In a follow up to a recent article; Gold: Why Doesn’t Your Financial Advisor Recommend It?, I decided to take on the task of challenging a financial advisor on their understanding of how gold fits into one’s portfolio.
First, you should know that I was a financial advisor for over 20 years. I left the business to follow my passion to write as described in my “About Doug” section of this blog. You don’t see too many people criticizing the investment industry so I feel that since I no longer have any ties to it, I am a good candidate to critique it.
While I don’t want to pick on any one individual, as many deserve it, I recently saw an article on Seeking Alpha called; “Gold the Unprecious Metal?” written by a financial adviser who was, as many do, bashing gold. I replied to the author’s article and addressed each of his concerns and as of this posting, have not received a reply. I hope to. I will update this article if there is a reply.
My main beef with this article is the author’s firm was shorting gold at the same time while posting that “The Financial Panic of 2008 is entering its last chapter” and “inflation is not an issue.” I tried to find out if the author, whose firm is currently shorting gold via the ETF; GLL, was trading short term to take advantage of the summer pattern of gold being in a downward trend, or if he really thought there would be no long term inflationary effect on the dollar and thus no need to be invested in gold.
To say that the effect of the Obama (and Bush) spending and continued bailouts and stimulus polices have all of a sudden unleashed green shoots forever and the economy will return to what it once was with no inflationary effect is rather presumptuous and I believe illogical.
What financial advisor’s need to do is prepare their clients for the coming inflation as a result of all this government spending. What financial advisor’s need to do is diversify their clients into gold.
Gold has gone up year over year since 2000 and financial advisor’s still don’t recommend it? The big brokerage houses, whom these advisor’s get their advice so they can “advise” their clients, don’t want competition to their almighty mutual funds! Heck, the monopoly they have on 401k plans are living proof that most don’t offer gold as an investment option.
Gold is hardly recommended as an asset to diversify one’s portfolio. Most financial advisor’s know nothing about the benefits of investing in gold. Rather, what most financial advisor’s do is recommend investor’s put a certain percentage into stocks, bonds and cash based on whether they are “conservative, moderate or aggressive” in looking for returns.
As an example, Charles Schwab’s has a quarterly magazine called “On Investing” and in their most recent issue for the Summer 2009, they have the following chart;
Sample Schwab Asset Allocation Strategies Your time horizon and risk tolerance are two of the factors that can help you determine which of these target allocations is best to help you meet your goals.
I simply ask financial advisor’s one question based on this type of recommendation to their clients; “Outside of some international exposure, what in this type of portfolio counteracts the fall of the U.S. Dollar?
Even the “conservative” portfolio above is 95% invested in U.S. assets that are subject to the fall of the U.S. dollar. If these assets went up 10% and the dollar fell 10%, how much wealth has an investor gained? None!
Isn’t a financial advisor’s job to “protect, preserve and grow” their clients assets? Don’t they make more money when they do so? Then why are they so against diversifying into gold to “insure” their clients portfolio from the decline in the U.S. Dollar?
Financial advisor’s need to forget what they have been brainwashed with by their industry and think for themselves!
Gold needs to be part of everyone’s portfolio.