A.I.M. Users Bulletin Board

[ls7550]

Hi Adam.

I use a more simplistic model. Real yields (cash interest minus inflation) will tend to be either positive or negative. When positive even cash is expanding your wealth, stocks, bonds, cash do OK. When negative investors may flight to gold or seek to be in debt.

Gold's dividend comes from trading it, volatility capture. Stocks tend to provide rewards through price appreciation. Bonds reward via interest. At very long dated bonds there's little difference between stocks and bonds, both are volatile, some stocks are more bond like than some bonds. There can be a degree of shorter term inverse correlation between the two however. Check out this example and since 1972 50/50 stock/gold has compared to all-stock in total rewards.

So counting mid/longer term as stocks=bonds, then fundamentally that leaves stocks and gold as having variable multi-year inverse correlations.

Owning a home avoids having to find/pay rent, you are in effect both landlord and tenant, liability matched. A home can also serve as late life care home costs cover/insurance. Home + imputed is similar to share price + dividends, however house prices tend to correlate more with gold than stocks i.e. is somewhat centrally between stock and gold. When mortgage yields are negative in real terms people are in effect being paid to hold a mortgage/debt and that is a attractor when real yields are negative.

Pre 1972 when still on the gold standard, money could be converted to gold at a fixed rate, it made more sense to hold money deposited and paying interest, as at year end that higher amount of money could be exchanged back for more ounces of gold. In effect the state (Treasury) paid you (T-Bills/whatever interest) for it to store your gold. The ending of that standard meant a transition from a very very low volatility asset (constant price) to a very high volatility asset, that is best partnered with stocks, a barbell of two polar opposites that's like how a 1 and 20 year treasury bond barbell combines to a central 10 year bond bullet, stock/gold combines to be like a central currency unhedged global bond bullet. Much of historic advice however is to partner stocks and bonds/cash i.e. aligns more with pre 1972 and money being exchangeable for gold at a constant/fixed rate. No harm however if you still stick with the original pre 1970's 50/50 stock/bond choice as that blends high and low volatility assets rather than two highly volatile with a element of inverse correlation assets (stock and gold).

Clive.