What Percentage of Gold and Silver Should Be in My Portfolio in 2024?

Once you’ve decided to buy some gold or silver, a common question to then ask is: How much should I invest In precious metals?

Or put another way, what percentage of gold (and silver) should be in my portfolio?

Here’s what’s covered in this article:

Estimated reading time: 7 minutes

We’ve received a number of questions from our readers on this topic of how much gold to own. For example:

“I have a balanced portfolio of $2.5 m spread across dividend earning stocks (500k) bonds and notes (400k) fixed deposits (400k) and the balance in residential properties.

Do I really need to have some protection with gold?

If so how much?”

He accepted we were not financial advisors but was interested in what percentage of our own liquid assets were in gold and silver.

Here’s another one:

“I believe an economic event will happen soon(debt bubble burst). What is the correct amount of gold to own for a medium wage earner to secure his family, himself and home.”

We do believe everyone should have some gold bullion as financial insurance. See this post for 5 reasons to hold gold as wealth insurance: Why Gold Bullion is Your Financial Insurance

(Or for more reasons to buy precious metals see: Why Buy Gold or Why Buy Silver).

But just what percentage of your liquid assets should be in gold and silver is a very specific and individual question to answer.

How Much Gold Should I Own? Personal Factors to Consider:

How much gold is enough comes down to many personal factors such as:

• What other investments you hold?
• What the level of risk and volatility is in your portfolio?
• How much income do you require from your investments?
• How much liquidity do you require?
• How long do you intend to hold your precious metals for?
• The level of risk for a major financial crisis in your home country and globally.

Gold and silver offer the benefits of diversification and are inversely correlated to many other assets. That is, when your other investments are falling, gold may well be rising. For example in 2008 – gold was the only asset class to end the year higher than it began.

What Percentage of Gold Should Be in My Portfolio?

There are studies to back up the above assertions. These studies prove the benefits of gold allocation at different percentages of your portfolio. So these could be a very good starting point in determining how much gold you should own.

Gold is a Non-Correlated Asset

Research shows that gold acts as “investment insurance”. As it is an asset that is non-correlated with many other asset classes. So when the likes of shares/stocks, bonds and property are performing poorly (as has been the case recently) , gold can often smooth out your overall returns. Many studies have proven gold’s counter cyclical qualities:

“Gold’s qualities as a hedging instrument and safe haven asset have been thoroughly examined in recent years. Sherman (1982) suggested a weighting of 5% in an equity portfolio resulted in lower risk and higher return.

…Studies by Bruno and Chincarini suggest allocating 10% of the portfolio to gold for non-US investors. Scherer recommends a 5-10% weighting of gold for sovereign wealth funds. For high net worth individuals and family offices, Klement and Longchamp (2010)suggest an allocation in the range of 5% to 10% by weight to gold in an equity portfolio.

Lucey, Poti et al. (2006) examine portfolio choice where the investor is concerned with downside protection and find an optimal weight of between 6% to 25%, depending on the time period and the other assets included. Baur and Lucey (2010) provided the first statistical test of when gold acts as a safe haven and when as a hedge.”

Source.

Holding Gold Can Reduce Losses in Financial Crises

The prices of most assets fall in a financial crisis. Instead of suffering through these major draw downs, a holding of gold could reduce these falls considerably.

One study showed that holding 10% gold reduced losses in the worst year of the financial crisis, but only reduced annual returns over a 40 year period by 0.1%:

On a retirement portfolio of $1 million, adding 10% gold would have reduced losses during the worst year of the financial crisis by more than $17,000. During the Tech Stock Crash, holding 10% gold as “investment insurance” would have boosted a US portfolio’s total returns by almost 0.7 percentage points per annum, adding nearly $40,000 to initial savings of $1m.

…Over the four decades ending 2016, the total return on a portfolio with 10% gold would have shown compound annual growth of 9.7%. That was just 0.1 percentage points per year below the total annual returns of a portfolio holding 60:40 stocks-to-bonds with no gold.

Indeed, in the best single year for US equities and bonds (1995), keeping 10% of a portfolio in gold would have only reduced total returns from 32.2% to 29.1%.

Source.

So holding a percentage of your portfolio in physical gold would not significantly affect your overall returns of a 60% shares / 40% bonds portfolio.. But it would reduce the losses in times of crisis.

Related: Why the New Zealand Super Fund Should “Invest” in Gold >>

Harry Browne Permanent Portfolio: 25% Gold

The permanent portfolio made famous by Harry Browne says 25% gold. Along with 25% cash, 25% long term bonds, 25% stocks. You can learn more about the permanent portfolio – a set and forget method of investing – here.

Or for an updated modern take on the permanent portfolio (including thoughts on cryptocurrencies), see: What to Do With Your Money When Doom Awaits – Asset Allocation

In Gold We Trust Report: A 25% Allocation to Gold May be Prudent

Here’s the findings from the Incrementum, the writers of the In Gold We Trust Report. They recently published “The Optimal Gold Allocation – How Much Gold Does Your Portfolio Need?”. This excellent report looks at what gives you the highest returns, but also what allocation gives lower volatility:

“A 40% gold allocation might offer the highest returns, but it also comes with significantly higher volatility and drawdowns.

For risk-conscious investors, our analysis indicates that a 14–20% gold allocation offers a great balance. This aligns with most research, which supports a 10–19% range.

…Our quantitative analysis shows that in the past an optimal gold allocation has been in the range of 14–20%. However, given the sheer magnitude and diversity of the uncertainties that now define our global economic landscape, it may be prudent to consider an even more robust allocation. A 25% allocation to gold could serve as a strategic bulwark. This elevated allocation should be maintained as long as these destabilizing factors persist, ensuring that the portfolio is not only resilient but also well-positioned to capitalize on the protective qualities that gold uniquely offers in times of economic turbulence.”

Source.

Other Factors to Consider When Deciding How Much Gold You Should Own

1. Are Your Investments Mostly in Real Estate?

Most New Zealanders only own residential property. Maybe along with a small Kiwisaver investment and the odd share. But on average residential real estate is likely to make up the vast majority of the investments for most Kiwis.

So in this case, perhaps you should have a higher percentage of gold? Due to gold’s liquidity in comparison to the illiquidity of real estate. Along with gold’s non-correlation to property. Especially in this post COVID-19 era. The COVID-19 reaction of currency printing and low interest rates hugely boosted real estate prices. But recently we have seen real estate prices fall along with much higher inflation rates.

2. Will You Rebalance Your Allocation to Gold and Silver?

Your percentage allocation to gold may also change as the price of gold and silver and your other investments rise or fall. So you should consider whether to rebalance your percentage.

3. Your Aim in Holding Gold and Silver May Affect Your Weighting to Precious Metals

But along with diversification and insurance properties, we think gold likely has some upside. It is undervalued against other assets currently. See these articles comparing gold to shares and housing:

• NZ Housing to Gold Ratio 1962 – 2023: Measuring House Prices in Gold‎
• NZ Housing to Silver Ratio 1968 – 2023 – Measuring NZ House Prices in Silver
• Dow Gold Ratio: How Does Gold Compare to Shares For the Past 100 Years?

While this post guesses at some possible future values for gold: How Do You Value Gold | What Price Could Gold Reach?

So depending on your aims (wealth protection vs wealth creation), you may choose a higher allocation.

You may consider owning a small percentage of precious metals purely as insurance (e.g. 5-10%). This would likely be a permanent holding that you don’t ever intend to divest. While you own a larger portion to spend (a.k.a sell) as gold rises. That is, a percentage as wealth protection/insurance versus a larger percentage aimed at wealth building.

How to Calculate Your Total Investable Assets

We’ve been discussing various percentages all the way through this article. But 10-25% of what exactly? Author of Currency Wars and 6 other books, Jim Rickards says:

“I believe every investor should keep 10% of their investable assets in physical gold (with room left in the portfolio for ‘paper gold’ in the form of ETFs and mining stocks).”

But How Do You Calculate Your Total Investable Assets?

“We begin with the 10% allocation. The first step is to determine ‘investable assets’. This is not the same as net worth.

You should exclude your home equity, business equity and any other illiquid or intangible assets that constitute your livelihood. Do not take portfolio market risk with your livelihood or the roof over your head.

Once you’ve removed those assets, whatever is left are your ‘investable assets’. Investors could allocate 10% of that amount to physical gold.

This gold should not be kept in a bank safe-deposit box or bank vault. There is a high correlation between the time you’ll want your gold the most and the time banks will be closed by government order. Keep your gold in safe, non-bank storage.”

Source.

How Much Gold is Enough – Do Your Due Diligence & Make Up Your Own Mind

The above studies vary in the percentage allocation to gold of between 5 and 40%, Most commonly 5-10% of your liquid assets (that is excluding property/real estate) in gold is recommended.

But asking a bullion dealer “how much gold should I own?”, is much like asking a real estate agent should I buy a house? Or a stock broker should I buy some shares?!

Each has their own bias. It’s important to do your own due diligence.

We can almost guarantee your financial advisor will not recommend you own any bullion. But then again they don’t make any money out of a gold transaction either! So that’s why it pays to do your own research and make up your own mind. After all everyone (including us!) will be “pushing their own barrow”.

Each person’s circumstances are different. So take into account all of the information above, along with your own situation and portfolio. Then make up your own mind.

Once you decide what percentage precious metals allocation to have, we’d recommend you go with physical gold and silver for your financial insurance.

As there are some very definite differences between physical gold bullion and other “paper” gold products too. So be sure to read this article if you haven’t already: Paper Gold vs Physical Gold – What Should You Buy?

Check this out to help you decide between gold and silver: Should I Buy Gold or Silver? 7 Factors to Consider in Gold vs Silver.

Editors note: This article was originally published 16 June 2020. Last updated 16 September 2024.