Gold as a Strategic Asset: Principles for the Thoughtful Investor

By Scott Hefty, Senior Wealth Manager and Founding Partner at Serae Wealth

Gold can be a useful tool for diversification when guided by discipline and perspective. Its value lies not in speculation or fear, but in how thoughtfully it supports a long-term, purpose-driven plan. 

Gold has long captured investors’ attention as a symbol of safety. Yet its value often fluctuates as much as the markets it’s meant to counterbalance. Understanding when and how this precious metal fits into a well-structured portfolio requires perspective, discipline, and clarity of purpose.

Over the last 25 years, gold has produced healthy returns when compared to the overall stock market. However, this is an exception, not the rule, as this asset class tends to perform well in periods of market uncertainty, thus implying to many that it’s a safer investment. Yet, from a multi-decade perspective of financial markets, it generally underperforms. The most resilient portfolios are built with intention, not reaction. Precious metal investments can serve a purpose, but only within a plan that reflects long-term goals and values.

History has taught us that gold can be extremely volatile, especially when compared to safer alternatives like the overall bond index (AGG). While equities and precious metals share this volatility, they tend to be non-correlated, meaning one returns well when the other often does not. This allows for effective portfolio hedging. Most large portfolios should include a small allocation to these assets to bring diversified balance and endurance. 

As a good financial steward, it’s important to know that investments in gold, both physically and digitally using a gold-backed ETF, are taxed at the higher collectibles rate of 28% compared to the current maximum capital gains rate of 20% when investing in equities. It’s important to consider the net after-tax return when weighing the various investment options.

Understanding these factors before making the investment or shifting allocations helps ensure the decision aligns with your broader financial strategy. Gold-backed ETFs can be a way to efficiently create diversification within an overall investment account, allowing you to use this asset class’s non-correlated nature to bring more balanced returns. Additionally, they typically have far lower ongoing expenses and transaction costs compared to their physical counterpart. 

There can often be recommendations to purchase gold based on a fear of economic collapse or a declining US dollar. This fear-based view can often be a disservice, causing investors to make poor long-term investment decisions. Gold can be a useful tool for diversification when guided by discipline and perspective. Its value lies not in speculation or fear, but in how thoughtfully it supports a long-term, purpose-driven plan. At Serae Wealth, we help clients make decisions that bring clarity today and endurance for decades to come.