Harvard economist and former George W. Bush advisor Greg Mankiw has a new piece in the New York Times grappling with whether a smart investor should hold some gold.
Mankiw calls himself a “boring” investor — your standard 60% stocks 40% bonds kind of guy — who never really saw the value in hoarding gold.
But when a friend asked him if he should add gold his portfolio, Mankiw dove into the academic research. He came away with four main points:
- There just isn’t a lot of gold (less than one ounce a person if we divided it equally among the global population). And most of it is unavailable to a private investor, as half of gold is in the form of jewelry and another large chunk rests in central bank vaults.
- It has a small real return. “Over the long run, gold’s price has outpaced overall prices as measured by the Consumer Price Index — but not by much,” Mankiw writes.
- Gold has a highly volatile price. “Because gold is a small asset class with meager returns and high volatility, an investor may be tempted to avoid it altogether,” according to Mankiw.
- Gold’s unique identity makes it somewhat attractive for investors. Gold does not correlate with stocks or bonds. “Despite gold’s volatility, adding a little to a standard portfolio can reduce its overall risk,” Mankiw writes.
So how much gold does the Harvard economist think you should have in your portfolio? “A small sliver, such as the 2 per cent weight in the world market portfolio, now makes sense to me as part of a long-term investment strategy,” he concludes.
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