If You're Not Buying This Powerful ETF Weekly You're Stupid

Smart Money Adds to This Position Weekly

All that Glitters

If you’re not buying this powerful ETF weekly you’re stupid. We’re talking about the ETF GLD or its baby brother GLDM. These massive and powerful ETFs give you direct exposure to the price of gold. The value of these funds is 100% backed by physical gold bullion. Much like how the US dollar used to be backed by gold. It’s like taking your fiat currency and converting it back to a real currency.

Ever since 1971 when the US dollar was taken off the gold standard, it has been considered a fiat currency. Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by trust in the government that issued it. This essentially allows them to manipulate the money supply by printing it at levels that meet their near term objectives. The problem is the solution to nearly every economic and fiscal problem has been to borrow, print, lower interest rates, and increase the money supply. Much like issuing new stock dilutes corporate ownership, printing money dilutes or devalues the fiat currency.

Gold belongs in EVERY portfolio.

Because of this dollar manipulation, all investors big or small, novice or professional, should own some gold. You don’t need a lot, it should not be focus of your portfolio, but allocating capital in the 2.5% to 10% range will benefit your portfolio. Read more about recommended asset allocations here. It should lower you portfolio’s volatility or risk while also increasing the total return a bit. In other words it improves the risk adjusted returns for your investment.

Don’t be stupid – put some gold in your portfolio!

Gold’s Performance

Gold up until 1971

When looking at the historical performance of gold you need to consider two things. First performance before 1971, and second performance after 1971. From January 1934, with the introduction of the Gold Reserve Act, to August 1971, when President Richard Nixon removed the Gold Reserve Act, the price of gold was effectively set at $35 per ounce – no return. In essence the dollar was backed by gold and its value was pegged. But after 1971 there was nothing backing the U.S. currency. If people lose faith in the nation’s currency, the money will no longer hold value. That differs from a currency backed by gold, for example; it has intrinsic value being back stopped by a physical hard asset for which the currency could be surrendered in exchange.

Gold after 1971

Once the U.S. dollar was backed by faith alone, the price of gold rose from that $35 up to $2,070.50 an ounce on August 6, 2020 which gives a nice 8.68% CAGR. It has since fallen back to $1881.65. Still 8.47% a year.

While it may sound like I’m advocating an investment in gold as a means to add performance to your portfolio; I’m really not. I’m advocating that since the U.S. dollar, and all fiat currencies for that matter, are backed by faith and not a tangible asset we should own some gold to hedge against uncertainties and the printing of money which governments of all sizes and colors do. Gold hasn’t changed: its still measured in troy ounces and its chemical element is still Au. However, the currency against which it is measured has changed and it has changed quite a bit.

How Gold Improves a Diversified Portfolio

Gold is a safe heaven asset class. During adverse market conditions for stocks, gold tends to perform better and vice versa. To put it another way, bear market in stocks can be bull market for gold. So if we harness this diversification, a position in gold should buffer a decline in stocks as the gold price rises. This is especially true if this fall in stocks is provoked by uncertainty, war, or a crisis that is coupled with the government printing money to get out, stimulate the economy, or restore a feeling of certainty and reassurance to the public.

Portfolio Performance Comparisons

In this comparison we will take a very basic growth oriented ETF portfolio and compare its performance with and without a 10% allocation to GLD. We used Portfolio Visualizer which is a great tool we use often.

The furthest back we can go is January 2005 because GLD was created in December 2004. In the following charts you will see first the portfolio allocations and the second chart are the performance metrics. These are the assumptions for the portfolios: rebalance once a year back to the target allocations; no withdrawals; pay no taxes; do not contribute additional funds; reinvest distributions and dividends; performance is net of fees; initial investment of $100,000 USD.

Look at those results – better returns, lower volatility, better performance during the worst year, better Sharpe Ratio with less correlation to the US stock market. There is no reason you would not want GLD in this portfolio; better in every measurable metric. Ask yourself which portfolio would be easier to hold for the long term investor? This is why we are saying that if you’re not buying this powerful ETF weekly you’re stupid; because the smart thing to do is slowly but surely add to this position each week. Convert your fiat money to real currency each week.

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If Gold is so great Why doesn’t my Financial Advisor recommend it?

Simply put its because they don’t make any money with you holding GLD, GLDM, or physical bullion. They need you investing in their recommended mutual funds filled with high MER’s with trailer commissions. MER’s is what it costs to run the fund; trailer commissions is what they pay the advisor or fund dealer who sells the fund. With gold and these ETFs there really isn’t much in it for them so they steer you away from it.

Buy GLD or GLDM Weekly – SMART!

If you’re at the stage of your life where you are primarily concerned with building your wealth, you should be saving weekly. Yup! not monthly or bi-weekly — weekly. Save $100 a week you’ll retire a millionaire. If you have an allocation to GLD or GLDM in your portfolio you’ll automatically be buying a small portion of these ETF’s each week. Because GLDM is the mini version of GLD it is probably the better buy between the two as one share of GLDM is roughly 1/10 the price of GLD plus the expense ratio is lower.

Okay Seriously, How do you Set This Up?

If you’re in Canada you want to use the service WealthSimple and setup weekly contributions to the portfolio that fits your needs. Their portfolios already include an allocation to GLDM so each week when you contribute to your portfolio a certain percentage of your contribution will go towards adding to your GLDM position. With no commissions and partial shares you’ll be impressed with the service. Give them a look and if you follow this link we’ll both get $10,000 managed free

If you’re in the States you can also use WealthSimple but you have some other tools such as zero commission trading platforms with partial shares that let you mix an all-in-one ETF portfolio along with some GLDM. Setup a weekly contribution schedule and you’re set.