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  • Writer's pictureNoel Watson

Auric Goldfinger: A sustainable retirement?

Updated: Dec 22, 2023

Introduction


"Goldfinger, He's the man, the man with the Midas touch".


You know you are in for a treat when you hear Shirley Bassey's distinctive vocals. Perhaps the best Bond song, but in my eyes, it's not quite the best Bond film - you'd have to go a long way to surpass Roger (with his eyebrow) in Live and Let Die.


Auric Goldfinger, played by "Gert" Fröbe (although apparently, his English wasn't great, meaning he was dubbed!), is the main antagonist in the film, and if he hadn't met an untimely demise, how might his retirement have fared, given his obsession with gold?



David and Samantha - a familiar couple


We will revert to our trusted couple, David and Samantha Smith, to evaluate potential outcomes, as covered in our "4% rule" series of articles. To recap:


David Smith is 60 and has recently retired from ABC Chemicals. His wife Samantha is 55 and is also retired. Together, they have a retirement portfolio of £1,000,000 and are looking for a sustainable income of £40,000 per annum, and we will use a retirement horizon of 45 years.



Base Case - 50% developed market stocks and 50% global bonds


We will start with the 50/50 portfolio used in the 4% series, and the safe withdrawal rate (SWR) is 2.91% (as with challenge six in part two).


The SWR is 2.91% for a 50/50 portfolio.
The SWR is 2.91% for a 50/50 portfolio.

with the worst case showing the money running out after around 21 years.


The worst case shows the money running out after around 21 years.
The worst case shows the money running out after around 21 years.


The median case has a balance of around £1m (in real terms) at David's age 100, while the best case is around £8.4m.



Median and best cases for our base 50/50 portfolio


Adding some gold


Let's now look at adding some gold to the portfolio. The question is how much gold, and what do we remove from the existing portfolio to make way for a slice of Au? We believe portfolios should be constructed from a combination of growth and defensive assets, and this is where it starts to get a little tricky when deciding where gold fits. Looking at the long-term returns (around a century of data) of various asset classes, we can see how gold has performed. Gold has returns of a defensive asset class (global aggregate bonds - 7% vs. 8% annualised) with the volatility of growth assets (global equities*) of 18% vs. 23%. On paper, it's the worst of both worlds.


*global equities are perhaps confusingly actually developed market equities.

Risk and return for emerging and global equities

Risk and return for global bonds and gold
Risk and return for global bonds and gold

Furthermore, we can see that gold has had a worst one-year return of -37%, vs bonds of -17% and global equities of -31%.


Highest and lowest return for various asset classes
Highest and lowest return for various asset classes

Given the volatility and drawdowns (how much the asset class falls from peak to trough, we'd therefore struggle to put gold in the defensive bucket, so it looks like we will have to sacrifice some of the growth bucket. Comparing the relative returns of gold to equities, this would seem a poor decision - the growth assets are in the portfolio to provide long-term (inflation-beating returns), and gold hasn't delivered that to the same extent. However, it might be that gold performs well when the rest of the portfolio suffers, which might justify its position in the portfolio.


To find out, we will add 10% gold (below, we go full Auric and evaluate 100% gold!), meaning our portfolio now consists of 40% developed market equities, 10% gold and 50% global bonds.


In the worst case, our SWR has fallen from 2.91% to 2.77%.

The safe withdrawal rate is lower with gold in the portfolio.
The safe withdrawal rate is lower with gold in the portfolio.

with the portfolio now running out after around 20 years.


and in the worst case, the money runs out sooner
and in the worst case, the money runs out sooner

The median case has a balance of around £800k at David's age of 100, while the best case is around £6.3m, both lower than our base case.

The median and best cases also have lower final balances vs. the base case.
The median and best cases also have lower final balances vs. the base case.

Better diversification


  • 30% developed markets shares (broad)

  • 10% developed markets small-cap value shares

  • 10% emerging market shares (with tilts to small cap value)

  • 50% global bonds

Note that this is still a 50% equity, 50% bond split, just with a change in the equity asset allocation.


The SWR has jumped from 2.91% to 3.39%.

Diversification improves the safe withdrawal rate from 2.91% to 3.39%.
Diversification improves the safe withdrawal rate from 2.91% to 3.39%.

and the portfolio is now running out after more than 25 years in the worst case.

And in the worst case, the money lasts for longer.
And in the worst case, the money lasts for longer.

The median case has a balance of around £2.1 at David's age of 100, while the best case is around £11.7m, far higher than our base case and gold examples.

Median and best cases show a far higher finishing balance.
Median and best cases show a far higher finishing balance.

How would Auric have fared with his 100% gold portfolio?


If Auric had survived the Fort Knox heist, how might his portfolio have fared (he'd arguably have started with far more than the Smith's £1m)? The simple answer is far worse than our more diversified alternatives, with an SWR of 1.39%!


A portfolio of just gold would've had a poor safe withdrawal rate.
A portfolio of just gold would've had a poor safe withdrawal rate.

In the worst case, the pot would be exhausted after around 14 years.
In the worst case, the pot would be exhausted after around 14 years.

This again emphasises the impact a lack of diversification can have on sustainable withdrawal rates.



Conclusion


With this type of analysis, we will always struggle to have certainty that the approach we have chosen is 100% correct. When it comes to investing, particularly regarding retirement planning, we are dealing with uncertainty, partly due to limited historical data (see challenge three). We only have one sample size to draw from (there were many times in history when things could've panned out very differently to the world we live in now). Furthermore, the history of gold was impacted by its relationship to the gold standard and that holding gold wasn't always legal. That said, we believe that our approach to diversification (across asset classes, geographies, etc.) will give our clients the best outcome, and altering this to include gold would be detrimental.



Want to find out more?


If you want help with building a robust retirement plan, please get in touch.



About us


The team at Pyrford Financial Planning are highly qualified Independent Financial Advisers based in Weybridge, Surrey. We specialise in retirement planning and provide financial advice on pensions, investments, and inheritance tax.


Our office telephone number is 01932 645150.


Our office address is No 5, The Heights, Weybridge KT13 0NY.


Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.



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