December 10, 2011
BY: Robert Hallberg, Topics: Portfolio Allocation
I have been a big advocate of investing in gold and precious metals and the data points to higher prices in the future. However, I do not recommend allocating 100% of assets in to gold and precious metals, nor do is suggest taking a traditional approach such as a diversified portfolio of mainstream stocks and bonds. Wide diversification of assets that are in a bear market certainly grantee a mild loss at best.
As we have discussed before, certain assets do better during certain times periods and other assets do better during other investment cycles. Right now gold and precious metals are in a bull market so it would only make sense to add a larger allocation to these metals. But there will be opportunities in a small number of equities, such as gold mining companies and energy companies. During the mania phase of the last gold bull market in gold it was not unusual to see the market cap of some junior exploration companies increase by hundreds or even thousands of percent, much like the .com mania. So it may make sense to allocate a portion of your capital to this sector.
I suggest allocating one-third of your assets into physical gold and silver, preferably in different geographical and political regions. Another one-third can be invested in equities with a strong emphasis on gold mining shares and some energy stocks. A smaller portion, about 10% of this third can be invested in junior gold exploration companies.
I recommend that the last third of your capital remain liquid. There will be continued and increasing volatility moving forward and keeping some âdry powderâ will give you courage, and it opens up opportunities to take advantage of bargains that may present themselves in a liquidity crunch. However, in a world of depreciating currencies I suggest diversifying your currency holdings into different types of cash, including the US dollar, the Norwegian Krona, and the Australian dollar.
Review your portfolio periodically and invest idle cash when your cash holdings exceed one-third, and likewise, take some money off the table if your equities quickly run up in value. Just, donât jump in and out of investments every five minutes unless you are a professional trader. Poor performance is usually the result of over activity.
To learn about trends and spot the next investment opportunity read the Casey Report from Casey Research. It's a monthly investment news letter that breakdown economic trends in a way that is easy to understand. They make recommendations based on economic reality and their track record is several times better than the market or any mutual fund for that matter.
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