Gold, Silver, and Bitcoin

You may have seen recent news coverage about the volatility in gold, silver, and bitcoin. I want to take this opportunity to discuss these assets, the behavioral lessons they offer, and what this means for your portfolio.

To be clear, your portfolio is well-positioned to achieve your financial goals. However, when many of these investments are in the headlines, they naturally generate investor interest and raise questions. The key is to understand how to think about these investments, balance risk, and benefit from compound returns.

An Update on Gold, Silver, and Bitcoin

Gold, silver, and other precious metals rallied over the past two years, capturing investor attention. However, as we’ve seen in recent weeks, they can also add unforeseen risk to portfolios. It is our job to help educate you on the merits of different assets and, most importantly, how they fit in a portfolio that aligns with your long-term financial goals.

At their recent peaks, gold briefly surpassed $5,500 per ounce, while silver rose above $120 per ounce before experiencing its largest drop in decades. Bitcoin has also faced similar volatility, falling by more than 40% from the high of over $126,000 in October last year.

Prices rose due to concerns about Federal Reserve independence and central banks' buying of gold as they diversify away from dollar-denominated assets. The announcement of a nominee for Fed chair on January 30, which was seen as providing clarity and a smoother leadership transition, then led to a selloff in these assets.

As with all investments, it's important to maintain a broader perspective to understand their history and how they fit into a well-constructed portfolio. While many investors turn to precious metals as "safe haven" investments, these and other commodities are prone to boom-and-bust cycles.

Gold, silver, and bitcoin also carry important limitations. Most notably, they generate no income, unlike most bonds, which pay interest, and many stocks, which pay dividends. This lack of income also makes these assets difficult to value, which is another reason they are more prone to booms and busts.

Practical Behavioral Lessons

Assets that experience boom and bust cycles require investors to align their expectations when it comes to long-term financial goals. This is because investing and financial planning occur through all parts of the cycle, in both good and bad markets. It’s also not simply about picking a single asset based on past performance. So, while benefiting from investment opportunities and managing risk are important, it’s just as critical to set proper expectations that are grounded in history, analysis, and tailored financial plans.

Over 50 years of research tells us that people can be prone to both cognitive and emotional biases that often lead to suboptimal outcomes. There is perhaps nothing that gets investors’ attention more than assets that rise in value quickly, even if history shows that this can be short-lived. This is related to effects known as “recency bias” and “herd mentality.” When markets are rising, the fear of missing out can drive investors to abandon their carefully constructed plans.

What separates successful long-term investing is not the ability to eliminate these biases entirely, but rather to follow systems and frameworks that ensure you make productive decisions in spite of them. History shows that investor sentiment comes and goes, so what’s important is not to get caught up in any individual wave.

What This Means for Your Financial Plan

Achieving your financial goals requires staying invested and disciplined through the ups and downs. At the same time, after several years of strong market performance, it’s important for investors to maintain realistic expectations. Your portfolio is invested across asset classes, sectors, and geographies, designed to navigate periods of uncertainty without requiring reactions to the latest volatility.

As always, I'm here to discuss how these developments might affect your specific situation. If you have questions or concerns in light of recent events, please don't hesitate to reach out.