#71 S2N: It is a Matter of Time

S2N Spotlight

Two asset classes that have received a lot of attention lately are worthy of an examination. Trust me, I am a doctor.

What is so interesting about gold and bonds is that they are both very sensitive to inflation in opposing ways. Bonds don’t like inflation; the more they anticipate inflation, the weaker they perform. Gold, on the other hand, is considered the ultimate store of wealth as it is limited in supply and cannot be produced at will. It requires a lengthy process of prospecting, mining, and refining before it becomes a store of wealth. Gold is regarded as an inflation hedge and therefore does well in times of inflation. There is another difference about these 2 assets. Bonds pay a regular yield, and gold doesn’t pay a cent. In fact, gold costs you storage and insurance. So which one is a better investment?

30 Year Angle

20 Year Angle

10 Year Angle

1 year Angle

The difference between the cumulative 1-year and 1-year return is not an error; it is just a matter of compounding and not important for this discussion.

What you can see from these different time frames is that gold may be outperforming bonds over all the time frames presented. However, each chart’s relative performance looks different. Sometimes bonds outperform for a period of time. Looking at a longer chart, such as 30 years, gold underperformed most of the time. With this in mind, it would seem sensible to create a portfolio that invests 50% in stocks, 25% in bonds, and 25% in gold, as who really knows what inflation will do. The choice of 50% for stocks is arbitrary I am more interested in adding an equal split between gold and bonds and seeing how they contribute to a portfolio.

If you look at the above portfolio, you will see that a pure stock portfolio slightly outperforms a stock, gold, bond (balanced) portfolio from a compounded annual growth rate (CAGR) of 10.13% versus a 9% point of view. However, a balanced portfolio really outperforms on a risk-adjusted basis, big time. I think a sensible approach, if you take a long-term view, is to have a balanced portfolio. If I had made this suggestion a few years ago, I would have been laughed at.

S2N Observations

I am sure you have been told not to go on your screens before going to bed. You have no doubt told your kids the same thing. Well, that is not necessarily the right advice, according to the latest research by Michael Gradisar, an Australian clinical psychologist who co-wrote a paper published in the journal Sleep Medicine Reviews.

I will spare you all the details, but it turns out that the latest research suggests it could actually be relaxing to watch a sitcom or other kinds of relaxing media before going to bed. The so-called blue light effect is not really the stimulant they thought it was. I speak from experience, as I typically watch a 45-minute series when I get into bed to relax, and then I am off to Noddy Land. No blue-screen issues for me.

I bring this up for a reason. The older you get, the more you realise how things that you think are facts change with time. We were told that wine is bad, and then we were told that it is good for you. We were told that too many eggs are bad, and then we were told that they are good for you. The same is true with fats. There are so many examples of how times change our view of things and what was deemed scientific fact becomes falsified.

Today’s observation is a continuation of the idea I raised in the spotlight section above: “It is a matter of time.” Keep an open mind. Nothing is forever. Having balance is probably the most robust way of protecting yourself and your assets.

Performance Review

Chart Gallery

News Today

The post #71 S2N: It is a Matter of Time appeared first on Signal2Noise.