As 2013 draws to a close most of our recommended asset classes are poised to deliver full-year returns worth celebrating. At the risk of spoiling the party, however, we’ll take a more constructive approach and instead address head-on those concerns that might nevertheless be on the minds of our readers.
Gold in particular is worth a closer look, especially for investors whose perceptions are easily swayed by very recent performance. Year-to-date through December 23 the gold price had fallen by 38 percent and is poised its steepest calendar-year loss since 1981, when the price fell by 33 percent. It is at times such as these when it is easy to question why we hold gold at all.
It was only five years ago, during the financial crisis, that gold performed quite well in its role as portfolio insurance. The chart below plots the growth of a hypothetical dollar invested in gold, U.S. bonds and U.S. stocks between July 2007, when stocks peaked, through February 2012 when the stock market had fully recovered. At the depth of the crisis in February 2009 a dollar invested in stocks would have fallen by 49 percent, while a dollar invested in gold would have increased by 46 percent. We have documented gold’s resiliency throughout many previous financial crises.
But the gold price is also extremely volatile so our recommended portfolio allocations to gold lie within a range of only five to ten percent; this limited exposure would have only cushioned the blow. Our other recommended asset classes, however, helped as well by providing further diversification, and stocks did of course ultimately recover.
Gold’s recent swoon is now having the opposite effect, by diminishing slightly the strong yearly gains in stocks and bonds. We will gladly accept this offset in exchange for holding an asset that will rise to the occasion when crises emerge. Global markets remain unpredictable and risks always loom.
Also In This Issue
Who To Believe?
Inflation And Asset Classes: An Update
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked By Yield
Recommended Investment Vehicles
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