Adviser-to-client template: The golden rule
For financial advisers to use with clients.
This document is intended to support your service proposition to clients. It is produced by our investment writers with a deliberately light tone and structure. However, these are guidance paragraphs only. It is not guaranteed to meet the expectations of regulators or your internal compliance requirements. If you wish to remove or amend any wording, you are free to do so. However, please bear in mind that you are ultimately responsible for the accuracy and relevance of your communications to clients.
Dear Client,
I’m betting you’ve seen the news headlines and images of people around the world (including in Sydney’s Martin Place) lining up to purchase gold bullion. No longer just the stuff of pirate legends, speculative assets like gold and cryptocurrencies are seeing increased popularity in light of recent market conditions. But rather than asking if all that glitters is gold, perhaps we should be asking whether this speculation is justified and how investors should respond.
Why are you hearing about gold?
With markets this year characterised by uncertainty and volatility, gold has attracted a lot of attention from investors. These investors are hoping to diversify, find a safe haven in a market that’s consistently been in flux,while taking advantage of rising prices. But can gold deliver on all of these promises?
What should investors be wary of?
While these assets can be tempting, it’s important to approach them with caution and a clear understanding of their risks. Yes, gold could potentially hedge against inflation or currency devaluation, and could similarly provide short-term gains. However, its long-term value is less certain compared to traditional investments.
As gold is a small asset class, its price can move dramatically in both directions when sentiment changes. And with all financial assets, these large price rises (not to mention hype) don’t bode well for future returns. In the past, where we’ve seen comparable cases, they’ve typically been followed by large falls in price – a pattern that’s well worth remembering as the gold frenzy continues.
Speculation in moments such as these can also lead to emotional decision-making that’s coloured by headlines and herd behaviour, which in turn can lead to increased portfolio risk. And as these assets are highly volatile, they may not align with a disciplined, long-term investment strategy, such as the one deployed by our investment manager, Morningstar. Instead, we – and Morningstar – urge that investors focus on fundamental analysis, diversification, and a focus on generating long-term value rather than chasing trends.
What should you do next?
In short, nothing. A well-diversified portfolio built on sound investment principles is positioned to withstand market volatility. By staying invested, you can avoid impulsive decisions that are driven by market hype.
If you have any questions about gold or more broadly about your portfolio, feel free to get in touch. I look forward to chatting.
Regards,
Adviser
Important Information
As noted previously, this document is intended to support your service proposition to clients and the commentary does not constitute investment, legal, tax or other advice and is supplied for information purposes only. Past performance is not a guide to future returns. The value of investments may go down as well as up and an investor may not get back the amount invested. The information, data, analyses, and opinions presented herein are provided as of the date written and are subject to change without notice. Every effort has been made to ensure the accuracy of the information provided, but Morningstar makes no warranty, express or implied regarding such information. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or losses resulting from, or related to, the information, data, analyses or opinions or their use
