Nick Barisheff Blog | The Irrational Bias Against Gold | Talkmarkets
President at BMG Group Inc.
Phone: 905.474.1001
Contributor's Links: BMG Group Inc.

Nick is the President and CEO of BMG Group Inc. Widely recognized as an international bullion expert, Nick has written numerous articles on bullion and current market trends that are published on various news and business websites. He has appeared on BNN, CBC, CNBC and Sun Media, and has been ... more

The Irrational Bias Against Gold

Date: Wednesday, August 10, 2016 4:09 PM EDT

When I conceived of creating an RRSP-eligible, open-end mutual fund that held precious metals without compromising the fundamental attributes of the metals, I thought that such a fund would be embraced by mining company executives, financial advisors, institutions and retail investors – I was wrong.

I thought that everyone knew of gold’s attributes of protecting the portfolio. I thought that everyone had heard the saying, “Put 10% of your money into gold and hope it doesn’t work.” This comes from the fact that gold is negatively correlated to financial assets and, by including gold as a long-term strategic allocation, the volatility of the portfolio will be reduced while the returns are improved, along with the Sharpe and Sortino ratios.

The Irrational Bias Against Gold | More Return, Less Risk

 

I thought that everyone knew that there were seven asset classes: cash, equities, bonds, real estate, precious metals, commodities and collectibles. Since everyone seems to agree that portfolios should be diversified, you would expect that portfolios would include all seven. For the typical retail investor, collectibles can be eliminated because of the personal level of knowledge required. Commodities can also be excluded, as the primary methods to invest in commodities are derivatives and proxies of commodities, such as futures contracts and futures options. Purchasing actual physical commodities is not practical for retail investors, as it is impractical to store large quantities of most commodities. However, the remaining five asset classes are all available to be easily added to investment portfolios. By optimizing the percentage allocation to each asset class, reductions in risk and improvements in returns are achieved, as demonstrated in the above charts. For a complete analysis, investors can request our report, “Alternative Asset Allocation”.

However, most portfolios consist of only equities and bonds in a 60/40 ratio. Very few portfolios have any real estate or gold. However, over the past 44 years, real estate and gold have been the two best-performing asset classes.

The Irrational Bias Against Gold | Canadian Periodic Table of Investments

 

When I launched BMG BullionFund in 2002, I contacted many mining company executives, since I assumed that it was in their corporate interest to let their shareholders know they could now buy gold, silver and platinum bullion in their retirement accounts. After all, we would be buying the product that mining companies produced, and promoting their product as a critical asset for all portfolios. As the importance of owning gold increased, the demand would rise accordingly: the price of gold would go up, and so would the share price. However, most executives did not respond, and the ones that did thought we were in competition for investor money. They did not know that combining gold and mining company shares in the right ratio would improve their investors’ returns, and minimize the volatility of owning mining shares. With very few exceptions, the mining company executives didn’t differentiate gold – real money – from other commodities, such as copper and zinc. Their objective was to find the gold, dig it up and exchange it for pieces of paper with green ink on it. In the past 14 years we have had no support from the mining companies, even though we have purchased in excess of $500 million of the products that they produce.

1 2 3 4
View single page >> |
Disclaimer: This and other personal blog posts are not reviewed, monitored or endorsed by TalkMarkets. The content is solely the view of the author and TalkMarkets is not responsible for the content of this post in any way. Our curated content which is handpicked by our editorial team may be viewed here.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.