The Wanderer retired from his engineering job at a major Silicon Valley semiconductor company at the age of 33. He now travels the world, seeking out knowledge from other wealthy people, so that he can teach people how to become Financially Independent themselves.
This FIRE experiment has been quite a ride. Through the ups and downs, I’ve documented our investing journey on this blog so that anyone can see how a portfolio like the one we taught in the Investment Workshop actually works in retirement.
Transparency has helped people gain confidence that this approach actually works, which is great. But transparency has also helped us out as well. By forcing us to explain our investment decisions, it forces us to be better investors.
Right now, our portfolio is configured as a 75%/25% portfolio like so.
Notably, the 25% fixed income portion has been swapped for a preferred share index back in 2023. I wrote about that change back then, and so far that tweak has worked out beautifully, with dividend increases being delivered right on schedule, followed by the price of the asset going up as well.
So today, in the interest of complete transparency, I’m making another change to our investment portfolio by adding a small gold component.
Gold: What Is it Good For?
Don’t worry, I’m not stockpiling gold bars in my basement or anything. Instead, I’ll be using the SPDR Gold Trust (GLD), which holds gold in huge vaults in London, New York, and Zurich. Each share of GLD represents 1/10 of an ounce, so this allows me to own gold while not having to physically store or protect it myself. Plus, I can buy and sell it just like any other ETF on the stock market.
I don’t recommend gold as a long term investment since it doesn’t pay a dividend or interest, and therefore can’t help you retire. In order to make money from gold, you have to sell it. This makes gold a speculative investment.
So why am I getting this? In short, I think several Trump administration policies are going to combine to create a wave of inflation in the next year or so, and I think those will create upwards pressure on gold prices.
What policies am I referring to?
Deportations
One of President Trump’s most visible domestic policies has been extremely aggressive enforcement and deportation of illegal immigrants.
I’m not here to debate the morality of this policy. I’m Canadian, so I have no dog in this race. If the US wants to brutalize their undocumented workers, then that’s their decision for their government to make, and for their voters to either approve or reject.
However, the USDA estimates that 42% of US farming operations depends on undocumented workers. With ICE raids driving the undocumented community underground, that’s 42% of farm workers gone. There’s no way that’s going to be painless.
Farmers basically have two options: The first is to hire local domestic workers and pay them domestic wages. This raises the cost of operations, since you can’t get away with paying a domestic worker the wages that an undocumented worker would accept. This will raise food prices.
And the other is just to let those crops rot on the field, which also raises food prices. Anecdotally, food prices are already shooting higher in many cities in the US, and this will likely get worse over time.
Trade War
The other major policy of the Trump administration is the trade war.
Imports from every country have been hit with tariffs ranging from 15% at the low end up to 50% for Brazil and India, plus a smattering of other sector-specific tariffs including a new 100% tariff on imported pharmaceuticals.
The fact such eye-popping tariffs haven’t already caused inflation to spike have been the biggest mystery puzzling economists all summer. It looks like there was a period of time where importers were partially eating these tariffs to knock out their competitors, or relying on pre-tariff inventory, but we all know that can’t last forever. Now, it looks like those tariffs are gradually being passed onto the consumer. Inflation data in August came out hotter than expected, rising at 2.9% on an annualized basis, well above the 2% target, and will likely get worse over time as well.
Crashing Interest Rates
And finally, the Trump administration’s policy towards the Federal Reserve is the biggest factor that threatens to spike inflation.
The US central bank has a dual mandate: Keep inflation under control and reduce unemployment. When the two mandates point in the same direction, their job is easy: Do the thing that helps both. It’s much harder when that dual mandate points in two directions.
Fighting inflation requires interest rates to go up. Stimulating the economy requires interest rates to go down. So what’s a central banker to do?
Well, the president has made his preference extremely clear. He wants interest rates to go down.
Just out: No Inflation!!! “Too Late” must lower the RATE, BIG, right now. Powell is a total disaster, who doesn’t have a clue!!!
Trump says Fed chair Powell should make big rate cut now, Reuters
He wants interest rates to go down so badly that he’s (unsuccessfully) tried to fire both Federal Reserve central bank governor, Jerome Powell, and another federal chair member, Lisa Cook.
While the court drama surrounding Lisa Cook’s attempted firing will continue to play out in the media, that’s mostly a side show. Jerome Powell’s term ends in May 2026, and Trump can appoint whoever he wants to the role. Whoever he hand-picks for that role will drop interest rates as much as he wants, and he’s previously indicated that he thinks interest rates should be three full percentage points lower than today, so going from 4.25% all the way down to 1.25%.
We know what such a drastic drop in interest rates means: Higher inflation.
And that’s not economic theory telling us this. It literally just happened a few years ago. During the pandemic, central banks all over the world dropped interest rates down to 0% in order to save the economy, and while this did save the stock market, we all remember the painful aftermath. People took low interest rates as a sign to borrow like crazy, they went nuts buying houses, and cars, and it made the cost of those things shoot up. Inflation topped 10%, and everyone was super pissed off.
So that’s what we’re heading back to. I don’t know when, because timing these things is always guesswork, but inflation is coming back one way or another.
Portfolio Changes
Gold isn’t a long-term holding for us, since it doesn’t pay interest or dividends. As a general rule, speculative investments like gold or bitcoin should be capped at 5% of your overall portfolio, so that’s what we’re going to do. After this change, our portfolio allocation will look like this:
I’m planning on holding this investment for a period of 6 months to a year, with my exit point corresponding to whenever the interest cycle flips from stimulating the economy to fighting inflation. Basically, when the central bank panics at the out-of-control inflation and starts raising interest rates instead of lowering them, that’s when I’ll get out of this position and return back to my normal 75%/25% portfolio.
This is the first time I’ve ever done a speculative investment, so it’s entirely possible that I’m going to screw this up. With a long-term buy-and-hold strategy involving index funds, all I have to do buy the thing and sit on it forever. But with a speculative investment like gold, I have to guess correctly that something will happen to make my investment go up, and I have to guess when to get out at the right time as well. That’s two places I could screw up.
I’ve made some good investing calls in the past, but I’m also acutely aware that it’s easy to mistaken luck for skill. That’s why I’m making sure to limit my exposure to make sure I don’t blow myself up. In this case, I’m making this bet with new money I’m adding to the portfolio, and limiting total exposure to 5%, so I feel like this decision has guardrails around it.
Plus…it’s gold. Gold ain’t hitting zero anytime soon.
What do you think? Do you think owning gold is a good idea right now? Or am I mistaking past investment success as skill rather than luck?
Let’s hear it in the comments below!
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