Experts Recommend Inclusion of Precious Metals in Investment Portfolio
Due to the volatility of foreign exchange currency and sharemarkets since the 2008 global financial crisis, experts are encouraging investors to include precious metals in their portfolio.
The strategy of diversifying portfolio seeks to protect funds from the unpredictable swings of the financial markets and currencies. In a report released on Thursday, Toronto-based Catalyst Equity Research recommended the inclusion of precious metals such as gold, silver and platinum.
"The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. The traditional view is quite simply incorrect, and it has cost investors and pensioners dearly over the last decade alone," Catalyst Founder Robin Cornwell said.
Although gold and silver holdings have been known to be reliable ways of securing wealth for thousands of years, many investment professionals do not recognise these previous metals as an asset class.
As a result only 0.30 per cent of pension funds have gold holdings of which half are investments in gold mining shares and not physical bullion.
Mr Cornwell explained that bullion provides insurance against failure of all other investments, provides improved liquidity and is the only asset class, except for cash, with a positive correlation coefficient with inflation.
"It is, therefore, the only asset class that can provide protection from a systemic crisis," Mr Cornwell said.
His advice mirrors a similar recommendation made by Bullion Management Group which said that because sovereign debt and bank leverage in developed nations have gone out of control, investment managers should rebalance their portfolios by investing in gold before bigger storms hit the financial markets.
Bullion Chief Executive Office Nick Barisheff said that by using gold as portfolio, pension funds could increase risk-adjusted earnings, diminish losses and preserve capital.
A 3.7 per cent allocation of a portfolio to gold by a U.S. dollar-based investor would have reduced looses by $177,000 on a $10-million portfolio during the 2007-2009 financial crisis, Mr Barisheff said.
