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Those are good thoughts and argue for maximum diversification. Bonds are an exception among those assets, in the sense that at maturity one is guaranteed (most of the time) to receive their principal and along the way get paid interest. Of course the return is before tax and is nominal. In real terms and after tax one could easily see a loss over time. RRBs would alleviate the inflation problem, but taxes would depend on what type of account it is placed in. There is also an issue of whether CPI tracks true inflation.

Personally, I like real estate more. Land could be thought of as a store of value and should on average track inflation. The structure depreciates over time, but could provide some income. But it is not a passive investment (unless one buys REITs) and it is not practical to rebalance yearly (I guess one could do so by taking a line of credit).
 

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Thanks Topo, and yes I agree that bonds are the exception. They actually do have a predictable return and are less of a wild card (a big reason why I have 50% bonds/GICs). There's still uncertainty, but focusing on say a timespan like 10 years, their return is FAR more certain than either stocks or gold.

I like the real estate concept too, but don't own any.

Increasingly, I have been thinking about how investing is the art of balancing these long term returns (such as the very long term expected strong return of stocks) against things like short term needs and volatility. A very difficult art!
 

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Hey James,

Did you watch Ben Felix's latest video on Gold: https://www.youtube.com/watch?v=ulgqlQWlPbo ?

I am just curious ... did any of his arguments make you reconsider your (was it 50% ?) allocation to gold?

Cheers

I dont totally disagree with his positions, HOWEVER, his comparisons have been during a time when interest rates have been all been above zero.

I would argue that our world is different now as we hover around the ZERO rate and possibly lower than that, old statistics will prove to be bad future predictors.

Holding cash will be deflationary (inflation), investing in (safe) bonds will also be deflationary (- rates).... why not just hold gold ?

IMHO negative rates merely just prove that money and the economics as we know them are not functioning properly, why hold more money ?

There are a few references that support my above position in the video and in the comments.....
 

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Gold just hit a new all time high price of a little over $2446 CAD per oz. The two gold bullion tracking ETFs in Canada (MNT and CGL.C) are, obviously, hitting new highs as a result. I hold both.

Here's the longest term chart I can make on stockcharts, 29 years. This is gold in CAD. The price is now significantly above its previous 2011 high.

20095


Since I had the charts handy, I also calculated the performance for this entire time 29 year span. The total cumulative return for gold was 486%. That works out to annualized return = 5.86^(1/29)-1 = 6% CAGR

How does that compare to stocks? The $TSX (without dividends) cumulative return was 301%. That's = 4.01^(1/29)-1 = 4.9%. To that, we can add the roughly average 2% dividend yield and figure the TSX total return was 7% CAGR

So over 29 years, gold's performance was just a bit less than the Canadian stock market. Both gold bullion [ 6% ] and stocks [ 7% ] have good real returns over this very long time span.
 

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My recommendation, when it comes to equities is to look at the last 10 years. This allows for a business cycle, so it's often used to examine chart results.

Sure, let's do that. MNT hasn't been around that long, but I can use $GOLD:$CADUSD on stockcharts to calculate the return. It's a cumulative 112% gain which works out to 7.8%. Let's even make this realistic and subtract another 0.4% for the gold ETF fee, leaving us with 7.4% CAGR for gold.

The XIC return is 4.5% CAGR for Canadian stocks, including dividends.
 

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Beware, MNT has been trading with a large premium recently. When I looked last week, it had 5% to 6% premium, so it isn't exactly tracking gold bullion. And it has a very wide bid/ask spread. This tells me that the MNT market maker isn't doing their job well.

Before trading MNT, make sure you go to the Mint's web site at this link. Click on Investors, Net Asset Value.

During trading hours, look at the iNAV (intraday NAV) to see what the fair value is. Don't overpay for it! Put in a reasonable limit order, not a market order. People like me are in the market too... let's trade at good/fair prices between us.

CGL.C has been tracking gold more closely and has a tighter bid/ask so this is another perfectly good option.
 

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I need lower volatility for many reasons. One reason is that money I invest will not be left alone for 50 years. I would argue that most people, even very young people, simply don't have 50 year time horizons. Inevitably, they need some money sooner, especially in the modern economy where there's no job stability.

Another reason is that my income, like most people's, correlates with the economy/stock market. If I invested 100% in stocks as fatcat endorses, every time there's a global recession, my employment income would go to $0 and then my net worth would tank 40% to 60%. What kind of life is that?

Everyone talks a big game about being ready for volatility, but I saw what happened in 2008 including with young people (my coworkers). People either capitulate and get out of the market when things get really bad, or they experience severe stress (including sleepless nights) and even change how they live life due to the losses. Or people simply need the money.

One reason I'm still investing today, and have consistently invested since 1998, is because I had a pretty safe portfolio that hasn't had catastrophic losses. Having low volatility in my investments has helped me "stay in the game" -- a huge win compared to some of my peers who got wiped out or capitulated. I plan to continue staying in the game by making it easy on myself.

Any reduction in volatility I can achieve while still getting a solid positive real return is a big win, in my eyes. It will help me stick with the plan, avoid stress, not put me in a jam when I need money from my savings. This is a no-brainer IMO.

I posted this a little over a year ago, but I want to draw attention to it again. The question was: if stocks usually perform best long term, why invest in bonds & gold at all? What is the benefit of diversifying, instead of investing 100% in stocks for 50 years?

It should now be crystal clear.

Do investors really have 50 year horizons? How about people whose jobs have now disappeared? And there are a LOT of them. The recession hit, and stocks crashed. What if these people want to tap into their hard-earned savings? What's the point of having all these investments if you can't liquidate them when you actually need money?

And how about stress during volatility. You bet there was stress! There were people selling in a panic. Several close friends of mine told me they got out of stocks in the middle of last month's crash. One has an MBA. The other has degrees from MIT & Stanford. Due to volatility, they were unable to stick with a long time horizon.

My own consulting income has plummeted. As I described a year ago, my income correlates with equities... as do many people's. Investing in 100% stocks would be setting myself up for a double whammy of income loss, plus net worth loss. No thanks.

I think that investing in a mix of stocks + bonds + gold is a "no-brainer".
 

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For those that are looking at buying gold, is now a good time to buy it or will it fall significantly when the economy picks back up?
That's a tough one. It seems unappealing buying gold at its highs and it certainly could fall a lot! But you can also take a 'portfolio' view of this. Let's say a person decides that their portfolio needs some gold for additional stability. If that long term decision is made, then when is the right time to start? I think you can immediately start taking steps towards the new target allocation, but it doesn't have to be done all at once.

Maybe the way to do this is to focus on deciding the asset allocation. Do some research, figure out what % stocks/bonds/gold you want... a plan you can commit to. Once that decision is made, you can start making adjustments maybe by initially shifting 5% weight. If your asset allocation calls for 10% gold, it doesn't have to be done all at once.

Example: a few years ago, my target was 25% stocks / 25% gold. I revised that to 30% stocks / 20% gold, and I made that change gradually over several months.
 

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Echoing James's take on the portfolio view:

Three months ago, on Jan. 17, MNT was priced at $21.18 and XIU was at $26.37.
On April 17, MNT was priced at $27.25 and XIU at $22.01.

From a portfolio perspective, you would be buying one component high and another low. The balancing effect is already in place.
 

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I prefer gold mines in politically stable countries.
If they have AISC in the $1200 range, it's just a question of exactly how profitable they will be.
 

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That's a tough one. It seems unappealing buying gold at its highs and it certainly could fall a lot! But you can also take a 'portfolio' view of this. Let's say a person decides that their portfolio needs some gold for additional stability. If that long term decision is made, then when is the right time to start? I think you can immediately start taking steps towards the new target allocation, but it doesn't have to be done all at once.
One could buy now on the long term portfolio outlook and in the long timeline (> 30 years) the differences likely won't matter much.

BUT :)

Given the market conditions are far from normal right now I'd personally wait for some stability on higher priced items before adjusting long term portfolio goals, like adding gold. Just like I waited (1-2 months) for this years purchases to rebalance on stocks which "currently rewarded me" I believe the reverse is quite likely the same for gold. While a 25% drop in gold over the next 6 months wouldn't kill a long term portfolio it also wouldn't hurt to wait and see if the current situation has it elevated above normal.
 

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That sounds sensible cainvest. But I'll add: any time you have an asset which performs well over the long term, it will often be at or near its all time highs. This is kind of a mathematical consequence of being a well-performing asset :) On any given week, it's more likely to be "high" than "low".

I think people run into this problem with stock investment as well. Someone becomes convinced that they should own stocks. Then they look at the price chart and immediately think: yikes, look how high it is! So they wait... and wait... and wait. It keeps going higher. Eventually stocks drop a bit, or plummet, but maybe not any lower than when they started waiting.

I think firmly deciding on your asset allocation is the key step, but after that, I think one should be cautious about too much waiting / market timing. It's probably better to start implementing your allocation change in baby steps. But yes it is a serious dilemma.
 

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I think firmly deciding on your asset allocation is the key step, but after that, I think one should be cautious about too much waiting / market timing.
Yes sticking close to your asset allocation is a good idea but you were saying above that someone was changing it, as in the quote below ...

Let's say a person decides that their portfolio needs some gold for additional stability. If that long term decision is made, then when is the right time to start?
So all I'm saying is now is likely not a good time to adjust your asset allocation to include gold. If you chart MNT vs MAW104 since 2012 (MNT starting point) you'll see gold had no gains for 7 years then, some gains in 2019 and big gains during the pandemic. IMO adjusting your portfolio to now include (say 20%) gold is too risky as it's fairly likely when/if the economy picks back up gold will fall again.

And for those that already have their fixed asset allocation of gold you wouldn't be buying it now as your allocation would force you to put money into other areas.
 

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Beware, MNT has been trading with a large premium recently. When I looked last week, it had 5% to 6% premium, so it isn't exactly tracking gold bullion. And it has a very wide bid/ask spread. This tells me that the MNT market maker isn't doing their job well.

I want to repeat this warning, because I saw an even higher 7% premium to NAV today. It would be a mistake to buy MNT right now at these high premiums to underlying value. In the blink of an eye, you could lose that 7% premium even if gold is stable.

If you're looking to buy, alternatives like CGL.C or one of the US ones are better right now.

I've tracked the MNT premium/discount over the years. It's been as low as -2% and as high as +7%. The average of my samples since 2016 is 0%
 

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I want to repeat this warning, because I saw an even higher 7% premium to NAV today. It would be a mistake to buy MNT right now at these high premiums to underlying value. In the blink of an eye, you could lose that 7% premium even if gold is stable.

If you're looking to buy, alternatives like CGL.C or one of the US ones are better right now.

I've tracked the MNT premium/discount over the years. It's been as low as -2% and as high as +7%. The average of my samples since 2016 is 0%
Hi James, I should have seen your warning earlier! I bought MNT late last month. I show MNT has a 7.7% premium to NAV today. The NAV of MNT dropped by 3% while CGL.C only dropped by 1.5% today. I am thinking of selling them all(to realize 2% capital gain) before losing that 7.7% one day. And then buy CGL.C for my gold part of PP. Do you think it's a good idea? Thank you.
 

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That's a tough question and I don't really know the right solution. My RRSP holds entirely MNT as shown in this other thread, and I have no intentions to sell any of it (until my annual rebalancing time). It's true that it's sitting at a premium, but there is also a "cost" to placing any trades due to the money you lose on the bid/ask spread... so trades incur cost (or friction). I also think MNT has a premium for a good/plausible reason and I don't feel a need to sell it just because of 7% or even 10% premium.

But here would be the approach I would take if I felt I wanted to cash out on that premium. It's a bit tricky to do in practice. First, calculate the real time fair value. Then take note of the bid and ask price. The goal is to only sell it at a premium to fair value.

I would place a limit sell order just below the existing limit prices. For example someone else in the market might be asking 27.98. I would drop it a bit further and ask 27.96 as long as it's still a sufficient premium to NAV. You might then see other traders bring their ask prices down further. Remember that you have to have the lowest asking price to get the trade.

Definitely do not sell as a "market" order, because then you're accepting whatever bid price someone shows, and it's no longer selling at a premium.

I would do this early in the day and let the limit sell order sit. Maybe a buyer will come along and buy from you at this premium; maybe not. Maybe other sellers will drop their asking price further... this is all a healthy activity that actually drives the MNT price towards NAV.

At the end of the day, if I successfully sold any at the premium I wanted, then I'd probably roll that money into CGL.C

But as you can see, this is not a straightforward process and it's kind of tricky to realize your gain.
 

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That's a tough question and I don't really know the right solution. My RRSP holds entirely MNT as shown in this other thread, and I have no intentions to sell any of it (until my annual rebalancing time). It's true that it's sitting at a premium, but there is also a "cost" to placing any trades due to the money you lose on the bid/ask spread... so trades incur cost (or friction). I also think MNT has a premium for a good/plausible reason and I don't feel a need to sell it just because of 7% or even 10% premium.

But here would be the approach I would take if I felt I wanted to cash out on that premium. It's a bit tricky to do in practice. First, calculate the real time fair value. Then take note of the bid and ask price. The goal is to only sell it at a premium to fair value.

I would place a limit sell order just below the existing limit prices. For example someone else in the market might be asking 27.98. I would drop it a bit further and ask 27.96 as long as it's still a sufficient premium to NAV. You might then see other traders bring their ask prices down further. Remember that you have to have the lowest asking price to get the trade.

Definitely do not sell as a "market" order, because then you're accepting whatever bid price someone shows, and it's no longer selling at a premium.

I would do this early in the day and let the limit sell order sit. Maybe a buyer will come along and buy from you at this premium; maybe not. Maybe other sellers will drop their asking price further... this is all a healthy activity that actually drives the MNT price towards NAV.

At the end of the day, if I successfully sold any at the premium I wanted, then I'd probably roll that money into CGL.C

But as you can see, this is not a straightforward process and it's kind of tricky to realize your gain.
Hi James,
Actually, I went ahead and sold most of my MNT today. I used the same approach as you suggested above with a little luck for sure.

20182

20181

More luckily, I bought CGL.C at a low price.

20183


My findings are:
  1. MNT does have a premium to NAV as high as 8.9% today;
  2. MNT does have a much wider spread(10 cents/share) than CGL.C(1-3 cents/share);
  3. Although both of them are tracking the price of Gold, MNT and CGL.C could go quite differently as shown above.
1589934507163.png 1589934536303.png 1589934736039.png
 

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That sounds good! You took advantage of the premium, and also helped move the price closer to fair value. You did everyone a favour and were paid to do it :)
 
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