The standard knock on gold is that it does not yield anything. No dividends, no coupons, no earnings. For most of my career, if I saw a large gold position in a new client’s portfolio, it raised a flag. And on pure return math, that skepticism still holds.
But my view has shifted over the last several months, and the question came up directly during a recent Scholar Big Picture session in front of our live studio audience: has my opinion on gold changed? It has. Not because I think gold will outperform, but because I have started to think about it as insurance rather than as an investment.
Insurance Is a Different Job
We tell clients to diversify away the risks that are specific to any one company or sector. That is what a broad portfolio does well. But diversification does not protect you from every kind of risk. For truly catastrophic, system-level disruption, the tool is not more diversification. It is insurance.
Seen that way, gold’s zero yield stops being a dealbreaker. Nobody complains that their homeowner’s policy did not earn a return last year. You pay a small, known cost so that a very bad outcome does not wreck everything else. A modest gold position works the same way: you accept a little drag in exchange for something that tends to hold its value when the rest of the system is under real stress.
That does not make me a doom-and-gloom forecaster. I do not expect disaster. I just think the range of outcomes has widened enough that a small hedge is worth paying for.
Personal Disruption Counts Too
There are two kinds of disruption to think about. One is a broad market or economic shock. The other is personal: the moment when a downturn collides with the exact years you need to start drawing on your portfolio.
If you are 25 and decades from needing the money, a bad market is something you can ride out. If you are a few years from retirement, or just starting to take withdrawals, the same downturn is a direct threat to your plans. For that second group, a hedge against disruption carries more value, because the cost of a bad sequence is so much higher.
The worst outcome I can picture for a client is someone who practiced delayed gratification for 30 years, built a strong portfolio, and then had a short-run shock keep them from doing the thing they saved for. That is the scenario a small gold position is meant to guard against.
Three Percent Is Enough
I would not hold a big chunk. Somewhere around 3% is where I would start. That is large enough to matter if something truly goes wrong, and small enough that the zero yield barely moves the needle on long-term returns.
There is a practical reason to keep it small as well. If the rest of your portfolio drops, you can rebalance by selling bonds and buying stocks. A physical gold position is much harder to trim and add to in the same way. At 3%, that is fine; it can simply sit there. At 15% or 20%, it starts to distort the whole plan.
Why Physical Instead of a Fund
This is the part that surprises people. If the point is to protect against serious disruption to the financial system, I would lean toward physical gold rather than a gold ETF. A fund is still a claim held through brokers, custodians, and exchanges, which are the very plumbing you are hedging against.
Physical gold comes with real trade-offs. You need secure storage and insurance. It is less liquid, the spreads when you buy and sell can be wide, and the tax treatment is different from stocks. Those costs are another reason to keep the position modest and treat it as something you buy and leave alone, not something you trade.
A Hedge for the Plan You Have Already Built
None of this changes the foundation. The core of a strong plan is still a diversified portfolio, a disciplined savings rate, and enough liquidity to handle the unexpected. Gold does not replace any of that, and it never earns its keep in a good year.
What it can do is protect the payoff of all that discipline. If you have spent years saving and investing with a goal in mind, a small amount of insurance against a worst-case scenario is a reasonable price for peace of mind. If you are wondering whether a position like this fits your situation, talk it through with us, your advisors, before you buy anything.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on hedging against catastrophic risk in a long-term portfolio, watch the full podcast episode here.