Irrational Allocation and Gold

Americans own far less gold than they should. Less than .5% of American consumer portfolios are gold. Although gold provides countercyclical safety to the market and has grown consistently in relation to the dollar and performed not dramatically differently from the S&P over the last 25 years, Americans still only allocate a tiny portion of their assets into gold. This is an anomaly in human history as gold has long been one of the most commonly held stores of value, but it is also irrational, given the standard rules of portfolio theory. There are several factors that push people away from gold despite its obvious advantages in any portfolio. There is a surprising social stigma against owning gold and assumptions are made about people for choosing to purchase it. Government tax rates on gold are restrictive in comparison to other assets. The public is also extremely uneducated on the unique role gold can play in any portfolio.

The choice to purchase gold can get someone labeled a gold bug. People often think that holding a decent amount of your portfolio in gold means that you are a conspirator or think that the economy is going to end. Gold owners are put in the same category as preppers and flat earthers. Non-gold owners assume that buying gold signals a lack of economic understanding. They think that the continual growth of equities will not stop until the end of time and that owning gold is an expensive price to pay for holding to fringe ideologies. Gold would provide its highest return in a time of market collapse, so gold owners are unfairly viewed as rooting on the downfall of the market. Questions about storing gold will inevitably follow when gold ownership is mentioned. Everyone has a story of a crazy uncle who lost his gold or had it stolen by burglars. Owning gold has a potential to make someone criticized as a conspiracy theorist at worst and a thinker at best. Dropping money into the S&P is one of many ways to hold money, but it is by no means the only way, and owning gold must be more socially accepted before regular people will start buying it at a rational level.…