Traditional retirement investments consist of 5 types of holdings: U.S. stocks, foreign stocks, U.S. bonds, foreign bonds, and real estate. But in reality, you can put any kind of holdings in your retirement portfolio, from fine art to cryptocurrency, from pork belly futures to stamp collections, and from collectible sneakers to gold. But should you?
As an investment, gold has recently received a lot of attention because it has increased in value by 162% in the past 2 years. At the same time, the S&P 500 stock index increased by 24%. The graph below shows how an investor would have performed by investing $2,000 in either gold or the Vanguard Total U.S. Stock Index Fund (VTSAX) in January 2024 through January 2026.
Based on the returns for gold during the past 2 years, it looks like a great investment. But is it really and is now a good time to invest in gold?
Gold as an investment
For hundreds of years, gold was treated as a form of money. Until the Great Depression, the United States tied its currency to the value of gold, the so-called “gold standard”. But today, you cannot pay for your groceries or pay your rent using gold. Gold’s value is because of its value as a commodity.
A commodity is a raw material or primary agricultural product that can be bought and sold on a commodities market. Commodities include things like wheat, corn, copper, crude oil, and gold. Commodities can typically be consumed or made into a product that can then be sold. Wheat can be made into flour, crude oil can be made into gasoline, and gold can be made into jewelry. As an investment, gold is unique among commodities because it does not spoil if you hold it too long (unlike wheat or corn) and it is small enough that the average person can keep it in a safe at home or in a safe deposit box at a bank (unlike crude oil or copper). Because of these qualities, gold (and other precious metals) can serve as a long term investment for the average person.
There are many factors that can affect the price of gold. Gold is considered to be a safe haven asset, meaning that in times of geopolitical instability, gold is generally considered to hold its value better than the currency of unstable countries. Thus, when there is geopolitical tension, the price of gold usually increases. During periods of economic uncertainty, the central banks of countries buy gold as a hedge agains uncertainty and this can further drive up the price of gold as demand increases. Gold is viewed as a hedge against inflation so when the rate of inflation increases, the price of gold increases. Also, when the value of the U.S. dollar falls, the price of gold in the United States increases. Interest rates can additionally affect the price of gold – when bond interest rates increase, the price of gold decreases since unlike bonds, gold does not pay out annual interest or dividends, making bonds more attractive to investors than gold.
In the long term, stocks outperform gold
Since 2000, gold has outperformed stocks but over a longer period of time, stocks have outperformed gold. The table below shows the current value of $1 invested in either gold or stocks, assuming that stock dividends are reinvested.
One the surface, it appears that gold is the better investment over the past 25 years. However, if you compare the returns from gold versus the S&P 500 between 2000 and 2019, those returns are similar – most of gold’s increase in value has occurred in the past 6 years, related to the COVID pandemic, geopolitical instability related to the wars in Ukraine and Israel, and more recent global economic instability related to tariffs and the falling value of the U.S. dollar. The risk of gold today is that it may be overvalued – easing of geopolitical tensions and greater global economic certainty could result in gold falling in value in the future.
In the short term, gold is highly volatile – even more volatile than stocks. This makes it a poor choice for short term investing. Thus, the role of gold in a retirement portfolio should be as a long term investment.
How do you invest in gold?
The most direct way to invest in gold is to purchase gold bars or gold coins. However, this means that you need a secure way to store it, such as in a safe at home or in a safe deposit box in a bank. Even with seemingly secure storage, physical gold can be subject to theft. Buying gold bars or coins from a gold dealer also requires paying a commission – generally 1% to 5% of the purchase price. These commissions are not reflected in graphs showing an increase in the price of gold and these commissions can significantly erode investment returns. Additionally, secure storage can add costs that can further erode the overall return on investment in gold. To summarize – the cost of buying, storing, and selling physical gold can negate a lot of the returns from increases in the price of gold as a commodity.
Physical gold can also be held in an IRA for retirement. However, there are specific IRS rules about gold IRAs. For example, the gold must be stored in an IRS-approved third party storage facility – you cannot store gold in a bank safe deposit box if that physical gold is in an IRA. The IRS also requires that the gold in a gold IRA be purchased by an IRS-approved custodian and that the gold bullion be IRS-approved (> 99.5% purity). Fees paid to the custodian to buy and sell gold in the IRA and fees paid to the storage facility to store and insure the physical gold in the IRA can significantly erode the returns from investment.
An alternative to physical gold is to purchase shares of a gold mutual fund or gold ETF where the fund then holds the physical gold in a secure location. Gold ETFs have expense ratios of around 0.40%, which is considerably cheaper than the commissions paid when buying physical gold from a gold dealer. In addition, the ETF expense ratio also covers the cost of storaging and insuring the physical gold that is held by the ETF. When compared to a gold IRA, having a gold ETF in your regular traditional or Roth IRA is much less costly and avoids the rather high custodian fees, storage fees, and dealer mark-ups associated with gold IRAs.
Lastly, you can buy shares of stock in gold mining companies; however, this poses additional risk since the companies can lose value from operational problems, poor management, or political upheaval in the country where the mine is located – even as the value of physical gold as a commodity is increasing.
So, should you have gold in your retirement investment portfolio?
Gold’s volatility makes it a poor choice as the main component of a retirement portfolio. However, as a minor component, it can serve an important role as a hedge against inflation and hedge against falling purchasing power of the U.S. dollar. Gold usually (but not always) increases in value when bonds decrease in value. Sometimes gold will also increase in value when stocks decrease in value. In a retirement portfolio, this gives the retiree the ability to strategically draw from gold investments during months or years that stocks or bonds have fallen in value.
Whether to have gold in your retirement investment portfolio and what percentage to have will depend on several factors:
- Comfort with investment risk. The percentage of one’s retirement investment portfolio invested in gold will depend on one’s personal degree of risk aversion. As an example, someone who is risk averse from an investment standpoint may want to have no retirement holdings in gold whereas someone who is comfortable with investment risk may want to have as much as 5% of the portfolio invested in gold.
- Years until retirement. As with any volatile investment, the closer one is to retirement age, the lower the percentage of volatile investments one should have in their retirement portfolio. There is too great of a risk that gold could lose significant value in the short term and if an investor is dependent on gold to provide a large percentage of their annual retirement income, then that investor could need to draw from the gold investment at a time when it has lost value. It is unwise to make a large new investment into gold a year before retiring.
- Projected annual retirement income to living expense ratio. The closer a retiree’s annual income from investment is to their basic living expenses, the lower the percentage of volatile investments should be in their portfolio. The danger is that if there is a fall in value of a volatile investment in any given year, the retiree may have to withdraw a greater amount of their total portfolio to pay the bills and risk running out of money later in life. On the other hand, if the annual retirement income is considerably greater than annual basic living expenses, then the retiree can simply reduce discretionary spending for a year or two when volatile investments fall in price and thus preserve total investment portfolio value for the future.
- Life expectancy after retirement. A longer life expectancy from the year that one retires means a longer investment horizon for retirement investments. The longer the investment horizon, the more volatility and risk the investment portfolio can withstand since some of that investment can be considered long term. On the other hand, if one anticipates a relatively short life expectancy after retirement, then the portfolio should predominately contain low risk, non-volatile investments since they will all be short term investments. Factors that can affect life expectancy after retirement include one’s age when retiring, the presence of any chronic diseases, whether one smokes, whether one is obese, and how long one’s parents and grandparents lived.
- The amount of one’s Social Security benefit or pension. Social Security and pensions are considered fixed income sources – they may keep up with inflation but they do not increase in value above inflation. The advantage of a fixed income component in one’s retirement portfolio is that it serves as a financial buffer during times when stock, bond, or gold investments drop in value. The larger one’s annual fixed income, the greater risk and volatility one can tolerate with other retirement investments. On the other hand, someone with no pension and a relatively small Social Security benefit cannot tolerate excessive volatility in their investment portfolio and gold would be a poor choice.
- One’s opinion about the future. No one can predict if the U.S. or other major powers will become enmeshed in a future war. No one can predict whether future U.S. policies will result in a fall in the value of the U.S. dollar. No one can predict when the next surge in U.S. inflation will occur. No one can predict when the surging federal deficit will reach the tipping point and cause a new wave of U.S. austerity. If you are a pessimist about the economic and geopolitical future, then a higher percentage of gold in your retirement investment portfolio is warranted. If you are an optimist about the future, then a lower percentage of gold would be more appropriate.
When should you buy gold for your retirement investment portfolio?
The general rule of investing is to “buy low and sell high”. One of the challenges is that you never know if the price of any investment is going to go up or going to go down in the future. However, understanding the factors that affect the price of gold can provide some direction to the investor. Historically, the best time to buy gold has tended to be during periods of low inflation, rising interest rates, geopolitical stability, a strong U.S. dollar, and U.S. policies fostering economic stability. These are times when the price of gold is relatively cheap. On the other hand, the worst time to buy gold is during periods of rising prices, falling interest rates, geopolitical turmoil, a weakening U.S. dollar, and U.S. economic uncertainty. These are times when the price of gold is relatively expensive.
My personal opinion is that we are currently in the latter times. Inflation has proven to recently be sticky with tariffs increasing consumer prices. Although interest rates remain high, they appear to have crested, with gradual reductions over the past year. We are currently experiencing tumultuous geopolitical events with the persisting Ukraine war, U.S. involvement in Venezuela, U.S. posturing toward Greenland, and political instability in Iran. The U.S. dollar has weakened approximately 10% over the past year, largely as a result of U.S. tariffs, federal government shutdowns, and perceived threats to the autonomy of the U.S. Federal Reserve. There is considerable economic uncertainty with threats of even greater tariffs that can result in higher inflation, the increasing federal deficit, the impending exhaustion of the Social Security Trust Fund, and the realignment of traditional U.S. trading partners resulting from “America first” policies.
Should you have a gold component in your retirement investment portfolio? Yes, it can be an important diversification component that will strengthen an investment portfolio. But I believe that now is not the time to buy gold for one’s retirement investment portfolio. Instead, now is the time to be selling gold that you already have in your investment portfolio. Then wait until the various factors historically associated with lower gold prices emerge and then buy gold bars, gold coins, gold ETFs, or gold mining company stocks. Avoid gold IRAs since they have excessively high expenses – if you want a gold component in your IRA, then buy shares of a gold ETF instead.
Because there is no way to know when gold (or any other investment) has bottomed out in price, a good strategy for buying gold is dollar cost averaging. That is, buying small amounts of gold every month or so over a long period of time. Then rebalance your portfolio every year by buying or selling gold to maintain whatever the desired percentage of your total investment portfolio you have decided should be invested in gold, generally 10% or less. As an investment, gold may look hot today, but that just means that you should have bought it 5 years ago.
February 3, 2026
