Dec 18
Negative Correlated Assets
Now that the market is down 40% to 50%, what should we have done differently. This article provides some clues. The time to have precious metals in the portfolio is when the market is riding high and there is a high probability we will see a decline. Now that the market is in the pits, it is too late to be holding negatively correlated assets. In my view, now, and over the next year, is the time to begin to set limit orders for those ETFs and stocks one intends to use to populate the portfolio over the next five years.
Do note there is a counter view that this market may decline another 50%. Holding 5% to 10% in a negatively correlated asset class will be insufficient to protect an equity and bond oriented portfolio should such a decline occur.
My view, at this point in the market cycle, one should be moving toward a diversified portfolio that includes the “Big Six” ETFs, international ETF, emerging markets, REITs (not more than 5%), commodities, and bonds. The reason for holding REITs to a low level is that there is going to be a second wave of mortgage foreclosures and we want to stay out of the way of that wave.
December 18th, 2008 at 12:43 pm
Lowell,
I have a different philosophy about precious metals, I don’t hold a position so much as an asset allocation but more as insurance. Another way of looking at it as a commodity that is not broadly diversified. I hold a position in VGPMX which is the Vanguard fund for precious metals plus mining fund. When I first bought this it was strictly a precious metals fund but it has evolved into more of a metals fund including industrial metals. I also hold a position in gold and silver coins.
Bob
December 18th, 2008 at 1:10 pm
Bob,
For simplicity, I would include gold and silver in a commodities asset class. I’ve never held gold or silver coins.
Lowell