An article over at Bloomberg is suggesting that the economy has changed in such a way that perhaps nowhere in the realm of traditional assets might there be any relief for investors from market volatility.
And the conclusion drawn from that, as summarized in the piece’s headline?
A smartly-diversified portfolio can always help investors. The core problem with this article, as with so many others like it, is that it assumes the only opportunities for true diversification are those that exist within the traditional asset space, most typically occupied by stocks and bonds.
Bonds Likely No Help to Investors this Time Around
According to the article, global strategist Thushka Maharaj of JPMorgan Asset Management recently penned a note to clients in which she suggested the new climate of higher inflation and interest rates will make life difficult for bonds, thereby reducing any diversification benefit that might otherwise accrue to investors who own both asset classes.
In the current reflationary environment, with pro-cyclical fiscal stimulus, it is more difficult to see bonds providing a consistent diversification benefit, said Maharaj.
To be fair to Maharaj, she did not title the article. She’s simply commenting on the anticipated relationship between bonds and equities in the near future. But for Bloomberg to conclude from that possible reality that a diversified portfolio may be of little to no value is wrong-headed.
A diversified portfolio – an effectively diversified portfolio – is still highly achievable and can be of great value to investors, even in this environment when the performance of traditional asset classes tends to become more closely correlated.
Gold & Silver Can Provide Genuine, Effective Portfolio Diversification
Effective diversification involves ensuring key portfolio assets have low correlations. Many investors think they’re diversified because they own both equities and real estate. After all, those are two different asset classes, are they not? If you look more closely at present-day correlation coefficients for key asset classes, however, you’ll see that real estate and stocks have a correlation of .75, which means they largely move in concert (a coefficient of 1.0 indicates perfect correlation). From a diversification standpoint, that’s no good.
Check out gold, and you’ll find a far different picture. Gold and equities have a correlation of just .04, which means they’re almost entirely uncorrelated. THAT suggests the potential for effective diversification between two asset classes.
Because you’re reading this article, you are privy to important information that investors who visit only mainstream financial media sites will unfortunately miss. Readers of the noted Bloomberg article – who may not come across an article like this one – might well believe that portfolio diversification really isn’t an option for them when the markets go south this time. You, however, have learned here there are assets – like physical gold and silver – you can add to your portfolio that offer the potential to not only keep it safe in volatile markets, but keep it growing.
I encourage you to learn more about how physical precious metals can help your IRA or 401(k) stay safe. Please give Augusta Precious Metals a call at 1-855-976-5436 and ask to speak with one of our retirement specialists, who can more fully explain the numerous benefits of strategically allocating part of your retirement plan to physical gold and silver.
“A diversified portfolio may not help investors much this year”? Don’t believe it. A portfolio that is smartly allocated among physical gold and silver – inflation-protected assets with historically low correlations to equities – will regularly offer genuine diversification potential.
By: Isaac Nuriani, CEO, Augusta Precious Metals
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