What asset class has captured the attention of millennials and Gen Z investors? Surprisingly, it’s gold.
A recent study by Bank of America Private Bank reveals that 45% of wealthy investors under 43 own gold as a physical asset, with another 45% interested in acquiring it. These figures significantly outpace those of older generations.
Typically, this younger demographic isn't keen on assets like gold, cash, or Treasuries, labeling them as "boring," notes Liz Young Thomas, head of investment strategy at SoFi.
"As Treasury yields rise, cash is paying a high interest rate, and gold is rising along with it.
We are seeing returns we normally don’t see in such a short period of time," Thomas says. "Naturally, when assets have strong returns, younger audiences start to perk up.”
A study by State Street echoes this sentiment, showing that millennials allocate 17% of their portfolios to gold, surpassing boomers and Gen X, who allocate about 10%.
So, why are younger investors gravitating towards a time-tested asset like gold?
Part of the buzz is gold’s current spot price, sitting comfortably above $2,400 per ounce.
Moreover, gold is becoming more visible in mainstream retail spaces. For example, Costco began selling 1-oz gold bars last fall and has been raking in up to $200 million monthly in sales, according to Wells Fargo estimates.
With the growing interest in gold among younger investors, what golden rules should they follow? Here are a few expert tips:
Owning Physical Gold Can Be Tricky
Gold’s tangibility is a major draw. In times of financial turmoil or currency devaluation, having a physical asset can provide a sense of security.
“I have found with my millennial clients that as they get wealthier, they are more interested in investing in directly-held, self-custodied gold,” says Eric Amzalag, a financial planner based in Canoga Park, California. His clients often use online precious metals retailer APMEX.
As wealth grows, investment goals often shift from growth to capital preservation, Amzalag explains.
However, owning physical gold presents unique challenges: finding a reputable dealer, secure storage, insurance, and eventually selling it.
Plus, don’t expect Costco to buy back your gold bar.
For tips on protecting your investment, check out this advisory guide from the World Gold Council.
Consider ETFs
Exchange-traded funds (ETFs) that are backed by physical gold or invest in gold futures offer a convenient alternative to holding physical gold. They eliminate the hassles of buying, storing, and selling.
“There are some fees associated with that, but ETFs are a nice alternative if you don’t want to actually take delivery of bullion and hold it in your basement,” says SoFi’s Thomas.
The largest gold ETF, SPDR Gold Shares (GLD), has an expense ratio of 0.4% and one-year returns exceeding 23%. Another option is an ETF that includes mining stocks, like VanEck Gold Miners (GDX), featuring major players like Newmont Corp. and Barrick Gold.
Don’t Overdo the Allocation
Gold can play a valuable role in a diversified portfolio, offering an uncorrelated asset and a hedge against inflation or volatility. However, as a commodity, it can be quite volatile and may fall out of favour.
Equities should still be the primary focus for most investors, as they provide the potential for sales growth, profits, dividends, and share-price appreciation.
“Gold should be a complimentary side dish, not the main course,” advises Jonathan Cameron, a financial planner in Miami.
“We work with many young professionals, and we have been including a gold ETF (about 5%) in many of our clients’ portfolios as a hedge for several years,” Cameron says. “Everyone likes this decision.”
In summary, while gold can be a glittering addition to a portfolio, especially during economic uncertainty, it’s crucial to approach it strategically.
For younger investors, gold can offer both security and growth potential. Just remember, diversification and balance are key to a robust investment strategy.
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