Should I move my portfolio into gold and oil?
Written by Carl Turner on March 30, 2016.
As I’m sure you aware if you have any kind of investments, stock markets are going through a period of extreme volatility this year. 2016 started bad and got worse, hitting a low in mid-February, although things do seem to be calming down a little in March.
As always happens when stocks prices are yo-yoing, investors are turning away from the markets and seeking a safe haven for their money elsewhere. Many view gold as that safe haven and gold prices have seen a surge this year, including an increase of 4.3% over one single day on 12th February 2016. Compare this to just a few months ago in summer 2015 when the outlook for gold was decidedly gloomy.
The fact is that all asset classes are vulnerable to volatility, gold being no exception to the rule. On 21st January 1980 for example gold prices declined 17.38% in one day as well as dropping 14.15% between 15th and 16th April 2013.
It’s not just gold my clients are asking about right now. Some investors are considering moving a large percentage of their funds into oil figuring that at less than $40 a barrel the oil market has bottomed out and can only go one way – up. That ascent may already have started but no-one has a crystal ball and can be certain of the future. Other niche investments currently piquing interest are bitcoin and silver although both are very volatile on a daily basis.
The reply I give to almost all of my clients when they ask about reallocating assets is that all portfolios should be balanced with investments diversified across different asset classes. There is absolutely nothing wrong with these types of investments but they should be part of a bigger picture, bearing in mind that by the time information filters down about them in the newspapers or by word of mouth, the news is weeks, if not months out of date.
If we take gold as an example the best professional investment managers who have access to up-to-the minute research and analysts to sort through it moved into gold towards the end of last year although the tabloids only started mentioning gold’s resurgence last month.
The reason I always advise clients to have a balanced and diversified asset portfolio is precisely because none of us can accurately predict which way things will go. As we are constantly being told by investment companies – past performance is no guarantee of future returns. This is clear if we look at the table below.
If you had all your money invested in commodities in 2010 you would have been pretty happy as they were the second best performing asset class. However the following year they had plummeted to almost the bottom of the table and then sank to the absolute bottom for three years. By 2015 you may have been tempted to move out of gold and into shares but if 2016 is the year that gold comes out of the doldrums you would miss out on the subsequent upside. Given that timing when you move money in and out of different asset classes is so hard, you are best avoiding putting all your eggs in one basket and opting instead for a balanced approach and a medium term view.
If you would like an objective opinion on whether your portfolio is diversified sufficiently for you to achieve your financial goals I’d love to hear from you.