GOLD, HARD ASSETS AND DIVERSIFICATION

 

The 60 - 40 Stock to bond portfolio wherein the stock portion is well diversified through various sectors, and the bond portion is diversified through varying maturities and yeilds is now 100 percent correltated.

In other words 100 percent non-deversified.

This is because when debt levels far outstrip GDP levels any crisis can become a liquidity crisis and in a  liquidity crisis every financial asset is correlated.

But not Hard Assets.  Hard Assets are uncorrolated.

Because Had Assets (Art, rare books, rare coins, Real Estate, Collectibles etc) can not be bought and sold with the flick of a keystroke.  Some peopel hate that about true Hard Assets.  It doesn't mean they are illiquid.  Their liquidity requires effort and knowledge.   But the Auction schedule and private placement networks for good high end hard assets are plentiful and international.  And in a debt soaked world this is a marvelous advantage.

Gold sits in a unique position between a financial asset and a hard asset.  Real Gold is a hard asset.  Financialized Gold derivatives including ETF'S, Options, Futures, etc is a financial asset linked to gold.  These can be bought and sold with the flick of a keystroke, so they are more volatile than the underlying Gold.  Yet - and yet - after the initial volatility of panic - unless the crisis is terminal - the price will be drawn back towards the underlying price of the Real Gold that is stored in the vaults of the world's Central Banks and the world's Billionaire class.

Real Gold is a Real Hard Asset.  But there are many other Hard Assets that perform far better than gold.  However they are not as liquid.  And they are riskier.  AND they require real expertise.  You really can't rely on the expertise of an expert for these.  A generious expert will help you develope your own expertise and can get you started by supplying Hard Assets at a fair price.  But you will have to develop your own expertise over time.  

This is why it is best to delve into an area in which you already have some expertise.  Rare coins are excellent for those with a good grounding in History.  Rare books are excellent for those with a grounding in literature.  Collectibles are for the Popular Culture mavens.  Wines for the incurably pretentious.  (because you can't really drink them so you really don't know if they're any good.)  Wristwatches are great for the ostentatious.  They all tell the time the same, but certain ones let everyone know how rich you are.  

There's a hard asset for everyone.  Whatever appeals to your aesthetic, your education, and your disposition.

Choose one.  Because at the high end they're getting more expensive by the day as they tend to rise in value as the global debt levels rise.