Gold Takes the Throne: The Best Asset for a Balanced Portfolio
The comments below are an edited and abridged synopsis of an article by David Morgan
Gold is essential for a balanced portfolio. A variety of studies published by different institutions (Harvard, Ibbotson Associates, CPM Group) have confirmed this. The best overall performing portfolios tend to reflect a substantial percentage of gold to balance the portfolio.
Why? Because gold does best when the market doesn’t. Gold is the most negatively correlated asset to the stock market. If you are a long-term investor, then gold must make up a percentage of your portfolio. This isn’t just Morgan’s opinion. It is a fact; it is what performs best.
Comparing silver to gold is like comparing the S&P 500 and Nasdaq. Silver is a smaller market, much more volatile, and its moves tend to be bigger, both up and down.
However, silver is generally 85% correlated to gold. Therefore, if gold is going up, silver is going up, and in an up-market, it typically goes up faster and greater.
The opposite is also true: When gold goes down, silver goes down faster and harder. So, while silver plays an important role in a metals portfolio, investors must be willing to accept the added risk, because the added reward in the bull market is usually worth the effort.
There are other dynamics in the silver market that gold doesn’t get to enjoy, mainly on the industrial side. Demand does subside in conditions such as we are currently experiencing, but not as much as people believe. After all, silver is becoming more critical in a high-tech society.
But for a balanced portfolio, gold is a must, and silver might not be. Silver may well outperform gold; but for the most balanced portfolio with the least risk, for simplicity, gold is the asset to go for.