Hello, YieldAlley readers! In this issue:
Gold in Your Portfolio: Insurance Policy or Fool's Gold?
U.S. Stocks Rise on Constructive Trade Headlines
Top U.S. States with the Highest Bank Account Balances Revealed
And more!
NEWS
Standout Stories
🔮 Can the Las Vegas Sphere actually make money? (Sherwood)
🤪 Investors are willing to take more risks when they trust their financial advisors (Alpha Architect)
💬 My husband covered up the fact that he retired. How can I reboot open communication? (The Guardian)
🐣 Here’s How to Tweak the 4% Rule to Protect Your Nest Egg (Morningstar)
✈️ Plane tickets are getting cheaper as domestic travel demand weakens (CNBC)
MARKET THOUGHTS
U.S. Stocks Rise on Constructive Trade Headlines
ECONOMY
Business activity growth hit a 16-month low, with the S&P Global Flash PMI falling to 51.2 from 53.5, as services activity growth slowed sharply despite manufacturing activity unexpectedly increasing from 50.2 to 50.7 in April. Prices charged for goods and services increased at the fastest rate in over a year, largely attributed to tariff impacts. Meanwhile, durable goods orders rose 9.2% in March, marking the third consecutive monthly increase, though this was primarily driven by a 139% surge in commercial aircraft orders as businesses rushed to beat impending tariffs. Excluding transportation, orders remained flat month-over-month. The housing market continued to struggle, with existing home sales dropping 5.9% in March to 4.02 million units, the lowest March figure since 2009 and steepest monthly decline since November 2022, as elevated mortgage rates and affordability concerns dampened activity.
STOCKS
Major stock indexes finished the week higher, with the tech-heavy Nasdaq Composite leading returns in a sharp rebound from the prior week. The Dow Jones Industrial Average (+971.27), S&P 500 (+242.51), and Nasdaq Composite (+1,096.49) all posted gains, while smaller-cap indexes continued their positive streak with the S&P MidCap 400 (+87.28) and Russell 2000 (+76.99) marking their third consecutive week of advances. Positive sentiment was driven by reports suggesting de-escalation in U.S.-China trade tensions, speculation around near-term agreements with other trading partners, and President Trump walking back threats to fire Federal Reserve Chair Powell. Corporate earnings also supported the market, with 73% of reporting companies beating consensus expectations through Friday morning, though trading volumes remained below year-to-date averages.
FIXED INCOME
U.S. government bonds generated modest gains as yields across most maturities decreased, particularly in the longer-term segment, reflecting growing expectations of economic slowdown. Municipal bonds underperformed amid continued seasonal weakness, though traders noted potential support from upcoming May 1 cash reinvestment. Investment-grade corporate bonds outperformed Treasuries, with new issuance meeting expectations and generally oversubscribed as investors showed preference for higher-quality bonds. Meanwhile, consumer sentiment continued its decline, falling for the fourth straight month to 52.2 in April, with inflation expectations for the year ahead surging to 6.5% from 5% in March—the highest reading since 1981. Consumers cited "ongoing uncertainty around trade policy and the potential for a resurgence of inflation" as major concerns.
INCOME BUILDING
Gold in Your Portfolio: Insurance Policy or Fool's Gold?
Gold has been making headlines recently with its dramatic price surge, reaching beyond $3,300 per ounce this month after hitting $3,500 briefly. As of this week, gold closed at $3,330.20, having reached its all-time high of $3,503.90 earlier this week. This remarkable run has many investors wondering: should gold have a place in their portfolio?
Gold's Recent Rally
The yellow metal's spectacular performance has caught the attention of investors worldwide. Gold prices have been on a tear recently, with market turmoil driving investors to this traditional safe haven while competing assets like U.S. Treasuries and the dollar have experienced significant sell-offs.
Several factors are driving this gold rush:
Geopolitical uncertainty: Global trade tensions, particularly surrounding new tariff policies, have strengthened gold's appeal as both a safe haven and inflation hedge.
Central bank buying: Central banks globally continue to accumulate gold reserves, providing steady demand.
Dollar weakness: The U.S. dollar index has weakened about 8% so far this year, making dollar-denominated gold more attractive to foreign buyers.
Inflation concerns: Gold has historically been viewed as a hedge against inflation.
The Harry Browne Permanent Portfolio Approach
This current gold rally brings to mind the investment strategy advocated by Harry Browne in his "Permanent Portfolio" concept, which we detailed in a previous article.
For those unfamiliar, Browne's Permanent Portfolio allocates assets equally (25% each) across four categories:
Stocks: For periods of prosperity
Long-term government bonds: For periods of deflation
Cash: For periods of recession
Gold: For periods of inflation
The philosophy behind this approach is elegantly simple: since no one can predict which economic condition will dominate in the future, the portfolio holds assets that perform well in each scenario. Gold serves as insurance against inflation and currency debasement.
The Case For Gold in Your Portfolio
Gold's defenders point to several compelling reasons for its inclusion:
Diversification: Gold often moves independently of stocks and bonds, potentially reducing overall portfolio volatility. During market stress, it frequently exhibits negative correlation with equities.
Insurance against extreme events: Gold is considered a hedge against uncertainties and tends to thrive during periods of economic instability. Its performance during financial crises (like 2008) and periods of high inflation (1970s) demonstrates its potential value as portfolio insurance.
No counterparty risk: Unlike bonds or cash deposits, physical gold doesn't depend on any issuer's promise to pay. Gold has no credit risk and isn't tied to the economic or political trajectory of any single nation.
Long history as a store of value: For thousands of years, gold has maintained purchasing power across civilizations and monetary systems.
The Case Against Gold
Gold skeptics offer equally compelling arguments against its inclusion:
No yield or cash flow: Unlike stocks (dividends), bonds (interest), or real estate (rent), gold produces no income. It's a non-interest paying asset, which limits its appeal compared to income-generating alternatives.
Storage and insurance costs: Physical gold requires secure storage and insurance, creating ongoing expenses that reduce effective returns.
Valuation difficulties: Gold has no intrinsic value beyond what someone will pay for it. Without cash flows to discount, fundamental valuation becomes nearly impossible.
Historical underperformance: Over very long periods, gold has typically underperformed stocks and sometimes even bonds when accounting for reinvested dividends and interest.
Opportunity cost: Capital allocated to gold is capital not invested in productive assets that can compound over time.
Practical Considerations for Modern Investors
If you're considering adding gold to your portfolio, here are some practical approaches:
Implementation Options
Physical gold: Coins or bars (requires secure storage)
Gold ETFs: Like SPDR Gold Shares (GLD) or iShares Gold Trust (IAU)
Gold mining stocks/ETFs: Companies that mine gold, or ETFs that track them (GDX, GDXJ)
Gold futures or options: For sophisticated investors
Allocation Size
Many financial advisors suggest limiting gold to 5-10% of a portfolio. Financial analysts commonly caution investors against allocating more than 5-10% to gold to maintain proper portfolio balance. Even Harry Browne's aggressive 25% allocation is specifically designed as part of a risk-balanced strategy across four very different asset classes.
Tax Considerations
Gold is taxed as a collectible in the U.S., with long-term capital gains rates up to 28% (higher than the 15-20% for stocks). ETFs that hold physical gold typically receive the same tax treatment.
Gold in the Permanent Portfolio vs. Traditional Portfolios
The Permanent Portfolio's 25% allocation to gold makes sense in Browne's framework because:
It's specifically designed to weather all economic conditions without needing forecasts
The equal weighting creates a natural rebalancing mechanism
It acknowledges that monetary policies can debase currencies
It focuses on protecting against catastrophic losses rather than maximizing returns
In contrast, traditional portfolio construction (like 60/40 stocks/bonds) focuses more on growth with acceptable volatility. In this framework, a large gold allocation may represent an opportunity cost and potential drag on long-term returns.
Conclusion: Should You Own Gold?
Whether gold belongs in your portfolio depends on your:
Investment goals: Capital preservation vs. growth
Time horizon: Shorter horizons may benefit from gold's stability
Risk tolerance: Lower tolerance might justify more gold
Economic outlook: Concerns about inflation, currency debasement, or systemic risks
Psychological comfort: Some investors sleep better knowing they have "real" assets
For most long-term investors focused on growth, a small gold allocation (5% or less) might provide diversification benefits without significantly impacting returns. For those concerned about systemic risks or currency debasement, a larger allocation could make sense.
Gold isn't inherently good or bad as an investment. It's simply a tool with specific characteristics that may or may not align with your investment philosophy and goals. Like any insurance policy, gold's value isn't measured by how much it returns, but by the protection it provides when you need it most.
What's your take on gold? Do you include it in your portfolio? Let me know by replying to this email!
INCOME BUILDING
Cash Rates
Government Money Market Funds (7-Day Yields)
SNVXX (Schwab Government Money Fund - Investor Shares): 4.05%
SPAXX (Fidelity Government Money Market Fund): 3.98%
TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 4.17%
VMFXX (Federal Money Market Fund): 4.22%
Brokered CD Rates (6-Month Rate)
Charles Schwab: 4.14%
E*Trade: 4.15%
Fidelity: 4.15%
Merrill Edge and Merrill Lynch: —
Vanguard: 4.20%
ETFs (30-Day Yields)
SGOV (iShares 0-3 Month Treasury Bond ETF): 4.17%
BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 4.12%
USFR (WisdomTree Floating Rate Treasury Fund): 4.25%
TFLO (iShares Treasury Floating Rate Bond ETF): 4.26%
Youth on Course "Golf with Us" Promotion: Free Membership for Kids 6-18
Bank of America has launched an exciting golf access program, offering free one-year Youth on Course memberships to eligible youth.
Offer Details
Promotion Period: Through May 24, 2025 (or until 75,000 memberships claimed)
Available to: Youth ages 6-18 without previous Youth on Course membership
Requirements to Claim:
Visit bofa.com/golfwithus
Complete registration form
Provide required information to Youth on Course
Key Benefits:
Access to golf courses for $5 or less
Scholarship programs
Leadership opportunities
Development through the sport
Our Thoughts This promotion provides significant value for families with children interested in golf. The membership removes financial barriers to course access, offering rounds for just $5 or less at thousands of participating locations. This represents substantial savings compared to regular youth green fees. The program benefits extend beyond discounted play, including educational and developmental opportunities. For families looking to introduce children to golf or support existing interest in the sport, this free membership offer essentially provides a year of affordable access to a traditionally expensive activity.
Picture of the Week
