Investing Rules from an Old Guy

I admit, holding 20% Gold and 20% Cash in the starter portfolio is a little unorthodox. Therefore, I won’t be surprised if you adjust or eliminate this allocation as you see fit. What’s important is that you stick with your strategy and periodically rebalance. Having said that, here is why I have some gold and cash in my portfolio:

Gold

The purpose of holding gold is to protect against major market downturns. Since there is little economic value to the shiny yellow rock except that humans have assigned value to it, gold does not move with the rest of the market which helps diversification.

For whatever reason, the value of gold increases when there is uncertainty in the world. The purpose of holding gold is to reduce the overall volatility of your portfolio. Holding 20% is conservative so adjust it down if you’re comfortable being more aggressive.

BTW, Warren Buffet does NOT recommend Gold.

Cash or Cash Equivalents

The purpose of holding cash is to take advantage of short-term opportunities that may come up and to protect against major market downturns. Like gold, holding 20% is conservative so adjust it down if you’re comfortable being more aggressive.

Note that I actually abhor cash sitting around not collecting interest. Instead I use the asset SWVXX (SWVXX Schwab Value Advantage Money Fund) which is like a Savings Account with a better interest rate and is almost as liquid as cash.