See bolded below...............:o)
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....from the houston chronicle
Gold as a hedge? How about a 64% return?
By SCOTT BURNS
Universal Press Syndicate
Is gold a good hedge? It certainly looks that way.
Let's start by considering the incredible performance of the precious metals funds.
In the 12 months that ended Dec. 12, according to category average data from Morningstar.com, the average precious metals fund blows away the competition. The category average return: 64.1 percent.
Nothing else comes close. Funds specializing in Latin America come in a distant second at 55.1 percent. Technology funds, recovering from their near-death experience, placed third at 42.3 percent.
The hedge value of gold is still clearer when you look back three years. During that miserable period, the average precious metals fund gained 44.4 percent a year, while the average domestic large blend equity fund lost 6.6 percent a year.
Big difference.
Indeed, while a 50/50 domestic stocks/fixed-income portfolio would have suffered a small loss over the last three years, your overall return would have been 4.3 percent a year if you had simply owned a gold fund "insurance policy" equal to 10 percent of your starting portfolio.
As a consequence, many people who probably sold at the bottom of the bear market might have held on and enjoyed the recovery.
This isn't your usual "portfolio for the apocalypse" approach to gold. The gold bug crowd hordes its gold coins and awaits the Mother of All Economic Disasters with dreams of $5,000-an-ounce gold, worthless paper money, a devastated economy and social chaos.
But in that environment, the coin of the realm won't be gold coins. It will be bullets for your .357 Magnum.
In the more conventional -- and more likely -- world of portfolio construction, the basic idea is far less dramatic. Indeed, it is anti-dramatic. What you and I need to look for in portfolio construction is assured boredom, not excitement. We want regular, unexciting returns that double our money in reasonable -- but attractive -- periods of time.
To do that, we try to have a collection of assets with good but largely unrelated returns.
Over the last three years, for instance, the average stock fund lost 6.6 percent a year, but the average intermediate government bond fund gained 6.4 percent.
Quite unrelated.
That's one reason balanced funds are called "balanced" -- bonds tend to rise in value when stocks plunge. As a consequence, bear markets aren't quite so terrifying.
It's also the reason you've always seen a lot of enthusiasm for fixed-income investing in this column.
The experts have blessed other assets: small-cap stocks as well as large-cap stocks, international equities as well as domestic equities. Some groundbreaking research by Ibbotson Associates in Chicago in 1999, however, added the possibility of gold and other "hard assets."
By constructing a Global Hard Assets Index based on gold mines, metals, energy, timber and real estate, the researchers found that moderate investors would benefit from a 10 percent allocation to "hard assets," while more aggressive investors would benefit from a 25 percent allocation. They would benefit by having a slightly higher return and a slightly lower risk over a similar portfolio without the hard assets component.
If history tells us that hard assets are good for portfolios, recent market action may be telling us that hard assets will be needed even more in the future.
Why?
Simple. Long term, virtually the entire return on fixed-income investments is yield. Today, bond yields are very low. Similarly, nearly half of the long-term return on common stocks came from dividends.
Today, dividend yields are near their historic low. As a consequence, the relative returns of competing assets such as real estate, energy, timber and precious metals may compare favorably in the future.
Will it happen that way?
No one knows. But, as you will see from my Tuesday column, that's how I'm investing my personal money
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Thx to Chinton..Nat. Res. thread. |
