All That Glitters: The Appeal of Cash and Gold
With trade issues like tariffs, de-globalization, and a declining U.S. dollar, as well as geopolitical events like the war between Ukraine and Russia, investors and government officials can be forgiven for wanting to seek traditional safe havens such as cash and gold. And, they have lately been rewarded. Money market mutual funds have been yielding 4-5% for several years. Gold is at historic highs, having now reached $4,000 per ounce. If history has taught us anything, however, it is that short-term gains don’t necessarily translate into long-term gains.
Short-Term vs. Long-Term Results
Figure 1 is courtesy of Hartford Funds and shows the growth of $10,000 invested in 1978 in five different asset classes: U.S. large cap stocks (S&P 500 Index), U.S. investment-grade bonds (Bloomberg U.S. Aggregate Bonds Index), a balanced portfolio of 50% stocks/50% bonds, gold (the S&P GSCI Gold Index), and 30-day T-bills (SBBI US 30 Day T-Bill Index). Gold and T-bills (cash) are the two worst-performing asset classes.
The Drawbacks of Gold
Brown Financial has long recognized that gold has two significant drawbacks that make it a less-than-ideal asset class for long-term investing. First, gold is unproductive as it does not generate cash flows such as dividends and interest payments (like stocks and bonds do). Income helps provide a steadier path to long-term total returns. Second, investors often assume that gold prices are stable, but prices are determined mainly by speculation on where prices are headed and thus tend to be volatile. According to Dimensional Fund Advisors¹, from 1970 through May 2025, gold has been positive in just 60% of calendar years, while the S&P 500 Index has been positive in 80%.
Regarding higher cash yields, they typically don’t last for very long, particularly when the Federal Reserve begins a rate-easing cycle. According to Hartford², since 1973, there were eight instances when cash yields dropped by at least 4% over periods ranging from three months to two years; the average decrease was 5.06%. Also, bond fund yields are now higher than cash yields.
The Power of a Balanced, Diversified Portfolio
No matter what happens to gold prices or cash yields, a diversified portfolio will continue to power your financial plan. While assets like cash and gold may perform well in certain conditions, they are only one part of a broader investment strategy.
If you’d like to learn more about our common-sense approach to investing or how you can put spare cash to work for you, please contact us.
Figure 1: Long-Term Returns for Different Asset Classes – Growth of $10,000 (1978-2024)
Sources:
¹2025.06.05 DFA Above the Fray – Is Gold a Safe Haven?
²2025.06.24 Hartford Funds Client Conversations – Your Juicy Cash Yield Could Disappear Quickly