I sometimes compare not owning gold & silver to jumping out of a plane with a without parachute on. Why do I say that? I say it because all fiat currencies eventually go to 0, and our entire financial system is built upon them and debt derived from them. This fact is a major reason why a growing number of people choose to keep a part of their wealth in precious metals (gold & silver).
The need for gold & silver in a portfolio is becoming increasingly obvious in the 21st century as the world’s Central Banks regularly turn to ultra-low interest rates to stimulate economic activity. The image of the US Federal Reserve’s “Fed Funds Rate” below shows us that we have spent more time with rates at or near 0% since 2000 than we have at or near 5% (which is an historically normal level).
More on the Federal Reserve’s Fed Funds Rate at the link below:
https://fred.stlouisfed.org/series/FEDFUNDS
This “new norm” of low interest rates has massively changed the economic & financial landscapes we operate in. It’s why you no longer receive a respectable return when you have money in a savings account or certificate of deposit at the bank. It’s also why so many people are willing to put their entire life’s savings in the stock market with little or no attention paid to the risks of having all their eggs in one basket. It’s an environment that punishes cash savers, rewards borrowers, and has resulted in steady increases in the prices of both Gold & Silver since 2000.
More on historic prices of Gold & Silver under the links below:
https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart
https://www.macrotrends.net/1470/historical-silver-prices-100-year-chart
Building and protecting wealth in such an environment is a delicate balancing act. On one side, you want to take some risks and allow your money to grow so you can get ahead of inflation and afford the finer things in life (I am not against that). On the other hand, you also want the protection that gold & silver offer as they not only grow modestly over time, but also have the power to offset potential losses on riskier investments if something bad happens to the financial system.
This is precisely why I refer to gold & silver as a parachute. They allow you to take risks while giving you the protection of a systemic insurance policy. People who retired in 2000 relying solely on a stock portfolio understand the importance of this balancing act very well. The first 13 years of their retirement (which was the entirety of retirement for some) were plagued by uncertainty and crises, all of which resulted in metals outperforming the S&P 500 as you can see in the data below.
This is also why I say that knowing how much gold & silver to own is almost as important as knowing why you need to own it in the first place. Having an ounce or two of gold when you have hundreds of thousands of dollars in the stock market simply doesn’t cut it! And that’s what we’re going to explore in this article.
More on historic prices of the S&P 500 under the link below:
https://www.macrotrends.net/2324/sp-500-historical-chart-data
Setting Your First Target
I recently shared an article about how much gold & silver I think investors and stackers should try to get as a first goal. In short, the concept is to accumulate enough to tide you over for 3 months in case of an emergency (personal or systemic emergency). According to my calculations (all available at the link under the image below), that amount is 5 troy ounces of gold & 200 troy ounces of silver in developed nations.
Link to the free article from Summit Metals is here:
https://summitmetals.com/blogs/bald-guy-money-articles/how-much-gold-silver-should-i-have
Identifying When It’s Time To Move On
Once you’ve achieved that first target, it may be time for you to move on to bigger and better things. These are some signs you’re ready to take precious metals investing & stacking to the next level:
- Your annual savings are close to or exceed the value of your metals.
- 3 months of expenses are now more than the value of your precious metal holdings.
- The sum of your high-risk investments exceeds the value of your metals (this can include stock options, crypto, high P/E ratio tech companies, etc.).
- Your gold & silver position is less than 5% of your entire net worth.
Link to a video showing billionaire investor Ray Dalio’s thoughts on owning gold.
https://www.youtube.com/watch?v=v0klLUs21Sk
Setting The Next Target
Setting the next target may be as simple as doubling the first amount to get 6 months of expenses covered. For others, especially wealthier investors & stackers, it will probably be time to think about what percentage of your net worth you want to allocate to metals.
To help you with figuring out your net worth (net worth = assets – liabilities), here are things I count towards my net worth as a reference for your calculation (Note: I use Robert Kiyosaki’s “Rich Dad Poor Dad” approach – an image explaining that is shown below):
- Cash Savings
- Stocks / Bonds / Certificates of Deposit
- Real Estate / Land (Not Including Primary Residence)
- Your home / primary residence can count towards this if you are running a business from it that generates more money than rent + cost of living.
- Precious Metals
- Crypto (ie. Bitcoin if you have any)
- Jewelry (watches, gold, gemstones) / Art / Antiques (silverware, statues)
- Remember to subtract any debt or obligations you have from the final number.
More on the ideas of wealth building by Robert Kiyosaki:
https://getmoneyrich.com/rich-dad-poor-dad-key-lessons-to-build-financial-freedom/
Once you understand what your net worth is, the next part is identifying your long-term goal and tolerance for risk. Although there is no one size fits all approach (and only you can decide what’s right for you), I typically break people down into two groups as follows:
People Who Probably Need Less Precious Metals In Their Net Worth
People below 40 & 50 years of age who are still in the “wealth accumulation phase” of life. These people may be more open to risk as they have plenty of time to recover from losses and allow riskier investments to recover their value in a market crash. Due to the time factor, these investors can afford to keep a lower percentage of their net worth in metals but should seek to increase it as time passes.
More on wealth accumulation under this link:
https://educatorfi.com/wealth-accumulation/
People Who Probably Need More Precious Metals In Their Net Worth
People above 50 years of age who are retired or approaching retirement and are past the “wealth accumulation phase” of life. These people should put more emphasis on wealth preservation as they lack the time needed to recover from large swings in the market. These investors, in my opinion, should be growing their share of net worth in precious metals as time passes at the cost of “risky” investments.
More on the “retirement risk” zone and planning here:
https://www.thepeakfp.com/blog/the-retirement-risk-zone
Deciding On Your Final Allocation
Once you’ve considered your risk tolerance level and where you are in the wealth accumulation & preservation cycle, it’s time to set a target allocation. Remember, this target should be a moving target that you reassess and rebalance over time. And don’t worry about being a couple percentage points above or below your target at any given time as prices fluctuate.
What’s most important in this exercise is that you invest and stack precious metals with purpose! Being aware of what your goals are, and how much or how little you want to own given your circumstances. As a directional compass, please consider the below brackets and net worth targets that I think are worthy of your consideration:
Below 50
- Low Net Worth: 5 oz Gold + 200 oz Silver or 5% of Net Worth
- Medium Net Worth: 5% to 10% of Net Worth
- High Net Worth: 10% of Net Worth
- Stacking Ratio: 20 to 40 oz of Silver for every 1 oz. of Gold (due to Silver’s lower unit price & higher price volatility, it’s ok to stack a little more silver in the early days of stacking).
Above 50
- Low Net Worth: 5 oz Gold + 200 oz Silver or 10% of Net Worth
- Medium Net Worth: 10% to 15% of Net Worth
- High Net Worth: 10% to 25% of Net Worth
- Stacking Ratio: 5 to 20 oz of Silver for every 1 oz. of Gold (due to Gold’s relative price stability and status as a tier 1 asset, it is the more stable vehicle for securing finances in wealth preservation mode).
If you’re having trouble placing yourself in a group, please use the table below and the link underneath it for additional resources to help you. Please note as a rule of thumb that:
- Being at Median level usually indicates Low
- Being at Average level indicates Medium
- Being at 2X the Average level is the beginning point for High
Link to table & article about determining where you stand in terms of net worth:
https://www.forbes.com/sites/investor-hub/article/average-net-worth-by-age-ways-increase-it/
Final Thoughts
There is no precise formula to determine how much gold and silver you should own, but there are things you can do to come to a ballpark figure that’s right for you. No matter what you end up deciding to do, please remember that buying gold & silver should be done with purpose and to reflect your long-term financial goals. If one of your goals is to spend your last days on Earth comfortably, the one piece of advice I will give in this article is to start thinking about this now!
