Best Investment Practices
How does one construct a portfolio in an era of (seemingly) ever rising and highly correlated asset prices? Years of asset prices moving higher has changed both retail and institutional investors; it has changed the industry; and those changes spell trouble. The prudent investor might want to take note in order to be prepared.
Merk says that for many, investing is no longer about prudent asset allocation, but about expressing themes. If you like green technology, you buy green energy. If you are socially conscious, there’s an ETF for that.
Not every industry does well all the time. But the less you have been thinking, the better you’ve likely performed over the past nine years. Buying the dips has been a consistently profitable strategy.
Investors should consider an allocation to precious metals or commodities. Gold is the easiest diversifier because it’s easier to understand than some exotic long/short strategy. Gold has had a near-zero correlation to the S&P 500 since 1970; however, over shorter periods, correlations can be elevated. Gold has done well in every bear market since 1971, with the notable exception of the bear market in the early 1980s, when then Federal Reserve Chairman Volcker raised interest rates substantially.