Oil & Gold: Are They “Investment Havens” For Millennials?

This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.

At the end of April 2020, brokers were reporting record volumes of people starting investment portfolios for the first time. The reason, many of them believed, was that aggressive investors were looking to capitalise on the recent market volatility, hoping to buy stocks whilst they were “cheaper”. This seems to have been especially notable amongst younger people who have a longer time horizon in front of them to make up for short-medium-term losses.

Yet it is interesting to note the areas where many of these investors are choosing to put their money. Rather than prioritising “green” or ESG investments (which might be expected, given the preeminence of eco-awareness amongst millennials), many new investors born between 1981 – 1996 seem to be flocking towards the lower oil price and, interestingly, gold.

In this article, our Lincolnshire financial advisers here at Castlegate share some thoughts on this interesting new trend and explore whether oil and gold warrant the attention they are currently receiving by many millennials (and others). We hope you find this content useful. If you would like to discuss your own financial plan, please get in touch to arrange a no-obligation consultation, at our expense:

01476 591022
info@casfin.co.uk

Why oil & gold?

Anyone paying even scant notice of the headlines in March, April and May will have noticed the immense drop in the price of oil across the globe. Between the 2nd of January and the 28th of April 2020, the Brent Spot reports a 68.2% drop in the oil price - bringing down the profits (and share values) of energy businesses with it. Indeed, the prominent oil companies lost 20% of their value in March alone.

Many millennials seem to see an opportunity here. People think: the lower oil price, caused by COVID-19 and the global containment measures, is bound to rise again in the future. Planes will start flying again, lockdowns will be lifted and normality will return. At which point, those who invested in the oil price when it was low are surely destined for incredible returns? It seems like a smart move, but our financial advisers will return to this shortly.

At the same time, many millennial investors seem to also be turning to gold as a “hedge”. This is because it is commonly thought that gold tends to at least hold its value, broadly, over time. By holding gold, the reasoning goes, an investor can mitigate stock market volatility from causing excessive disturbance to his/her portfolio. Again, our Lincolnshire financial advisers have come across this thinking and it seems wise on the surface, particularly when you consider that gold has risen in value by 8% between March-April. Yet is it really prudent?

Why caution is needed

It is certainly encouraging to hear about so many younger people turning their attention to investing for the first time. At Castlegate, our financial advisers do not wish to discourage that. At the same time, we have a duty to help people make wise decisions with their money based on our knowledge and experience in these areas. Therefore, whilst we cannot advise on your own portfolio here (since your goals, needs and strategy are unique), we wish to stress that millennials attracted to oil and gold at this time consider the following:

• Whatever form your portfolio might take, it’s critical to ensure that it is appropriately diversified. By focusing your investments on two commodities - oil and gold - you place an immense amount of trust in their future. If your hopes do not transpire and you have failed to diversify properly, you risk losing more than was really necessary.
• The future of oil is not certain. It might seem sensible to assume that “things will go back to normal” in the coming years, especially if COVID-19 is brought “under control”. Yet no one knows how the dust will eventually settle. At the time of writing, it is still unclear whether a vaccine is possible. In which case, the implications for air travel (and oil) could be significant. Moreover, the other pressure bearing down on oil is coming from another direction - the environment. Mark Carney, former Governor of the Bank of England, has said that pension funds might eventually need to re-evaluate where fossil fuels sit within their asset allocation, given the doubts over their sustainability. Oil, in other words, might not return to its pre-2020 value or worldwide usage. The world could be very different in 5-10 years. In the meantime, other sectors, markets and asset classes might have done far better. It would be a shame to miss out on other opportunities due to assumptions and excessive focus on a commodity such as oil.
• Gold does not create value. If the value of gold rises, it’s because markets expect people to pay more for it. This allows you to trade it and, hopefully, generate a profit. However, there might be better alternatives on offer which you could be missing out on. If you’re looking to protect your investments against excessive volatility, please consider speaking with an experienced financial adviser about the full range of options open to you.

Invitation

If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 591022
info@casfin.co.uk