3 Investments That Should Never Go In Your Retirement Portfolio

Think your retirement’s safer with a little gold, a favorite stock, and a home full of equity? Time for a reality check. In this episode, we put three “sacred” retirement assets to the test and show how they can quietly derail the one outcome that really matters: a steady paycheck for life.

You’ll learn how to define your retirement portfolio’s real job, growth that beats inflation and protection that funds your lifestyle through market swings. We unpack gold’s myth versus math, why concentrated stock bets widen your risk, and how home equity fits more as lifestyle than income.

Then we share a clear framework for sustainable withdrawals:

• growth sleeves that fight inflation
• reserve sleeves that fund stability
• rebalancing rules and guardrails that keep you on track

Because a great retirement isn’t built on shiny objects or hometown pride, it’s built on reliable income you can live on, year after year.

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The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements

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Episode Transcript

SPEAKER_00 (00:00):
There are many different investments that you

(00:01):
as an investor can pursue.
But when it comes to investingin your retirement portfolio,
there are three specificinvestments you should stay away
from.
The first investment that youshould not own in your
retirement portfolio is gold.
Now, to understand why, let'sunderstand some context here and
take a step back.
When it comes to your retirementaccounts, the goal there is to
fund your ability to maintainyour lifestyle in retirement.

(00:22):
To do that, you need two things.
You need growth in investmentsto maintain your purchasing
power and offset inflation overtime.
And number two, you needprotection.
You need protection against theinevitable downturns, the
inevitable extended downturnsthat will happen in the stock
market.
So where does gold fit into thepicture here?
Because typically people thinkof it as an inflation hedge.
Well, here's the thing withgold, and here's why I don't

(00:43):
like it.
If you go way back to 1934,Congress passed the Gold Reserve
Act.
And the Gold Reserve Act peggedthe price of gold to$35 per
ounce.
Now that pegged price, thatartificially pegged price,
meaning the governmentcontrolled it, it wasn't
floating on a free market, thatlasted until 1971, until
President Nixon removed us fromthe gold standard.
So what do you think happenswhen you have an asset that's

(01:05):
value is artificially pegged toa certain price, and it's
artificially pegged for almost40 years?
Well, there's a good chancethere's going to be a run-up in
the valuation or the price ofthat asset when the artificial
price, when the artificial pegis removed.
That's exactly what we saw inthe 1970s.
In 1971, towards the end of1971, the gold standard was
removed, or there's no longerpegged to the dollar.

(01:25):
And from 1972 until the end ofthe 1970s, the annualized return
of gold was 36% per year.
So 36% per year from 1972 to1979, if you compare that to US
stock market, the US stockmarket annualized 4.6% per year
from 1972 until 1980.
So when you look at just that,gold was a far superior

(01:47):
investment.
But you have to ask yourself thequestion: how much of that
run-up was attributed to goldall of a sudden be worth a whole
lot more, versus how much ofthat was simply gold no longer
being pegged artificially tosuch a low standard like it had
been for the previous 35, 40years.
So that was the 1970s.
The return on gold, theperformance on gold far
surpassed the return on the S P500.

(02:08):
But what about the 1980s?
Well, in the 1980s, the SP 500actually did quite well.
It returned about 17% per yearover that 10-year stretch.
Gold, on the other hand, lost2.5% per year.
Not just for one year, not justfor two years, but on average,
over that 10-year time period,the annualized return was
negative 2.5% per year.

(02:28):
So that was the 1980s.
Well, how did gold do in the1990s?
Well, after averaging a negative2.5% return in the 80s, gold
went on to average a negative3.3% return during the 1990s.
So a negative total return inthe 1980s followed by another
negative total return in the1990s, this one even more
severe.
Going back to stocks using theSP 500, they were up 15.3% in

(02:51):
the 1990s.
Then things did switch in the2000s.
In the 2000s, it was actuallythe SP that had a negative
return.
Its annualized return wasnegative 1% during the 2000s,
while gold actually did quitewell.
It was up 13.9% during thatdecade.
Then quickly, just to roundthings out, in the 2010s, gold
returned 2.9% per year, and theSP 500 returned 13.4% per year.

(03:14):
Now, since 2020, both gold andUS stocks have had a very nice
return, returns in the low tomid-teens for both asset classes
combined.
But how do things stand as awhole?
Why do I think you shouldn'thave gold as part of your
portfolio, at least yourretirement portfolio?
Well, if you look at theannualized return of each,
gold's annualized return duringthis time period was 7.4%.
US stocks return during the sametime period was 10.5%.

(03:36):
Now here's the thing.
If you take out the 1970s, whichis when there's that major
run-up in the price of gold orthe return of gold, if you take
that out, the return of goldsince 1980 is closer to about 4%
per year, a little north of 4%.
So that's not a strong return ascompared to the S P 500.
And many of you are saying,James, it's not supposed to be
tracking the S P 500.
It's more for inflationprotection or it's more for

(03:58):
downside return.
So you're right, it's not anapples to apples comparison.
We also need to understand therisk characteristics here.
One way of measuring risk iswhat's called standard
deviation.
The higher the standarddeviation on an investment, the
more volatile it's going to be,the more it's going to
fluctuate, which isn't the onlydefinition of risk, but it's one
that's very relevantspecifically for a retirement
portfolio.

(04:18):
During this time period, thestandard deviation on gold was
20%, whereas the standarddeviation on the SP 500 was in
the 15 to 16% range.
Now, those numbers maybe don'tmean a whole lot.
Maybe I can do a differentepisode explaining what that
means, but the higher thenumber, the riskier it is.
But here's a different way, andmaybe a more practical way of
measuring risk.
What's the downturn that I as aninvestor can expect to

(04:38):
experience and how long does ittake to wait out that downturn?
Because for my retirementportfolio, I need to know I can
count on this.
I don't have an infinitely longtime horizon.
I need these assets to supportme today.
I need these assets to live ontoday.
Well, we've all heard of thelost decade.
The lost decade is when the USstock market averaged negative
1% per year returns from 2000 to2010.

(04:59):
And that was largely because ofwhat happened in 2007-2008, when
the US stock market lost 51% ofits value.
So that was the max downturnthat we've had in the US stock
market since the end of WorldWar II.
So if we look at the time periodfrom 1971 until now, so in other
words, the time since goldstopped being tied artificially
to a specific price, that's theworst downturn we've had in the

(05:22):
US stock market, negative 51%.
If you look at gold, its worstdownturn was negative 62%.
And get this, that downturn, itstarted way back in October of
1980, and it took all the wayuntil August of 1999 for that
negative 62% to bottom out.
Meaning it wasn't a sharpV-shaped recovery that popped
right back up.

(05:42):
It took almost 20 years thatdownturn to play out, and then
it took another six, seven yearsfor it to fully recover.
Or in other words, there is afull 26-year time period where
gold did absolutely nothing.
If you happen to be a retiree atthe beginning of that and you
had an asset that returned anegative return for the first 25
and a half years and didn'tbreak even until 26, that's not
a great asset for yourretirement.

(06:03):
So this isn't the onlycomparison that should be made.
It shouldn't just be US stockscompared to gold.
But as you start to see this, asyou start to see that gold
doesn't necessarily have thereturn characteristics of US
stock markets over a longerperiod of times, nor does it
have the same riskcharacteristics, meaning it's
actually more risky in manydifferent ways.
That's why I don't believe goldshould be part of your
retirement portfolio.
The second thing that should notbe part of your retirement

(06:24):
portfolio is overly concentratedstock positions.
Now here's the thing, I'm notopposed to an overly
concentrated stock position.
If you work for a company or youhave a certain affinity for a
company or there's just acompany you really love, own it.
Own a concentrated position init.
But that cannot be what you havein your retirement portfolio.
You need to think of yourretirement portfolio saying,
what's the balance that I needso that I can meet my income

(06:46):
needs throughout retirement.
And regardless of what happensto this specific stock or the
market as a whole, I have a veryhigh likelihood of meeting my
needs throughout retirement.
Here's a simple way of thinkingabout that.
Let's assume I want to retireand spend$75,000 per year today.
Let's assume that of that I havea social security benefit that
covers$25,000.
$25,000 from Social Security,which means the remaining

(07:06):
$50,000, that's what needs tocome from my retirement
portfolio.
My retirement portfolio cangenerate, depending on how
you're invested, about 5% peryear of withdrawals and support
a 30-year retirement.
That's based upon research fromBill Bangin.
That's based upon research fromother people like Jonathan
Guyton.
This is a number that doesn'tjust come out of thin air, this
5%.

(07:27):
This is based upon research ofsaying if you're invested the
right way, here's what you canexpect to be able to withdraw
and have that money last for 30plus years and have a very high
probability of success.
So continuing with that example,if I need the remaining$50,000
per year from my retirementportfolio, my retirement
portfolio can generate 5% peryear.
What that means is I would needa million dollars in my

(07:48):
retirement portfolio.
$1 million generates$50,000 peryear.
Stack that on top of the$25,000per year that I have coming in
from Social Security, there's my$75,000.
So here's the thing.
If I only have a milliondollars, I shouldn't own any
concentrated stock positions.
I need that full million dollarsto be invested, to be
diversified, to be allocated ina way to support that 5%

(08:10):
withdrawal rate.
But if I'm sitting here with$2million, for example, and
saying, I already have themillion dollars carved off to be
able to support my needs, I dohave more flexibility with that
remaining million dollars.
I wouldn't necessarily think ofit as my core retirement
portfolio.
It's almost excess in a way orextra in a way.
Doesn't mean we want to befoolish with this, it doesn't
mean we don't want to maximizeour returns with this, but it

(08:31):
does mean there's a little lesspressure to get that right than
there is with the initialmillion.
So this is just one way ofthinking about it.
Now, last thing on this, sidenote on this, being
concentrated, owning onespecific stock, which I see a
lot of today, specifically highgrowth tech stocks, that doesn't
mean you're gonna get higherreturns.
In fact, it's not even morelikely that you're gonna get
higher returns.

(08:52):
One of the reasons that wediversify is because it's
actually maximizing ourpotential to get the highest
possible returns.
Being more concentrated simplymeans we have more range of
expected outcomes.
The potential highs will behigher, but the potential lows
will be lower.
So keep that in mind.
Being concentrated isn't a wayof saying I'm gonna guarantee
your lock-in even a higherprobability of success.

(09:15):
It simply means your potentialoutcomes, the range of potential
outcomes is going to be muchwider.
But if we bring this back toyour retirement portfolio, that
core piece that needs to fundyour retirement lifestyle,
concentrated stock positions donot belong there.
If you have more than you needfor your retirement, you can
think about doing that, you canconsider that, but keep that
away from your retirementportfolio.

(09:35):
The third thing that does notbelong in your retirement
portfolio is your home.
Now, to many of you, this soundsobvious, but I can't tell you
how many conversations I havewith people talking about their
retirement, talking about theirplanning, talking about
long-term goals, and they say,yeah, I've built a ton of equity
in my home.
Almost as if to say they're justlooking at their net worth.
On paper, their net worth is$2million,$3 million,$4 million.
But when you actually look atthat, only a small portion of

(09:58):
that is in liquid investments.
Now, that net worth is great,but if all your net worth or the
majority of your net worth is inyour home, that's not gonna
support your retirement needs.
In fact, your home, if you'reliving in it, is more of a
liability, the bigger it is, themore equity it is than anything,
because there's greatermaintenance, there's greater
upkeep, there's greater propertytaxes.
Now, this makes sense to a lotof you, but for some people,

(10:20):
this message of your home is nota retirement asset needs to be
heard.
Your home's not actually gonnalock any ability to create cash
flow, which is actually whatyou're most concerned about in
retirement.
The only way it does it is ifyou rent it out, so bring
renters into your home whileyou're living there, borrow
against it, either borrowing ora reverse mortgage, or selling
it and downsizing so that youunlock some of that equity to

(10:40):
actually use for cash to fundyour retirement goals.
But if you think about your homeand building net worth, that's
great for your net worth, butthat does not translate to your
actual retirement needs.
That does not translate intoyour ability to meet your needs
throughout retirement to createan income stream that you're not
going to outlive.
So tying this all back into whatyou do need to do.
What you do need to do as aninvestor with your retirement

(11:02):
portfolio specifically, say howdo you allocate your money,
enough of your money to growthassets that are going to keep up
and surpass inflation over timeso that your lifestyle today, as
inflation continues to drive thecost that higher, you have a
portion of your portfoliogrowing higher with it to
continue meeting your incomeneeds.
On the flip side, how do youhave enough and stable reserves
that say when this portion ofyour portfolio is down 20, 30,

(11:26):
40%?
Because it will be down 20, 30,40% at some time.
Do you have another portion ofyour portfolio that you can draw
from that's not going to besubject to those same downturns?
The things that do not fiteither of those categories are
investing in gold, investing inconcentrated stock positions, or
treating your home as aretirement asset.