A.I.M. Users Bulletin Board

[ls7550]

Hi Toofuzzy

This link compares 50/50 Stock/total bond with 50 stock/25 10 year Treasury/25 gold. Broadly much the same reward. A factor during times of stress however is that taxes can rise, more often at the worst time (not coincidental as the state is likely also seeing economic stresses). Interest/dividends are a softer touch for such taxation policies and gold in producing no income helps reduce such risk.

Stocks are in part broadly leveraged, typically 1.5x i.e. corporate bond debts of half of stock book value. Leverage doesn't add to gains (overall) just scales up volatility. Accordingly many investors opt to de-leverage stocks via a 67/33 stock/bond allocation. Stocks/bonds/cash all tend to do well during times of positive real yields, gold tends to do well during negative real yields - when inflation is greater than interest rates. Debt is also good during negative real yield periods. All stock or stock and bonds are all positive yield tilted. Including some gold and factoring in stock debt and 50 stock with 17 integral debt, combined with 25 gold = 42% combined on the negative real yields side i.e. is more neutral on the positive/negative real yields front. Gold is both a global currency and a commodity so additional diversification elements there also. If the $ relatively sank 50% for instance then gold might double or more. 75 of portfolio assets losing half due to currency decline, 25 (gold) doubling - and you're more into mild losses rather than extreme losses (using a extreme example). A element of portfolio insurance that might cost little if anything to include.

Clive.