Not all that glitters is gold

The proverb could apply very well to some news we’ve had from a client, asking our advice after they received a communication urging them to consider investing in gold as a sensible haven for their money in troubled times.

The recommendation came to them from a business not known for its financial services expertise, one which is active in the retail and wholesale food and household goods sector.

This throws up a number of interesting issues.

First of all, who should you look to your financial advice? Second, is gold a reliable investment that does what it says on the tin – a safe haven for your money in these times of financial uncertainty? Three: is the notion of betting on a single asset class a wise way to proceed, and if not, what is?

Well, it’s true that many other asset types, not least stocks and share investments, have taken something of a battering due to the global health crisis. Gold, on the other hand, did for a while look like an all-singin’, all-dancin’ alternative by comparison. The value of gold did rise by some 25% between the start of lockdown in mid-March and a peak in early August. However, it has since embarked on a downward slide as the month has progressed.

If you bought in March and sold in early August you could have done very well; on the other hand, if, impressed by the gold performance, you had bought in August, you’d have unwittingly bought just as it peaked, just at the start of the slide. You’d have had a painful reminder that ‘judging an investment based only on past performance is like driving your limousine looking only in the rear-view mirror.’

Another principle of sound investing is not to put all your (golden!) eggs in one basket

The key to success is holding a diversified portfolio based on a good asset spread. A diverse share portfolio can do a far better job of offsetting negative impacts on one industrial sector by benefiting from positive impacts on another.

A simple example: if your shares in oil and gas go down when oil prices are low, your shares in distribution companies benefiting from the resulting fall in fuel prices may do well. Bear in mind that an actively managed fund may contain 50 stocks, providing great levels of diversity over a wide range of industrial sectors.

This prospect of diversification is what makes investments in a balanced investment fund great long-term potential, provided you are happy to ‘Keep Calm and Carry On’. No matter what doom and gloom is being peddled, we can think of the words of two famed market observers: first, the mantra of the American investor Warren Buffett, who said “remember that the stock market is a manic depressive”.

Buffett meant that you should not be swayed by current sentiment, and good advice can help you benefit from stock market investments. However, it must be borne in mind that stock markets are volatile, they have their ups and downs, and there is always a level of risk.

Buffet also believed that trying to predict market movements – the future value of gold, for instance – is a dangerous game, and the economist John Kenneth Galbraith agreed: “the only function of economic forecasting is to make astrology look respectable.”

So where should we look for investment advice?

A professionally qualified team of regulated financial advisers can put together a diverse portfolio of stocks, shares and other assets which, due to their differing natures, can lower the levels of risk in your investments.

At AAB Wealth we offer a wide spread of expertise that can fulfil all your needs by setting you up with a sensible and robust investment portfolio.

If you wish to have a no-obligation chat to one of our own trusted advisers, please contact us at advice@aabwealth.uk or 01224625111. We’d love to hear from you.