Don't Doom Yourself By Following Dr. Doom's Advice

Marc Faber, editor of "The Gloom, Boom & Doom Report" and a perennial bear, told CNBC that "Investors should buy some gold every month forever." Faber has long prided himself as a contrarian investor so it's not unusual for him to bash U.S stocks in favor of emerging markets (considering that he lives in Thailand, there is an element of self-serving in that sentiment). What I find disturbing and unconscionable about his latest recommendation is that he suggests accumulating and holding gold as a core investment.

Gold is not an investment. It can serve effectively as a hedge against inflation, economic turmoil, and geo-political unrest, but it should be limited to a small portion of your overall portfolio. Most seasoned investment professionals would suggest no more than a 5% allocation to gold. Why so little? Because gold does not pay dividends or interest. Its price is extremely volatile. If you choose to take possession of the hard asset (vs. using a proxy like GLD), gold is expensive and cumbersome to store safely. In addition, the buy-sell spread on gold coins and bars is egregiously wide (a fact that greatly benefits gold dealers and disadvantages the investor).

And worst of all, Faber actually uses the word "forever." Nothing in life is forever and nothing in investing is forever. The word suggests that Faber's recommendation is a sure thing. Economic history tells us, however, that whenever something appears like a "sure thing" it will surely fail. Faber's recommendation to buy-buy-buy gold falls into that nonsensical category.

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