Why Gold Matters

Often when investors are considering a new investment they only focus on the asset itself and how it will behave. A very important skill is to not only look at the investment itself, however, but also what that investment might mean in the context of the whole portfolio.

Michael Gayed, chief investment strategist and co-portfolio manager at Pension Partners LLC, recently wrote that what matters is not so much the individual investment, but more how it relates to the other investments in your portfolio.

This is an aspect that is often not even considered in investment decisions by people who manage their own portfolio or have a financial advisor. The interaction between investments in your portfolio can have a bigger impact than the performance of the individual investment itself, Gayed explains.

This also goes for investment strategies in his opinion. According to Gayed it is all about buying and holding shares these days. When you combine this, however, with other investment categories and strategies a portfolio might do better with a better risk/return ratio. In other words: diversification still matters.

The Correlation Between Gold And Stocks

Gayed wants to underline that there are investments that do not correlate with others. In light of this the portfolio manager spoke of gold. Gold matters, in his opinion, because it historically does not correlate with macro variables and the stock market.

If you look at the correlation between the SPDR Gold Trust and the SPDR S&P 500 ETF Trust, it is different every time. You can easily state the there is no real consistent relationship between the two, says Gayden. An exciting year awaits and for risk management, a ‘golden era’ is coming.