Gold's renewed prominence in 2025 has reignited an age-old portfolio debate: how much room, if any, should the yellow metal occupy in a long-term asset allocation?

On the surface, the appeal is clear. Amid rising concerns about the U.S. fiscal trajectory, investors are taking a fresh look at gold's potential role as a hedge—not against imminent disaster, but against a slow-burn erosion of the dollar's purchasing power over time. In a world where fiscal dominance may gradually supplant monetary orthodoxy, this marks a meaningful shift. And to be fair, gold has already delivered strong returns through the first five months of 2025,¹ further strengthening its near-term narrative.

But investors must navigate this moment with discipline. For all its tactical luster, gold remains structurally constrained: it generates no income, pays no dividend and compounds nothing. Its enduring value lies in preserving purchasing power and offering convexity during periods of monetary debasement, inflation shocks or geopolitical instability. These are real benefits—but they come at a price.

The Opportunity Cost That Matters

Allocating to gold isn't free. The core problem isn't gold's lack of productivity—it's what must be displaced to hold it. In most portfolios, that means reducing exposure to equities, the highest real-returning asset class in recorded history.

Professor Jeremy Siegel's seminal research puts equity returns at roughly 6.8% real annually over two centuries.² That compounding engine, driven by reinvested earnings and global innovation, is unrivaled. While no asset class dominates in all environments, equities remain the centerpiece for any investor with a multi-decade horizon. From this vantage, the act of shifting capital from equities to gold is less about diversifying and more about truncating long-term upside.

This isn't a dismissal of gold. It's a call for clarity about trade-offs.

Can We Hold Gold without Giving Up Equities?

Traditionally, the answer has been no—allocating to gold required selling something else, usually equities. But modern portfolio construction offers new tools that render this trade-off less binary. Enter capital-efficient strategies.

Most investors looking at gold's sharp run-up in the first half of 2025 face a classic dilemma: the fear of missing out collides with the fear of being late. Emotionally, it feels like the trade has already worked—allocating now risks chasing past performance. Rationally, they understand that reallocating to gold often means taking capital from equities or other high-potential assets. This amplifies the potential for regret: if gold stalls or reverses, the investor not only misses upside elsewhere but did so in pursuit of what already happened. However, capital-efficient strategies offer a way out of this corner. By maintaining core exposures—particularly to equities—while layering in gold exposure synthetically or structurally, investors can participate in potential continued gold upside without making a stark either/or decision. This reduces the emotional and financial burden of timing decisions and reframes the allocation not as a binary bet, but as an additive, regret-minimizing enhancement.

WisdomTree's capital-efficient ETFs are engineered to deliver equity participation while creating room for diversifiers, all within a single line item of a portfolio. For investors concerned about the opportunity cost of de-equitizing, this could be a game changer.

We thought it could be useful to explore how an allocation to gold could impact a portfolio of U.S. assets, starting at 60% equities and 40% fixed income.

Introducing the ETF Toolkit

• WisdomTree U.S. Efficient Core Fund (NTSX): The exposure is defined at 90% invested in the 500 largest U.S. equities, defined by market capitalization, with the other 10% in short-term U.S. Treasuries as collateral for a futures position. The futures position is defined as a 60% notional exposure to U.S. Treasury futures. The total exposure therefore includes the impact of leverage, as 90% exposure to equities + 60% exposure to U.S. Treasury futures = 150% combined exposure. Put another way, every $100 invested leads to a notional exposure of $150. Leverage has the potential to increase the volatility of an investment relative to either of the underlying asset classes viewed individually.
• iShares Core S&P 500 ETF (IVV): IVV seeks to track the price and yield performance of an index, the S&P 500, that is composed of large market capitalization U.S. companies.
• iShares Core U.S. Aggregate Bond ETF (AGG): AGG seeks to track the price and yield performance of an index, the Bloomberg U.S. Aggregate, that is composed of certain segments of investment-grade U.S. fixed income.
• SPDR Gold Shares (GLD): The investment objective of SPDR® Gold Trust is for SPDR® Gold Shares (GLD) to reflect the performance of the price of gold bullion, less the Trust's expenses.

Determining the Allocations

Looking at figure 1, we can see that Blending Gold (50/40/10) is taking the traditional approach. GLD at 10% represents one-fifth the relative exposure to U.S. equities, with IVV at 50%.

Within Capital Efficient Gold Blend, we are using two capital-efficient ETF allocation tools. An 83.3% allocation to NTSX leads us to a U.S. equity starting point of 75%. If we then allocate 16.7% to GDE, we get a 15% overall gold exposure (15% is one-fifth of the 75%).

But Capital Efficient Gold Blend does not stop there. GDE also generates 15% exposure to U.S. equities, bringing the total U.S. equity exposure to 90%. If one had placed 100% of the allocation into NTSX, by design, this would also generate 90% exposure to U.S. equities. Therefore, it is like we added GDE and did not take anything away from U.S. equities. Of course, capital-efficient exposure is not a free lunch, in the sense that using leverage in this way can increase volatility. To think about risk, the worst case would be if U.S. equities, U.S. fixed income and gold are all going down during the same time frame. Historical analysis indicates that this has not happened often on a calendar year basis, but 2022 would be the most recent such year.

Figure 1: Introducing the Two Approaches to Adding Gold to an Allocation

Figure 2 shows the standardized period returns of the different blends as well as the different ETFs that are used to create them. This data is as of June 30, 2025.

Figure 2: Standardized Performance

2025 Represented a Shift in U.S. Equity Market Leadership

The first five months of 2025 will not be remembered for a smooth, upward trending path of U.S. equity performance.

• We had the start to the year, where U.S. equities were initially positive.
• We had the "Liberation Day" catalyst for a significant, fast-moving drawdown in early April 2025.
• We had the subsequent rally as markets continued to evolve and re-interpret the news coming out of the Trump Administration.

The speed of these shifts left many feeling a bit of whiplash when looking at their portfolios. We can see in figure 3 how well the different aforementioned blends have done over some of these periods.

Figure 3: Navigating a Few Shifting Market Environments

An Analysis of Rolling Periods

When we pulled up the rolling 12-month periods (limited due to GDE having just over three years of total live history), we saw something surprising.

• The Standard 60/40, on a rolling 12-month basis, did not look very different from Blending Gold (50/40/10). This tells us that taking 10% away from IVV and placing it in GLD, on a rolling 12-month return basis, was largely indistinguishable from simply sticking with the Standard 60/40 exposure.
• The Capital Efficient Gold Blend did not outperform in every period, but when it did, it added a noticeable 12-month rolling return margin. The periods of underperformance were reasonably close to the returns of the Standard 60/40.

Figure 4: The Surprise of the Rolling 12-Month Return Comparison

Conclusion

At its core, the debate about gold versus equities is a test of how investors think about time, risk and opportunity. Gold shines when fear dominates, but equities build enduring wealth when patience prevails—a truth reinforced across centuries of market history and crisply articulated in Stocks for the Long Run. The real risk with gold isn't that it fails; it's that by funding it through reduced equity exposure, investors may quietly surrender the engine of real compounding. Yet today's portfolio tools, like WisdomTree's capital-efficient strategies, offer a more sophisticated way forward: a chance to embrace the tactical advantages of gold without abandoning the structural advantages of stocks. In a market defined by new threats and new technologies, the smartest investors aren't making blunt trade-offs—they're finding ways to stack advantages. The future belongs to those who can hedge wisely without giving up their claim on growth.

Figure 5: Additional Information