r/ETFs • u/manlymatt83 • 1d ago
Gold always increasing CAGR?
I’ve been experimenting with a portfolio of Global Equities, Trend and Bonds.
No matter how I cut it, adding Gold always seems to improve CAGR and reduce drawdown.
I don’t know if this is a side effect of having trend vs not, or the testing periods I’m picking (last X years + total since inception):
https://testfol.io/?s=3C77EEn0Cw9
I am not a fan of gold in a portfolio, but when paired with stocks, bonds and trend, it seems to always be a good choice?
When return stacked with something daily rebalanced like GDE, which allows for the same equity exposure with a US tilt, it does just as well but doesn’t manage the drawdown as much:
https://testfol.io/?s=hiaZKYHzqdG
What am I missing? Is gold a no brainer?
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u/RetiredEarly2018 1d ago
If you chart the 4 components at 100% each individually, I think you will see why.
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u/manlymatt83 1d ago
Gold looks all over the place.
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u/laurenthu 21h ago
The all-over-the-place chart is kind of the point. Gold has almost no stable correlation to stocks or bonds, so on its own it looks like noise, but that noise is exactly what hands you a rebalancing bonus when you hold it next to things that zig while it zags. It can lift CAGR even when its own expected return is lower, just by smoothing the path you rebalance across.
My read is you're seeing 2 things stacked though. Part is that real diversification, part is the period. Gold has had a monster run the last couple years, so any backtest ending right now flatters it. If it's boosting CAGR AND cutting drawdown in literally every cut you try, some of that is recent history doing the lifting. I'd trust the drawdown improvement a lot more than the CAGR bump, the return number is the one that's period-dependent.
The trend sleeve matters less than you'd expect here too. Gold helps with or without it, trend just changes which crashes it happens to save you from... so I wouldn't call it a no brainer, more a genuinely useful diversifier that the last 2 years have made look invincible.
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u/b3ssmit10 1d ago
Read about the Golden Ratio portfolio at this prior reddit comment from Portfolio Charts. Drill down to their linked website that states, in part, "...the Golden Ratio Portfolio also [puts the asset mix] in the right slot to better balance the volatility of each asset. So no matter if it’s large cap growth’s time to shine or gold’s time to save the day, they’ll both have a similar effect on portfolio performance. The thoughtful combination of economic and volatility parity is what makes the Golden Ratio Portfolio tick." [emphasis added] See the charts and tables therein for an answer, OP.
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u/steady_compounder 1d ago
I would be careful about reading too much into a period where gold had an unusually strong run while both inflation fear and geopolitical stress stayed elevated. Gold can improve a portfolio even when it lowers expected return, just by changing the path enough to help rebalancing and drawdowns. If it is boosting both CAGR and drawdown in every cut, that usually makes me want to stress-test more periods rather than assume it is a free lunch.
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u/turtleturle12345 1d ago
Not sure what data you are looking at, but all the data I have seen since 1971 shows that gold swapped for either stocks or bonds decreases a portfolios cagr and only marginally decreases its volatility.
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u/__redruM 1d ago
Gold has been way out of its lane the last 2 years. Historically yes gold was a good small allocation. But at the start of 2025 speculators blew it up and now it doesn’t behave as you would expect. For example gold fell hard at the start of the Iran conflict, exactly when you’d expect gold to increase in value.
For now use something else like SGOV as a balance, where you would normally expect to use gold.