August 13, 2020 Personal Wealth The Rational Reminder Podcast 111: Gold, Insuring your Insurance, and Bank Sales Pitches With the gold price reaching record highs, we revisit the contentious issue of whether you should add gold to your portfolio. Before mining that topic, we talk about Super Pumped: The Battle for Uber and Am I Being Too Subtle? — our book recommendations of the week. We then touch on key news stories including how the recent Apple stock split has affected its position in the Dow index. After fielding a listener question about why central banks care about deflation, we share the reasons for and against investing in gold. We discuss where gold derives its value along with the concept of the ‘golden constant’ which states that the value of gold will keep pace with inflation in the extreme long-term. Host Benjamin Felix brings in research to show why gold is a bad inflation hedge due to its short-term price volatility. He also brings in data to look at how gold performs under hyper-inflation and then speculates on how supply shock from finding new sources of gold would impact its market value. Often used as a reason to invest in gold, we provide our take on John Bogle’s statement that you should invest 5% of your portfolio in gold. Despite seeming to be a middling investment, we then talk about why so many central banks own gold. Near the end of the episode, we briefly explore the life insurance organization Assuris and which account you should draw from when buying a home. Lastly, we draw insights from this episode’s bad advice of the week. Tune in to hear more rational reminders from the investment world. Watch this conversation on the Rational Reminder YouTube channel Subscribe to the Rational Reminder podcast Key Points From This Episode: Media recommendations ranging from Too Much and Never Enough to Ray Donovan. [0:01:39] Updates on the model portfolios being written by Ben. [0:02:58] This week’s book recommendations: Super Pumped and Am I Being Too Subtle? [0:04:40] Dives into key stories of the week; Apple’s share split and Vanguard Investor’s trading practices. [0:09:13] Answering a listener question about why central banks care about deflation. [0:11:13] Introducing this episode’s portfolio topic; should you invest in gold? [0:13:52] An overview of the arguments for and against investing in gold. [0:15:05] How gold’s value derives from its scarcity, malleability, and symbolism. [0:15:46] Gold’s value as an industrial and collectible commodity and pricing in the ‘emotional dividend’. [0:17:18] Where the demand for gold comes from — it increases with its price. [0:20:00] The concept of the golden constant and how gold maintains its value in real terms. [0:21:23] Drawing conclusions about the value and portfolio benefits of gold from the 2013 paper, ‘The Golden Dilemma’. [0:22:31] How gold has performed in periods of hyperinflation. [0:28:19] Further unpacking the idea of a golden constant and the expectation of receiving zero return. [0:32:00] Summarising why investors are attracted to gold; it’s tangible and scarce. [0:34:50] Speculation around asteroid and ocean mining in the far future and how this might impact gold prices. [0:36:01] How central banks off-loading their gold reserves will affect the gold price. [0:38:30] Why gold returns look so good at the moment and why this can’t be trusted. [0:40:03] The paper, ‘The Long-term Returns to Durable Assets’, conclusions about the gold’s pricing. [0:41:00] Why John C. Bogle invested 5% of his portfolio in gold and why it’s not necessarily a good idea. [0:42:01] Answering why central banks hold gold in the first place. [0:43:23] Exploring Assuris — an organization protecting Canadians when their life insurance policies fail. [0:47:40] Which account to draw from when buying a home when you have equal amounts in your TFSA and RSP accounts. [0:52:30] Bad financial advice for the week; PWL Capital versus funds chosen by a big bank. [0:55:02] The importance of understanding the decision-making behind developing your portfolio. [1:04:35] Books From Today’s Episode: Too Much and Never Enough: How My Family Created the World’s Most Dangerous Man — https://amzn.to/2DD0ZnR Super Pumped: The Battle for Uber — https://amzn.to/2XXljah What It Takes: Lessons in the Pursuit of Excellence — https://amzn.to/2XUypoQ Am I Being Too Subtle? Straight Talk From a Business Rebel — https://amzn.to/3fMmsaM The Golden Constant: The English and American Experience, 1560-1976 — https://amzn.to/3fYrv8k Links From Today’s Episode: ‘The Golden Dilemma’ — https://www.tandfonline.com/doi/abs/10.2469/faj.v69.n4.1 In Pursuit of the Perfect Portfolio with John C. Bogle — https://www.youtube.com/watch?v=3uJbHREmUs4&list=PLo6vaVhDK1cPdWo23OMaQzBaJK7uSsIDE Erb & Harvey’s ‘The Golden Constant’ — https://www.researchgate.net/publication/315135064_The_Golden_Constant ‘The Long-Term Returns to Durable Assets’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2746356 ‘Central Banks and Gold’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2326606 ‘Central Banks and Gold Puzzles — https://www.nber.org/papers/w17894 Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Share: Facebook Twitter LinkedIn Email IIROC AdvisorReport
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