Several years ago, when my daughter was a bit younger and had only the faintest understanding of money, she found a quarter on the ground while we were running errands. For her, it was a big event that prompted a flurry of questions: Is it better if it’s heads or tails? What year was it made? What state does it represent? And, most importantly, is this enough to convince my Dad to buy me ice cream?
A few minutes later, she grew quiet and asked a surprisingly profound question, “Dad, what is money? Is it like…magic or something?”
It’s not a question I had spent much time considering, and I’m not sure my explanation satisfied her. Still, it struck me how central that idea is to investing: What gives something value? That debate has been especially lively in recent years with the performance of gold and the rise of Bitcoin.
At JFG, we currently do not allocate to either gold or bitcoin. While both attract passionate supporters, neither meets our criteria for inclusion in client portfolios. Here’s why.
Gold
Gold is a tangible metal valued across geographies and generations for its beauty and unique physical properties. Today, roughly half of newly mined gold is used for jewelry, about 7–8% is used in modern technological hardware, and the remainder is available for physical investment. The most common arguments for owning gold are:
- Long-term performance
- Inflation protection
- Safe-haven characteristics
Each is worth examining:
- Performance: Over the past 50 years, gold has delivered lower returns than a traditional 60/40 stock/bond portfolio, and it has done so with nearly double the volatility and larger drawdowns.
- Inflation protection: While gold has largely held its value over the very long term, returns during actual inflationary spikes have been inconsistent.
- Safe haven: Gold has often risen during market stress, but not always. In several crises, it declined alongside equities—undermining its reliability as a diversifier when it’s needed most.
On balance, we find the historical record insufficient to justify a long-term allocation to gold in diversified portfolios.
Bitcoin
Created in 2009, Bitcoin is frequently compared to gold due to the limited supply embedded in its code. Proposed benefits include inflation protection and potential as a safe haven, but most enthusiasm is driven by its remarkable price gains since inception.
From our perspective, bitcoin and other cryptocurrencies fail to meet the definition of investable assets:
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They have no intrinsic value—unlike tangible goods such as real estate or gold, digital assets have no physical properties that can be utilized or consumed.
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They generate no cash flows, unlike stocks (dividends) or bonds (interest).
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Their value is determined almost entirely by supply-demand dynamics and market sentiment, making them inherently speculative.
A review of Bitcoin's price movements reveals that it has been highly correlated with other risk assets, contradicting the safe haven narrative. And its extreme volatility has produced deep drawdowns, including five drawdowns of greater than 75% in its short history, requiring extraordinary conviction for investors to endure.
Our View
Allocations to gold or bitcoin resemble speculation more than investment. Neither asset produces economic value for holders, can be used for everyday transactions, or offers consistent protection in crises. Both have experienced long periods of disappointing returns that would test the discipline of even the most steadfast investors.
For these reasons, JFG does not allocate to either. Instead, we focus on assets with measurable intrinsic value, the ability to generate income, and a defined role in a diversified portfolio. That said, we continue to monitor both gold and bitcoin, open to updating our views if the evidence changes.
My daughter is older now, and I've tried to help her build an understanding of money through an allowance and conversations about saving and spending. She no longer thinks of money as "magic," though hers seems to disappear rather quickly. I discussed paying her allowance in bitcoin, which she declined in favor of cold, hard cash, proving her already strong grasp of risk management.
