A big part of the problem is that determining what is tax efficient depends on
assumptions about future returns, differences in tax rates, and the behaviour of tax shelters.
Investors fully understand that the average 30 - year past return of long bonds, currently north of 7 %, tells us
nothing about the future return of long bonds.
In a bubble, those two factors become completely detached from reality, and
expectations about future returns become increasingly reinforced not by fundamental data, but by price action alone.
In addition, borrowing and lending are forward - looking decisions: borrowers are making judgments about their future capacity to service debt, while lenders are making
decisions about future returns.
Some investors use recent price momentum as their sole source of
information about future return prospects, but in doing so they run the risk of allowing entirely random price fluctuations to drive perceptions.
They need to be
realistic about future returns and the balance of stocks to bonds, since a portfolio needs to last as long as possible without having to resort to drastic actions.
That is, past returns don't tell us
much about future returns, but understanding that gold is ultimately just a commodity gives us a much more rational perspective of what types of returns we should expect going forward.
This Larry Swedroe article might make you a little less
worried about future returns; I, for one, agree with his analysis that CAPE - 10 is probably overstating how overvalued (if at all) the stock market is right now:
And given the fact that trends in the XAU itself are
uninformative about future returns, it also means that you are better off buying gold stocks on dips than to buy upside «breakouts».