Had you plunked down $1,000 in gold and $9,000 in the S&P 500 — a 10% stake in gold — you'd have $36,400. This shouldn't surprise anyone, because it's a blend of the two returns, which were fairly close. Your overall portfolio would have profited slightly from the position in gold.He goes on to say that rebalancing would have been more difficult than it looked. Selling stocks when they're popular and buying gold when it's widely derided - a necessity with this strategy - would have taken a psychological toll. Amongst his caveats, he notes that the next twenty years will not be like that last twenty. He also notes that gold is awfully high right now.
But let's say that you made a rule: Whenever your gold portion slipped below 5% of the total, you'd sell some of your stocks and reinvest enough in gold to get back to the 10% position. If gold rose to 15% of your total holdings, you'd sell some of the yellow metal and use the proceeds to buy stocks — again, returning to the initial 10% gold stake.
Your final tally: $41,350 — a significant improvement over both stocks and gold....
Gold as portfolio insurance is certainly an idea whose time has come. Sad to say, though, there are stretches when gold gets hammered while the stock market does next to nothing. 1980-82 is an example of a time when the best hing to hold onto was cash for the first half of that two-year stretch. Bonds bottomed in 1981.
Should such a stretch come again, it would be a sign that the above plan should be considered once gold settles down. Gold getting slaughtered after a blow-off top has been the prelude to a new long-term bull market in stocks.
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