetings Contrarian,

This is another Sunday edition, with your most pressing question.

Here we go:

Hello Proud Goldbug Johnny,

With the caveat that I cannot tell you what to do with your money because I don’t want to be sued am not your financial advisor, there are some rules of thumb.

The general concept is that the older you are, the bigger the piece of the pie should go towards “safe” investments. By contrast, younger people naturally tend to be attracted to higher-risk opportunities.

Naturally, higher risk is usually associated with higher returns. Lower risk, lower returns.

Some people believe the logical approach to portfolio management at your age is to force your wealth into lower return-vehicles, because if you lose your money at an old age, you won’t be able to make it all back.

I call total BS on that.

Two reasons: The first is that lower return investments are just that: lower return.

A lot of low return investments are in fact a lot riskier than you’d imagine.

Case in point, as a South American, I have seen the safest investments on Earth, first cash and then savings accounts, literally evaporate quicker than you could run to your bank to beg for mercy.

And if you think “this can’t happen here”, I do hope that the last 3 years will prove this world is crazier than you think and our overlords are completely unhinged.

Secondly, this obsession with an ever increasing net worth and its protection is tempting, but misguided.

Does your growing net worth pay your bills? Will your kids be able to carry on the legacy? Will you continue to be mentally and emotionally healthy to make great investing decisions?

This leads me to suspect the answer to retirement cannot solely be based on net worth.

The answer to retirement is to have cashflow. If cashflow is not part of the plan, then your gold exposure will not matter because like you said yourself - you will never sell. And if you will never sell it, there is no point in holding it.

Please read that last sentence again.

The purpose of gold is to provide insurance. If you already own a bunch of gold stocks (assuming), what is your physical gold insuring or hedging?

To some of us in the junior mining industry, hedging is owning real estate, foreign investments and currencies, private companies and even dare I say, crypto.

I love gold, it’s a beautiful shiny thing but it either serves as insurance that you do get to cash in / trade in eventually, or it’s useless.

And now I’ll actually answer your question.

Percentage-wise, I don’t see a point in holding more than 10% of your net worth in gold. There are so few people that own it that a little crisis that pushes allocations to the historical mean would show you you’re better off than 99% of everyone you know.

If you own more than that, you have such faith in the metal that you should hold royalty companies. Which means you could get gold AND cashflow.

And no, being a shareholder of a gold royalty company is not the same as holding “paper” gold - it is a legal claim to a company with real assets.

I know this is going to upset a lot of people who think otherwise, so if you fiercely disagree, please do hit “reply” and tell me why I’m completely or partially wrong in my thinking.

Happy speculating (responsibly),

The Editor

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational/entertainment and is not investment advice or solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.