Tag Archives: gold

What Are the Core Asset Classes for Total Return Portfolios?

One of the most important questions for investors and advisors is identifying a set of asset classes that will be considered for inclusion in a portfolio.  Some people will decide that all they need or want is one broad stock market index fund and one bond fund.  Others will choose to include Real Estate Investment Trusts (REITs) and commodities.  There are well-thought-out arguments that inflation-protected government bonds (TIPS) are a major core asset class.  It is also quite common for investors or advisors to break stocks out into value vs. growth and small cap vs. large cap.  Continue reading

Implied Volatility: A Better Way to Gauge Risk

If you ask most investors how risky corporate bonds are compared to government bonds, or to compare emerging market stocks vs. domestic stocks, you’ll find that most investors have a sense of the relative risk based on personal experience—but nothing concrete. If you ask the same investors how risky an investment in gold is vs. the S&P 500 their answers usually get even more ambiguous.

However, in the last several years, we’ve seen a remarkable (yet largely unheralded) new source of information to help investors determine the risk level of an asset class or sector. Continue reading

The Challenge of Diversified Investing in a Correlated World

Below is a Fidelity Investments heat map showing the investing terrain of the past year, particularly how correlated a variety of investment classes were to the S&P 500 Index over the 12 months ended August 2010. As has been much discussed, many investment classes have moved in close tandem to this US Stock index. It is a small world after all.

But for those defending the importance of a continued commitment to bonds despite the low yields (Jack Bogle, Bill Bernstein, and Fidelity itself, among them) this map provides much support. Investment grade bonds and 30 day T-bills are the truest counterweight to all equities in every region of the world. Precious metals in general, gold in particular, the Yen, agriculture and livestock provided balance too.

The graphic comes from Intelligent Speculator, who notes surprise at the BRIC and Emerging Market’s similarly close correlation to the US market, and also predicts a more valuable role for real estate moving forward.

(Please click on image to enlarge.) Comments, insights, questions welcome below.

Bernstein, Bogleheads, and the Permanent Portfolio

A recent piece by Bill Bernstein on Harry Browne and his “permanent portfolio” has launched an interesting debate on the Bogleheads board. Continue reading