The role of gold in defined-contribution plans: Mexico case study

Published 31st July 2013

Categories: Investment

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As more pension funds around the world opt for defined-contribution structures and move away from defined-benefit plans, contributors will not receive the same guaranteed payouts seen in the past. A comfortable retirement will be based on the combination of careful planning and a thoughtful investment strategy. Complementing absolute return performance with comprehensive portfolio risk management should become a foremost priority. Gold provides diversification and capital preservation for investors wishing to protect their nest egg.

This study explores the Mexican pension fund experience and gold’s function in retirement portfolios. Our analysis shows that gold can improve the risk/reward pro le of investment portfolios where allocations to commodities are permitted. Adding a modest allocation to gold (1% to 7% using historical asset performance or 1% and 3% using conservative return assumptions for gold) can reduce the volatility and Value-at-Risk (VaR)1 of a portfolio while adding liquidity, hedging against systemic risks, and helping to preserve wealth in the long term. 

Gold’s function in retirement portfolios