If an investor buys silver/gold stocks as a hedge- what are your thoughts on other metals such as copper etc? Also, are there any thoughts about what percentage in metals? Thanks in advance -seems that the more I read the more questions I encounter!
If an investor buys silver/gold stocks as a hedgeWhat are you hedging? (Are you simply talking about diversification and if you have some precious metals in the mix)IMHO - Commodities in general: It is a good idea to have some planned exposure either through owning or investing in the commodities either directly (such as owning the bullion/beans/bacon) or indirectly (such as a stock/ETF/MF based on the index) or on a specific company.Right now part of my portfolio is in equity of a mining company specifically as a play for copper. Structurally there is a case for continued support of copper and some other base/industrial metals where gold and silver may be a little more sentiment driven. (read bubble)Also, are there any thoughts about what percentage in metals?Percentage wise: From MPT to pulling a number out of the Wizard of Oz's flying monkeys Efficient Frontier, GOOD QUESTION!Over time: In theory, owning metals will reduce the volatility of a portfolio as you are invested in another asset class (Commodities) that has historically shown maybe moderate correlation with equities - depending heavily on the mix of metals. And while the last couple of years precious metals have really boosted the average, metals have not quite shown the same long term average growth that equities have. So - to much in metals and history repeats itself - you will have less growth, to little in metals and you have the volatility---Which concerns you most: Growth vs. Preservation??d(Metals)/dT
Definitely -preservation! I used the word hedge meaning as a balance for the volitilty of the dollar - I keep coming across the thouht 20%of port should be in metals/commodities as a diversification strategy and was wondering what others thouht about that?
I have never seen anything saying/suggestion 20% in commodities. Where did you read that number? I have seen the number 5% from those who sell or otherwise benefit from people adding commodities to portfolios.GordonAtlanta
I think he's referring to the Faber/Swenson model portfolio's, which also use market timing.Hockeypop
Including gold and silver in that number
ltangel,Just to give you a flavor, (and you to Gordon) here is a sample of what 20% Precious metals would have done to a 30 year retirement portfolio. Picking two very different years. a recent one - 1980 which was a good year for the retiree, and 1967 which was one of the poorest (and sadly as a 30 yr would have ended in 1996 it was not in the trinity study for 30 yr performance but may make some folks rethink 3% means 100% survival for all 75/25!!)The portfolio on the left is the typical Equity/Fixed Income portfolio and its associated withdrawal rate that adjusted for inflation would last ~30 years. The portfolio on the right is if you allocate 20% to precious metals and then split the remaining in the same EQ/FI as the left side portfolio. In the middle you can compare the withdrawl rates for the two portfolios!EQ FI PM WR 1967 WR EQ FI PM 100% 2.3 3.0 80% 20%75% 25% 2.7 3.5 60% 20% 20%50% 50% 3.2 3.9 40% 40% 20% EQ FI PM WR 1980 WR EQ FI PM 100% 6.9 6.1 80% 20%75% 25% 6.8 6.0 60% 20% 20%50% 50% 6.6 5.8 40% 40% 20%So - for the extremes of withdrawal rates, adding the precious metals does two things. One is reduce the volatility (not shown here but it does) and most importantly it smoothes out and flattens* the SWR curve where the higher withdrawal rates are brought down and -- the lower end are brought up*(makes the SWR less steep when x-axis is no PM and y-axis is with PM)Is 20% the optimal number???? - again MPT or flying monkey butts, depends on where you like to pull your numbers from.. CAVEAT - not advice just saying!IMHO 20% is probably a good number for commodities if just looking at the three asset classes but should include others not just precious metals. This is on the high side for PM in my allocation. I include base metals as mentioned at around 10-15% in total metal. I am also on the low side now cause I am starting to feel Au-bubbleitis!! It is also reduced in general from the 20% in part because I have other commodities and an allocation for Real Estate (20%), Hedge funds(10%), and Vodka (1%)! Had to leave some room for S&PVery simple way to get your dose of metals is to find the equities you like associated with miners etc. So, out of the 75% or whatever in the S&P just make sure 20% is tied to metal. Individual stocks, ETFs or Mutual Funds... I believe that these instruments would have higher correlation with the market in general than directly owning the metal so you would loss some of the diversification, so maybe bump up the percentage which is why I think 20 is good, but with the ETF you dont have storage costs!!! d(PM)/dTPM = Precious metal: 40% AU,20% AG/PT/PD, prices from KITCO, USGS and NMAFI = Bonds: UST 10yr and 1 yr CD rates from Shiller, Bloomberg, IbbotsonEQ = S&P500: Shiller.Vodka from Idaho!!
EQ FI PM WR 1967 WR EQ FI PM 100% 2.3 3.0 80% 20%75% 25% 2.7 3.5 60% 20% 20%50% 50% 3.2 3.9 40% 40% 20% EQ FI PM WR 1980 WR EQ FI PM 100% 6.9 6.1 80% 20%75% 25% 6.8 6.0 60% 20% 20%50% 50% 6.6 5.8 40% 40% 20%
I know gold and silver have been huge lately but i think it's good to have a bear chime in occasionally. While I often disagree with Cramer on many topics, his advice on thinking of gold a currency makes a great deal of sense (though he is very bullish gold). Unfortunatly this means that gold does not build value by itself like a corp but changes in price relative to other currencies as macro trends make some monies appear stronger or weaker. During the inflation driven bear market of the 70's gold took off as it was the strongest currency around but durring the 80's it took a major hit when the economy strengthened. Once gold re-priced to a lowwer value it practically road rails flat or slightly down for almost 20 years! Gold can be a good/great hedge when you think the economy might take an ugly turn like it just has but might be a losing bet if you are thinking of holding some over the course of decades. If you want an element of really long term stable growth in your portfolio I would look at TIPS or FDIC insured CD's. If you really want metals/commodities I like things like lithium or palladium because I see possible increased demand for the metals in high tech auto and industrial applications. These new batteries and efficient engines could fundementally restructure the value of these materials over the next decade or so.
I have read that about lithium. Any suggestions for purchase? Also, aren't there several industrial applications for copper as well?Iwas thinking that when my variable annuity (yes, I know could have made a better choice 17 years ago) I could ladder the CD,s -thinking one for each month. Great ideas - thank you ALL for your thoughts!
Lithium has at least one etf (LIT) and maybe others. He's a link from Rueters that mentions lithium miners. http://www.reuters.com/article/idUSTRE6963X220101008As for copper I'm not really that knowledgable. It's used in so many diverse applications that it's always in demand when the economy is hot and slow when it's not. Very cyclical looking to me though perhaps someone might gainsay that opinion. I'm GUESSING that copper will do fairly well in the intermediate term if the market stays bullish but there's a huge supply in the ground that's easy to get to. Huge run ups in copper prices just don't seem sustainable. Please take this with a grain of salt... I like the macro aspects of commodities but do not trade them myself. I'd just recommend that if you move into the sector, try to spot fundemental demand or supply shifts, otherwise you're just riding market volitility (which some people make a damn good living on). Wish I had spoted Molycorp(MCP) and the rare earths play 6 months ago. Laddering CD's or treasuries is a good source of stability in your portfolio if that is the goal of the exercise. Good luck!Scott
After reading your origonal post I poked around and found this article but forgot to mention it in my reply. It has a lot of good data, doesn't seem to be selling anything and while a little dry I managed to understand almost all of it. I think this might help adress why you were looking into metal commodities in the first place. Scott
http://www.evansonasset.com/index.cfm/Page/18.htmWish we could edit our previous posts for when I do something stupid like that... twice.
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