Robert Kiyosaki, known for his investing advice and his “Rich Dad Poor Dad” series of personal finance books, has taken to social media again to alert investors about what he thinks they should be doing: investing in gold, silver and bitcoin.
Let’s dig a little deeper into Kiyosaki’s outlook on precious metals and crypto as investments.
Invest in Gold, Silver and Bitcoin, Kiyosaki Says
In a Feb. 12 post on his X (formerly Twitter) account, Kiyosaki revealed his opinion about what he calls “hard assets” and why he feels people should be investing in them.
“Finally a few Financial Planners are recommending investing in Gold, Silver, Bitcoin.
Q: Why have financial planners not recommended investing in hard assets earlier?
A: $. Money Baby !!! Commissions!!! Gold has beaten the S&P for decades. The S&P is about to crash by 70% …”
Kiyosaki believes that financial planners have typically guided their clients away from investing in gold, silver and bitcoin due to a lack of commissions. He claims gold has beaten the S&P for years now.
As far as Kiyosaki’s claim that the S&P is about to crash by 70%, it’s worth noting that Kiyosaki is known for making dire predictions, like the U.S. economy falling into a depression and the stock market crashing. Just check the related headlines.
Why Kiyosaki Says To Invest in Gold, Silver and Bitcoin
Kiyosaki has been steering investors toward gold, silver and bitcoin for a while now if you keep up with his social media posts.
His rationale is that if the Fed keeps raising interest rates, the U.S. dollar strengthens, causing the price of gold, silver and bitcoin to sink, which makes it cheaper to invest in. Then when interest rates drop, he said those who invested in the bearer assets will reap the benefits.
A Different Take
Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University, has a different take on whether people should invest in precious metals and bitcoin.
Benefits of Adding Precious Metals to U.S. Equity Portfolios
Johnson co-authored a paper titled, “Can Precious Metals Make Your Portfolio Shine?” in the “Journal of Investing” in 2009.
“During times of market turmoil one always hears talking heads espousing the benefits of investing in gold,” Johnson said. “In this paper we looked at the benefits of adding precious metals to U.S. equity portfolios and found the following:
“First, we found that adding a 25% allocation to the equities of precious metals firms (not the precious metals themselves) improves portfolio performance (that is, considering both return and volatility of returns).
“Second we found that an indirect investment dominated a direct investment in precious metals. That is, the investment benefits are considerably larger if the exposure to precious metals is obtained indirectly via an investment in the equities of precious metals firms, rather than directly by purchasing the precious metal as a commodity (e.g., gold or silver bullion).
“Third, relative to platinum and silver, gold has better stand-alone performance and offers a better hedge against the negative effects of inflationary pressures.
“Fourth, the benefits of precious metals are strongly tied to monetary conditions. During periods of Federal Reserve tightening (characterized by rising interest rates), the returns to precious metals commodities are significantly higher than they are during expansive Fed monetary policy periods. This result is in stark contrast to the U.S. equity market and the equities of precious metals companies (that languish when the Fed is tightening and prosper when the Fed pursues an expansive monetary policy. It should be noted that we found that neither direct or indirect investments in precious metals provide benefits of much consequence when the Fed is easing.
“Finally, while the benefits of precious metals to an investment portfolio varied somewhat over time, they prevailed throughout much of the 34-year period.”
Johnson’s Thoughts on Investing in Precious Metals
Johnson said he isn’t an advocate of people investing in gold or other precious metals.
“Simply put, if one has a long time horizon — say, twenty or more years — one should not invest in gold or other precious metals as the long-term returns are far below those of equities,” he said. “At the end of 1925, the price of an ounce of gold was $20.63. At the end of 2022, an ounce of gold sold for $1813.75. Over that 97-year period, the precious metal returned 4.72% compounded annually. Over that same time period, according to Ibbotson Associates, the compound annual rate of return of a diversified portfolio of large stocks (the S&P 500) was 10.1%. That same $20.63 invested in gold at the end of 1925 would have grown to $233,971 if invested in the S&P 500.
“Investing in a diversified basket of small stocks provides even greater returns. The compound annual rate of return of a basket of small stocks over that 97-year period according to Ibbotson Associates was 11.8%. That same $20.63 would have grown to $1,011,943 at the end of 2022.
“The overall return to gold was less than 1% of the return to a diversified basket of common stocks. While having a small position in precious metals may dampen portfolio volatility in the short run, the tradeoff between slightly dampened volatility and the lost long-term return is certainly not a prudent one, particularly for Gen Z/millennials with long investing time horizons.
“Gold is a speculative investment, based on the Greater Fool Theory. The price of gold is not determined by its intrinsic value but simply by its expected selling price to someone in the future.”
Johnson’s Opinion Regarding Bitcoin
Johnson believes that you cannot truly invest in bitcoin. Instead, he said, you can only speculate.
“The crypto market has never been a good place to invest,” Johnson said. “At times, it has been a profitable place for some to speculate. My belief is that ‘Just Say No!’ should guide your actions with respect to crypto. I can think of few worse strategies than committing investment to cryptocurrencies … There is no rational way to determine the value of bitcoin or any of the other various cryptocurrencies as one can’t apply the tools of traditional finance to arrive at the intrinsic value (or true value) of the supposed asset.”
He concluded, “There is no way to value cryptocurrencies other than the greater fool theory — the hope that some greater fool will pay you more than you paid. It is the consummate bubble, and investors should stay far away from cryptocurrencies, in general, and bitcoin specifically.”
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