Almost 8 years ago I carried out a piece of research titled "Should you ever invest in gold? If so, how much?" and it's worth familiarising yourself with it. The research helped dispel some of the myths surrounding the precious metal, including whether it is a good hedge against volatility. The research is also one of the reasons why my own £50k portfolio has a 5% exposure to the price of gold.
The key findings from the original research article were that:
- Gold is a good diversifier and isn't correlated to bonds or equities
- Holding a small amount of gold reduces the volatility of your portfolio
- Gold is not a hedge against volatility as the more gold you hold the more volatile your portfolio.
- Holding gold reduces the size of your maximum losses to a point, yet holding too much will start to increase them again
- Holding more than 5% of your portfolio in gold starts to increase the frequency of your losses and reduces the frequency of your gains
The research conducted at the time was extensive and looked at performance data from the start of the millennium up until July 2015.
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