This message comes from CBC. Discount Dave and the Fix is the true-ish story of a fake rock star, a real trial, and what it means to stop running, face yourself, and fight to heal. Listen now, wherever you get your podcasts. You're listening to LifeKit from NPR. Hey, it's Marielle. I lost a gold hoop earring the other day, one of several pieces of jewelry that I have recently disappeared. And my first thought was, I clearly cannot be trusted with real gold jewelry because have you seen the price of gold these days? Gold has just been on this record-breaking tear. And now the price has been going up for a few years, but last year was the best year for gold since 1979. This is Maria Aspen. She's a finance correspondent at NPR. And she says gold tends to be seen as a safe haven investment when things are looking scary in the world. It's sometimes called part of the fear trade. So in the past year, we've had a trade war. We've had a real war in Iran. We've had an energy crisis where we've seen concerns about inflation still not being under control. And gold is often seen as a hedge against all of that. So maybe you're wondering, should I get in on this? If gold is doing so well? And I have heard a lot of ads on YouTube and podcasts suggesting exactly that. On this episode of LifeKit, I talked to Maria about this. We'll go over what it actually means to buy gold. You don't necessarily have to own the physical stuff, whether it's a good long-term investment because the price is super volatile and how it's returns compare to the stock market over time. This message comes from Fixable, a podcast from Ted. Here, unfiltered advice that will help you solve your work issues fast. Everything from finding a career path that can give you purpose to helping your team manage tough changes. Find Fixable wherever you listen. Maria, you just shared some of the reasons that people are buying gold right now. I think in a lot of cultures too, that's just the thing you do. You buy someone gold for their birthday or when they graduate and it's seen as more reliable than the currency in some countries. So I wonder, is there a currency element in the US as well now where people are like, the dollar's value is dropping so we're now more bullish on gold? Yeah, and actually it's not even the US. It's central banks around the world have traditionally held a lot of their reserves in US dollars. Last year especially between President Trump slapping a whole bunch of tariffs on almost everything, the US imports, as well as some of his threats to the Federal Reserve's independence, all of that yielded what was known as a sell America trade. In other words, countries around the world, governments around the world started worrying about the safety and security of the US government and the US system and started rethinking whether they wanted to hold as many of their reserves in US dollars. We saw many central banks sell some dollars and swap to gold. So that contributed to driving the price of gold up. And then everyone sees the price of gold goes up, which makes you and me sit down and be like, oh, gold is really going up. Should I invest in it? Maybe it's a good investment. I don't want to be left behind. Right. When we say gold prices are going up, what are we actually looking at? Is this the price of an ounce of physical gold? Yes, it's the price of an ounce of physical gold, but there are a couple of different prices. There's the spot price, which is what it is to buy gold on the spot, meaning right now. Or there are gold futures, which is like any other future, a contract that an investor enters into to buy gold when it hits a certain price. Now, spot gold can often influence the price of futures and they tend to be connected. Sometimes there's a big difference, but often not. Gold jewelry has long been a way of buying gold, a way of like storing value and giving people gifts or making sure that your loved ones has something that has an inherent worth in and of itself. Right. We could go to Costco today and buy some gold. When we're buying gold, it could be literal gold bars, but there are also lots of other ways to buy gold. Yes. Frankly, when we're talking about should you buy gold as part of your broader investment portfolio, we're probably talking about some of the less literal types of gold. You could buy into their exchange traded funds or ETFs that are pegged to the price of gold. You could also buy into companies or funds backed by the stock of companies that are in the gold industry, so like mining companies. I mean, literally the company is selling the modern day equivalent of picks and shovels. Why would you choose one of these options over another if you were going to buy gold? So jokes about Costco aside, there are things you have to think about with each type of investing in gold that you're considering. Let's say investing in precious metals more generally. If you're buying the physical stuff, you have to think about where are you going to store it? Do you have enough space? Is it secure? Are you worried about like home invasions or robberies or like do you have insurance? There are all of these downsides of buying the physical valuable thing and keeping it somewhere where you have to spend time, money, or find space to store it. As a broader investment class, if you're buying anything that's like not a mining company but pegged to the price of gold like a gold backed ETF, gold doesn't pay dividends or interest in the same way that stocks or bonds do. So you're buying something or you're buying a fund pegged to something and you basically have to hold it until the price goes up and you sell it at the right time and reap the profit. This is something that has made Warren Buffett, the legendary investor, say, yeah, gold isn't really worth it because you could buy a lot of other types of investments like company stocks or even land and they will generate actual income and revenue and pay dividends. If you're buying a share of a company, you are in theory watching that company make more money and grow in value over time and you're benefiting from that. Gold, it's more about holding on to it and waiting to time your sale of it correctly. Whereas you'd get interest if you invest in bonds and you get dividends if you invest in stocks with gold, you wouldn't get either of those. Right. So I talked about this with Katie Klingensmith. She's the chief investment strategist for the financial advisor Edelman Financial Engines. We look to include investments that make returns over time and when one invests in gold, one is simply hoping that the price of gold goes up. When one invests in a company, one is hoping that that company grows over time, that it actually is producing things, making earnings, reinvesting in the company. So she doesn't automatically include gold or other precious metals in the investment portfolios that she creates for her clients. Okay. So it sounds like the point here is that when you buy stock in a company, that stock price is supposed to go up and down based on the company's fundamentals, like its product, its profits, its potential. Yes. Whereas as we've seen with the super volatile price of gold in the past year, and frankly, the volatile price of gold over time, yes, it's shiny, yes, it's solid, it's something physical that a lot of cultures have decided has in parent value, but it doesn't do anything to actually make the price go up. It's just kind of what external factors are making other investors decide that it's more expensive. And as we've seen in the past year, there's kind of an element of like FOMO right now. The price of gold has been going up, so should I buy gold because I don't want to miss out on this investment that's going up and up. One investor I talked to called it the momentum trade, and that comes back to central banks are buying more into gold, so retail investors see the price go up, and they buy more into gold, and that's all great until something happens to kind of snap the spell, and we're all like, oh, wait, maybe we are overexposed to gold right now. How does gold compare as an investment over time to say investing in an S&P 500 index fund? Over the long haul, the stock market outperforms gold. There have been years when gold has outperformed the stock market, but over the last 30 years, the S&P 500 has returned about 10%, and gold has returned less than that. Over the last 30 years or so, gold has returned more along the lines of 8%. Okay. It seems like particularly in this moment, it would have been a great time to buy gold a year ago with the benefit of hindsight, of course, but now that the price is so high, as you mentioned, if you did want to buy gold, would now really be the time? Personally, I'm not sure it would be, but I'm not a certified financial planner, but I've talked about it with certified financial planners like Lee Baker. He is the founder and CEO of Clarice Financial Advisors in Atlanta. There tends to be, in my opinion, some overhyping of gold, and that now it's like gold doubles, triples, and blah, blah, blah, blah. There tends to be a push where people are cajoled, coerced, led into what I would say is an overly aggressive allocation of gold because it's doing well. We know that looking in the rearview mirror to set your priorities and how you want to allocate your assets is a bad thing to do. I think that's just so important for any kind of investment. Don't buy into something just because you're looking into the rearview mirror and it's done really well in the past. If you did decide that you wanted to have some gold in your portfolio, just to try it out, just because you think the price is going to continue to go up, what percentage of your investments might a financial advisor suggest that you shift from stocks or bonds to gold? I will start by telling you that the advice out there is all over the place. The hedge fund billionaire Ray Dalio, who founded Bridgewater Associates, he's out there saying you should put as much as 15% of your portfolio in gold. Now, that is super aggressive compared to most other advices. Some of the financial advisors I've talked to, like Katie, they say maybe none. They do not automatically include any gold in the portfolios that they create for clients. Then Lee, he's kind of middle of the road. As you heard, he thinks that gold is pretty overhyped these days, but he has advised clients to buy into commodities as part of a more diversified portfolio. This is his general advice. At 5%, I start to get a little nervous because something can go wrong and it can go wrong at the wrong time and have an oversized impact on your portfolio. Less than 5%. His advice is less than 5%. I should point out that's again his general advice for investing in any one thing, whether it's gold, whether it's one particular stock. His advice is 5% is starting to be too much. What about precious metals in general? If you're trying to diversify your portfolio, I wonder does it also make sense to invest in silver or copper? Yeah. We've seen silver and copper kind of mimic what's going on with gold. Silver and copper have hit record highs also, but they're so much less expensive. Silver is trading at $80 per ounce versus $4,500 per ounce for gold. That said, there are some more use cases for silver and copper and more industrial purposes than we see for gold. Gold can be used in some electronics and obviously it's used for jewelry, but with silver and copper, they're used in construction and computer chips and solar panels. There's real world demand and applications for them beyond what there is for gold. Again, most of the financial advisors, I talked to say, if you're looking to get into gold, maybe look for a broader precious metals or commodities fund. That gives you some exposure, but also hedges your risk a little bit. Maria Ospin, thank you so much. Thank you so much. Pleasure to join you. All right, time for a recap. The price of gold has skyrocketed over the past year, so last year would have been a great time to buy, but now, not necessarily. Looking in the rearview mirror to make investment choices is not the best strategy. Also, over the long term, the S&P 500 outperforms gold, but if you'd like to add some to your portfolio to diversify a bit and maybe take advantage of any further price increases, Maria's source said to aim for less than 5%. You can buy gold by the bar. You can invest in gold futures, though that's generally something only professional investors do. You can also invest in a fund that tracks the price of gold and you can invest in companies that are involved in the gold economy, like gold miners or retailers. Also, if you want to diversify in general, maybe consider other precious metals in addition to gold like silver and copper. The thing about those is they are also used in industry, so their value is pegged in part to their usefulness, as opposed to gold, which runs largely on vibes. All right, that's our show. A reminder, by the way, you can sign up for LifeKit Plus to support our work at NPR and get curated playlists on popular LifeKit topics. Start listening today at plus.npr.org slash LifeKit. This episode of LifeKit was produced by Margaret Serino. Our digital editor is Malika Gareeb and her visuals editor is CJ Rekhwan. Megan Kane is our senior supervising editor and Beth Donovan is our executive producer. Our production team also includes Andy Tagle, Claire Marie Schneider and Sylvie Douglas. Engineering support comes from Nisha Heinest with fact-checking by Tyler Jones. I'm Mary-Elle Cigarra. Thanks for listening. This is our class. On this American life, one thing we like is a good mystery. Sometimes about really big things, but most times the little mysteries are the best. Our lost and found is currently filled with pants. I don't know. I've never seen this happen. This is true. Mysteries of every size each week. This American life wherever you get your podcasts. This message comes from Avallera. What's it like running a business with Avallera? No thinking about tax and compliance. It's handled. Calculating, filing, validating, accurately and audit defensively. Avallera, Agentech Tax and Compliance with Confidence.
