In the past few years I have been challenging financial advisors as to their understanding of how gold fits into a diversified portfolio. The reason that I am capable of challenging financial advisors, more than any other gold dealer in the country, is I was a financial advisor for 20 years. I’ve seen first hand what is pushed upon advsiors as the “norm” for diversification by the industry. I left the industry because I didn’t agree with this norm, and I didn’t agree with the Certified Financial Planner (CFP) textbooks and their portrayal of gold either.
Below you will see my open challenges to financial advisors who have written negative articles about gold over the last few years.
June 30, 2009
July 8, 2009
July 10, 2009
September 12, 2009
October 30, 2009
November 25, 2009
December 18, 2009
January 23, 2010
What was curious, after January of 2010, these advisors became silent in their criticism of gold as a valuable addition to one’s portfolio. It only took them 9 years! Of course the price of gold has been going higher for over 10 years straight now. But the reason financial advisors never told you to diversify into gold for those 10 years is most of them didn’t know why gold was moving higher. Gold was and still is an enigma to them because they were never taught anything about it. The industry has always been biased towards mutual funds and now ETFs for the average investor.
What Really Is the Risk Free Asset?
What the financial services industry did was take the stable asset of gold and tried to replace it with the U.S. dollar. The financial advisors were led to believe that the U.S. dollar is a “risk free” asset, when throughout history, only gold has never gone to zero in value. They even gave a Nobel Prize to Harry Markowitz for his Modern Portfolio Theory which relies on this risk free asset (U.S. Treasuries or the equivalent). They also developed the Prudent Man Rule to become part of their rules in directing trustees to invest clients assets in a “prudent” manner in only assets that an average investor would put money in. Of course gold is never mentioned as such an asset.
But the average investor got burned in 2008 didn’t they? Yet gold finished 2008 higher. In fact, no other asset the last 10 years has had a positive return every year outside of gold.
The truth is, there is risk to U.S. treasuries and the U.S. dollar, just as there was risk to treasuries in Argentina when they saw 52% of their debt in default during their financial crisis and their currency the Peso, implode. If you add to this type of risk the fact that here in the U.S., “the lender of last resort,” the Federal Reserve, used to have a balance sheet of 80% U.S. treasuries, but now has foregone the so called safety of Treasuries to God knows what as seen in the following chart.
Click on chart for a sharper image or go to: http://bit.ly/FedPortfolio
While the Fed has profited on some of the investments they made when they purchased assets of AIG and other failing companies to keep a private business functioning, they are by no means out of the water. In reality, they have no real assets (except some gold of course…allegedly) to buy any future “too big to fail” entities or banks. But worse yet, the Fed is adding more debt to the economy through quantitative easing to the tune of trillions. This is the point where me, a former financial advisor, just has to laugh at the fact that people actually believe all of this action by the Fed will actually work. But this isn’t funny folks. And financial advisors to this day still try and mock those who believe gold is the insurance needed in a portfolio to counteract this madness by the Federal Reserve.
In Part 2 I will address more Chartered Financial Analysts (CFA) criticism of those who believe in this insurance for one’s portfolio known as gold and point out once again their training is flawed and so is their common sense.