Bad hedging strategy?

[Bossman]

At the beginning of the year, I decided to take 5% of my assets (not including the house) and create a hedge against inflation. The cash was used to purchase Barrick Gold Corporation (GOLD) shares throughout the year within an IRA account. I chose the IRA account as I did not wish to pay taxes against potential capital gains (hehe) or dividends. In reviewing the position, I noticed that it was down close to 14% (ouch). In retrospect, this was a poor hedge against inflation and a bad investment. On the positive side, this money is not needed for me to maintain my lifestyle. I do get annoyed each and every month when I receive the statements and smack my head in annoyance. At the time of the investment, I considered other hedges such as digital coins, physical GOLD, commodities ETF and/or income annuity. The question I have to the community is as follows?

Keep the "hedge" within my IRA and stop looking at the position, replace the hedge with one of the other options or put the remaining funds in an investment ETF. Thanks for any comments.

 

[OldShooter]

I can't tell you what you should do, but from my casual observation of gold as an asset I long-ago concluded that it is far too volatile to be useful as a hedge. My other conclusion is that small hedges, like 5-10% of a portfolio, are a waste of time. Go big or go home, IOW.

For us, we bought very serious six figures of TIPS into our IRAs during the winter of 2006/2007 and have held them. They were the 2s of 26, which with the interest rate crash looks like a genius move, but really was just plain luck. Trailing 12 months to 9/30/21 they were up about 6.5%

Regarding "looking at the position" we do it annually during the last week of the year. Once in a while we even make a trade as a result of looking. You have held your hedge for 10 months; that is a trader's timeframe, not an investor's time frame. Warren Buffet: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."

 

[finnski1]

I can't tell you what you should do, but from my casual observation of gold as an asset I long-ago concluded that it is far too volatile to be useful as a hedge. My other conclusion is that small hedges, like 5-10% of a portfolio, are a waste of time. Go big or go home, IOW.

I have always thought that as well. Unless you have a small spend and a big stash. So for example if I spend $40k per year and have an 8 figure liquid net worth, then hedging 5-10% against catastrophe would make sense. I would still be able to maintain my spend even up to the edge where the zombie apocalypse happens.

 

[pb4uski]

I've never been a fan of gold to begin with so I would dump it.

 

[OldShooter]

I have always thought that as well. Unless you have a small spend and a big stash. So for example if I spend $40k per year and have an 8 figure liquid net worth, then hedging 5-10% against catastrophe would make sense. I would still be able to maintain my spend even up to the edge where the zombie apocalypse happens.

I guess so, but another way to look at it is to say that 90-95% of your stash is unhedged. That doesn't sound like much of a hedging strategy to me but if you just want to hedge your spend for a short while I guess it works.