The shining pot of gold at the end of the rainbow is a fitting metaphor for retirement: If you can just get there, untold happiness awaits.

But in literal terms, many older Americans are curious about whether gold (and to a lesser extent, silver) should be part of their retirement portfolios. The allure of gold and silver predates modern investing: It has endured because of their reputation for rock-solid value, especially during periods of economic crisis.

As with many asset classes, you can find investment experts willing to argue both the pros and the cons of the shiny stuff.

But one thing is certain: When deciding whether to invest in gold and silver, it’s important to know the basics.

The case for gold

Perhaps the strongest argument for investing in gold for retirement is its security in the face of economic and political uncertainty.

As David McAlvany, CEO of Vaulted and the McAlvany Financial Companies sees it, adding gold and silver to your retirement portfolio “diversifies and lowers total risk and volatility considerably, and in a mix with stocks and bonds it serves as a less correlated ‘ballast’ asset.”

Gold is a solid hedge against risk because it performs well in uncertain times and against declines in currencies such as the U.S. dollar.

An uncorrelated asset is not tied to the fluctuations of another asset in the way that stocks and bonds are connected to the U.S. dollar. So in the case of gold, it can hold steady while other areas of your portfolio may be suffering a loss.

That’s important, McAlvany believes, because “precious metals tend to outperform when equities and bonds underperform.” 

McAlvany continues, “Gold tends to outperform during periods of political or geopolitical upheaval and can in some respects be treated like insurance within a portfolio.

The insurance payoff comes during periods of stock market decline, accelerating deflation or inflation, and generally during periods of economic or financial market uncertainty.”

Investors see gold as secure against inflation, since it has its value even as inflation has pushed down the spending power of the dollar. Thus gold is a solid hedge against risk because it performs well in uncertain times and against declines in currencies such as the U.S. dollar.

The case against gold

While security is an important consideration, not everyone sees gold and silver as worthwhile retirement assets — especially if you’re focused on return on your investment.

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Robert R. Johnson, Professor of Finance at Heider College of Business at Creighton University, told Considerable he thinks gold’s reputation as a hedge against inflation is overblown, and added, “The lessened volatility of a portfolio by adding precious metals comes at a high price — the returns to precious metals are much lower than that of stocks.”

In fact, Johnson said, “The main reason I am not a fan of precious metals is that long-term returns have been extremely poor.”

It’s true that gold and silver pay neither interest nor dividends, so the trade-off for added security is receiving a much smaller return on your investment than you would get from a common stock.   

Johnson worries about precious metals being speculative and too dependent not on intrinsic value, but the expected selling price to someone in the future. He compared gold and silver to a more headline-grabbing asset:

“The only difference between bitcoin and gold and silver,” he said, “is that at least gold and silver have jewelry uses.”

In addition, the gold and silver market can be stagnant for long periods of time, then become erratic. With gold prices in the midst of a 20-year run of great growth, it could be on the cusp of a downturn.

So, should you add gold (and silver) to your retirement portfolio?

Almost all financial planners, investment advisers, and finance magazine columnists will recommend diversifying your retirement portfolio. Whether precious metals should be part of that diversification depends on your specific age, goals, and investment priorities.

Over the short term, gold and silver cannot match the return you can get from other stocks. So younger investors who have more time to ride out the inevitable ups and downs of the stock market can eschew the stability of precious metals in favor of the long-term returns of more common stocks.

Over the short term, gold and silver cannot match the return you can get from other stocks.

But if you are approaching retirement age and want to minimize risk, it could make sense to protect yourself and your portfolio by adding some precious metals to the mix.

Michelle Cortes-Harkins, financial planner at Harkins Wealth Management, thinks it’s important you adjust as you go, telling Considerable: “Whether you should purchase gold or silver for your overall portfolio should be in line with your overall financial plan. This is where age comes into play.

“A good financial plan will take age and your goals into consideration, and from that you can decide which asset class (including gold/silver) will best get you there.”

Bottom line: Make sure you’re doing what’s best for yourself as your needs change on the cusp of retirement, and you should be golden.

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