Let’s focus on a most amazing element. It has a fascinating parking spot on the periodic table of elements between two other unique elements, platinum and mercury. Despite a high atomic number, it occurs naturally on earth, and the element itself is believed to be the result of a supernova explosion from which our sun and solar system were eventually formed.
Its stability makes it tasteless and scentless. It is not toxic and can even be used as a food decoration. While it is highly resistant to corrosion, it readily combines with other metals to create alloys. It is also extremely malleable, which is why it is extensively used in jewelry, dentistry, ornamentation and electronics.
It is probably best known, however, not for its physical qualities but as a precious metal used to display and store wealth. Coins were often minted in it, and governments maintain stores of it in bullion to settle international accounts.
Pirates raided the seas for it. Conquistadors ravaged the New World for it. Alchemists tried to transform lead into it. You know what it is: gold.
Today, radio and TV are full of ads imploring us to invest in it. In fact, there may be as many ads today for gold as there were for “easy money” loans at the height of the housing bubble. While some ads focus on the positives of gold as an investment vehicle, just as many play more on your fears, pitching that your “paper” assets are worthless, the Fed is printing “funny money” and runaway inflation is about to wipe out your retirement accounts. Unfortunately, fear sells, and the financial crisis remains fresh in our collective investment memories.
Gold has a legitimate investment value that is trivialized by fear mongering. In a diversified investment portfolio, a strong case can be made for holding a prudent position in gold. Taking a position in gold, or a gold-backed security, can be beneficial to your portfolio and provide a true component of diversification relative to stocks and bonds, among other investments.
A concentrated position in gold, or any asset class, however, can be extremely detrimental to the health of your financial plan. The housing boom and technology stock bubbles of the last decade give us strong evidence of the danger to our investment portfolios if we ignore the discipline of diversification.
Interestingly, another unique characteristic of gold is that it is insoluble in nitric acid, which will dissolve silver and other metals. Hence, an acid test determines a substance’s true gold value.
Given the recovery in the financial markets over the last year, it makes sense to subject your financial plan to its own acid test to determine whether your assumptions are on target and your investment portfolio is still positioned to deliver its intended value. Your Baird Financial Advisor can help you review your portfolio and financial plan, sort through the noise and fear dominating the airwaves and guide you to a proper balance in determining your own gold standard.