Commodities/Gold needed for true diversification

Albermarle

tranquility1 said:

Thrugelmir said:

Portfolio diversification (and construction) is hardly anything new. There's much to read up on the topic. With the boom in interest in global equity funds over the past 5 years. Diversification has fallen into the shadows. When making money is effortless who needs a balanced portfolio (to weather the storms that lie ahead). 

That money can be lost just as effortlessly.

If you were a regular forum watcher , you would have known not to have taken Thrugs comment at face value .
He is constantly warning everybody that it has been too easy in recent years and it will not last forever.
I assume he is actually in support of diversification. 

tranquility1

I think what Artemis were saying is that if the stock market tanks, and inflation (or deflation) kicks in, them commodities will go up in price.

iShares physical gold and silver would seem to be good bets if such a thing happened, because they are pegged directly to the price of the metals themselves. 

Malthusian

tranquility1 said:

If inflation sky rockets, how would you expect equities and gold/commodities to behave?

I would expect equities to track sky-rocketing inflation plus a risk premium plus or minus ε (random white noise), and gold / commodities to go up and down at random, like it does now. 

If inflation is really bad gold bugs may dump their shiny metal for whatever they can get in order to buy food and warm boots, causing the gold price to collapse.

If it is bad but not that bad, people with cash under the floorboards may buy gold and drive the price up. Nobody knows.

tranquility1

Malthusian said:

tranquility1 said:

If inflation sky rockets, how would you expect equities and gold/commodities to behave?

I would expect equities to track sky-rocketing inflation plus a risk premium plus or minus ε (random white noise), and gold / commodities to go up and down at random, like it does now. 

If inflation is really bad gold bugs may dump their shiny metal for whatever they can get in order to buy food and warm boots, causing the gold price to collapse.

If it is bad but not that bad, people with cash under the floorboards may buy gold and drive the price up. Nobody knows.

In the 1970s, didn't stocks go down when inflation went up?  

Stocks aren't a guaranteed hedge against inflation.

coastline

tranquility1 said:

Malthusian said:

tranquility1 said:

If inflation sky rockets, how would you expect equities and gold/commodities to behave?

I would expect equities to track sky-rocketing inflation plus a risk premium plus or minus ε (random white noise), and gold / commodities to go up and down at random, like it does now. 

If inflation is really bad gold bugs may dump their shiny metal for whatever they can get in order to buy food and warm boots, causing the gold price to collapse.

If it is bad but not that bad, people with cash under the floorboards may buy gold and drive the price up. Nobody knows.

In the 1970s, didn't stocks go down when inflation went up?  

Stocks aren't a guaranteed hedge against inflation.

Real returns chart.

EhCv7GqUwAACMF8 (900×504) (twimg.com)

tranquility1

coastline said:

tranquility1 said:

Malthusian said:

tranquility1 said:

If inflation sky rockets, how would you expect equities and gold/commodities to behave?

I would expect equities to track sky-rocketing inflation plus a risk premium plus or minus ε (random white noise), and gold / commodities to go up and down at random, like it does now. 

If inflation is really bad gold bugs may dump their shiny metal for whatever they can get in order to buy food and warm boots, causing the gold price to collapse.

If it is bad but not that bad, people with cash under the floorboards may buy gold and drive the price up. Nobody knows.

In the 1970s, didn't stocks go down when inflation went up?  

Stocks aren't a guaranteed hedge against inflation.

Real returns chart.

We are a due a flat decade soon then...

Alexland

tranquility1 said:

We are a due a flat decade soon then...

US valuations seem perfectly setup for another lost decade as they were in the late 90s. So you either accept that a large proportion of your portfolio will likely generate a lower return, look elsewhere or a mix of both.

tranquility1

Alexland said:

tranquility1 said:

We are a due a flat decade soon then...

US valuations seem perfectly setup for another lost decade as they were in the late 90s. So you either accept that a large proportion of your portfolio will likely generate a lower return, look elsewhere or a mix of both.

What is elsewhere? 

Linton

Alexland said:

tranquility1 said:

We are a due a flat decade soon then...

US valuations seem perfectly setup for another lost decade as they were in the late 90s. So you either accept that a large proportion of your portfolio will likely generate a lower return, look elsewhere or a mix of both.

Or you accept that you have no idea whatsoever of what the markets are going to do in the next decade and so you carry on with your long term strategy.

Linton

tranquility1 said:

Malthusian said:

tranquility1 said:

If inflation sky rockets, how would you expect equities and gold/commodities to behave?

I would expect equities to track sky-rocketing inflation plus a risk premium plus or minus ε (random white noise), and gold / commodities to go up and down at random, like it does now. 

If inflation is really bad gold bugs may dump their shiny metal for whatever they can get in order to buy food and warm boots, causing the gold price to collapse.

If it is bad but not that bad, people with cash under the floorboards may buy gold and drive the price up. Nobody knows.

In the 1970s, didn't stocks go down when inflation went up?  

Stocks aren't a guaranteed hedge against inflation.

Is anything available today a guaranteed hedge against inflation?

Over the long term one would expect equity to provide reasonably good protection simply because companies' costs and income generally rise with inflation and so you would expect their profits to do so as well.