William (aka Bill the Godfather)

William (aka Bill the Godfather)

Wednesday, February 20, 2013

Gold Is Insurance

Gold is a really religious topic for investors. People either love it or hate it. As part of the Permanent Portfolio we hold gold along with other assets. This gets a lot of people up in arms and I hear comments about gold not being an inflation hedge, is not money, is not useful in a portfolio, serves no purpose, etc. Well, I want to set the record straight on this asset from my own perspective.

Gold is an insurance asset. It’s not perfect (what is?), but when currencies are having a problem people want gold.

It’s interesting because some often describe the use of gold as the mythical ‘long time horizon’, but the actuality is much different. The lifespan of paper currencies is short and brutal in terms of history. Indeed, there are perhaps a small handful of currencies on the planet that even exist in somewhat the same form today as they did even 100 years ago (not to mention their stock and bond markets). Most others have vanished. That’s pretty incredible when you think about it. Go ahead and write down a list of countries and then research them to see if their governments even still exist today as they did 100 years ago (along with their issued currency). You’ll probably be surprised just how short that list is.

The odds of a currency (take your pick whereever you live) having a problem in your particular lifetime is actually quite high if you look at the number that have come and gone even over the last 100 years. And when I say lifetime, I don’t mean your investing lifetime. I mean your actual lifetime of around 70-80 years. A lot happened over the last 80 years and a lot more will happen in the next. I personally don’t feel the last 80 years of U.S. history is likely to repeat into the future. It may be better, or it may be worse, but it won’t be the same and this uncertainty means I want to diversify.
Read the rest here.

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