Is Gold a Good Investment for Retirement?

Bar of Gold
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Many commercials in the media about gold investing, such as those on TV, radio, and online, are from gold brokers touting gold as a great investment. This doesn't seem very intuitive, since gold pays no interest, no dividends, and realistically could go twenty years without going up in value. That doesn't make for a spectacular investment, but many people continue to buy it for various reasons. Take a look at some of the factors that could make gold either a good or bad investment for your own portfolio.

Historical Gold Prices

If you look at historical gold prices, you'll find that the price of gold shot up dramatically in the 2000s and appears to have peaked in the summer of 2011. Looking back, something similar happened in the late 1970s. After the price increase in the '70s, gold spent the next twenty years declining in value.

After the recent dramatic increases in the price of gold, it is entirely possible it will once again languish for a considerable length of time. While languishing, your gold investment would not be producing any interest or dividends.

In retirement, you need an investment that either generates current income or is reasonably expected to appreciate in value so you can sell it in the future and use it for consumption purposes. Gold is not an investment that you can rely on for either of these purposes.

Gold as an Inflation Hedge

Many proponents of gold suggest it is a good hedge against rising prices. The facts do not support this statement. Gold is a better hedge against a crisis, rather than a hedge against inflation. In times of crisis, gold prices tend to rise. But that is not necessarily the case during periods of high inflation. 

Because of the Great Recession of 2008, many people are still concerned about a crisis. The result is that people buy gold because it makes them feel more financially secure. It functions as a mental security blanket.

Stockpiling Gold

Some people feel that owning gold brings security. If you stockpile gold somewhere safe, and a crisis occurs, it might actually be difficult to use your gold to purchase useful goods and services. People will not likely start pulling out their kitchen scales, weighing gold, and trading it for eggs and chickens.

If a real crisis occurs there are numerous resources you'd likely be better off having stockpiled other than gold, such as batteries, solar panels, chickens, land for a garden, oil, and gasoline, just to name a few.

Gold for Speculation

Investing in gold is pretty risky for the average retiree. Instead of speculating on gold, it's better for most retirees to spend time on building an asset allocation plan that's designed specifically to meet the financial needs and challenges that arise during retirement.

Gold can be a good investment for speculative purposes. If you had the foresight in 2007 and 2008 to see a major financial crisis coming, you could have speculated and bought gold in anticipation that it would become popular in the face of a crisis. In such a situation, instead of taking possession of actual gold bars or coins, you can buy a mutual fund that owns gold, which allows you to buy and sell your investment with ease.

In hindsight, it is easy to see what you could have done. Recognizing these situations in advance is difficult to do, and it's usually random luck, not skill, that results in decent returns from the practice of speculation.

For the average retiree, if you have more than 2 to 3 percent of your assets allocated to gold, consider selling it off and reducing your exposure to this volatile asset class.

Gold for Fun

If you want to invest in gold as a hobby, go for it! Like any hobby, it might turn into something profitable, and if it doesn’t, you’ll have some fun and learn a lot along the way. Keep in mind, though, that a hobby investment is done using extra, play money. That comes from a completely different "pot" than the retirement money that needs to support you for the rest of your life.