For the past few years, I have had a small position in physical gold in my portfolio mainly as a hedge against a stock market crash. I have discussed some of the mechanics related to owning physical gold in this article, and I’ve had some good returns on my investment during the COVID crisis.
As part of my challenge to get to 100K invested, my portfolio has undergone quite a heavy re-shaping this year. Whether or not I manage to meet my goal, the challenge has been great for me. It has forced me to be a lot more involved in my financial situation and to evaluate all the positions in my portfolio.
For the last few months, I have been debating what to do with the gold. Should I keep it as a hedge against a potential market crash? Or should I liquidate and put it into the market? I could never quite decide what to do with the gold, until recently.
So what changed?
Gold does not pay interest
A few weeks ago, I came across this article by Tom Redmayne. In it, Tom mentions: “Gold has never worked a day in its life, it has just sat around for three billion years. It does not compound, it does not produce anything. It just sits around being scarce.” Such a simple statement, and yet, so true.
Of course, I knew that gold does not produce interest, but I had never explicitly thought about it I guess. Reading this article really made me think about it, and it made me put this investment into context to my goals.
My overall financial goal is to build up different passive income streams. I want my money working for me while I sleep. This is why I invest in real estate (hello, rent!) and ETFs (hello, dividends!). Finding out that it is possible to earn interest on your crypto was also one of the big motivators that got me interested in that space.
Gold, however, as Tom so brilliantly put it, has never worked a day in its life. As I am still in the accumulation phase of my financial journey, I want to hold assets that work for me. Sorry gold, but that is not you!
Simplifying my portfolio
Another factor that convinced me to sell my gold was portfolio simplification. After selling down parts of the position to take profits last year, gold represented only 1% of my portfolio.
I felt like I would either need to increase that position to make it more meaningful, or divest. Quite frankly, holding such a small position of anything is not worth the mental overhead and is extremely unlikely to make or break my financial fortune.
When in doubt, I like to follow the KISS principle.
Selling such a small position definitely makes my portfolio simpler for the future. I still have a few small positions that I need to decide what to do with (increase? divest?), but at least it is one less now.
Was gold a bad investment for me?
The good news is: I’m not actually down with my gold investment, and I think that is psychologically important. By selling now, I lock in a small profit and free up cash to invest elsewhere.
The opportunity cost of holding gold throughout this year has been high, as gold decreased in value while the stock and crypto markets roared. However, last year I made a nice profit on my investment of gold, and I did actually take that profit.
Remember: Paper gains mean nothing! It’s not a loss until you sell, but it’s not a profit until you sell either.
So overall, it’s a bit of a mixed bag. As is often the case, this probably was not the best investment I could have made, but I would not consider it a bad investment either. Overall, I’m still happy with how this turned out, but it’s time for me to move on.
What will I do with the money?
As is the case with all of my investments, I consider any money that I have invested to be gone. That means it cannot be spent, it can only be re-allocated. So that is exactly what I will do with the proceeds from the sale of gold.
To be precise, I will be putting 50% of the proceeds into crypto and 50% into ETFs. Step by step, that brings me closer to meeting my challenge of getting to 100K invested by the end of the year.
Bottom line on my gold investment
It’s bye bye gold for now! Maybe we’ll meet again in the future. Once I’m past the accumulation phase, I can definitely see an argument for holding a larger share of gold as some form of insurance against a stock market crash. Right now, it doesn’t really fit for me though.