A Simple Portfolio For Uncertain Times

It is hard to tell where to invest in unsettled markets. There have rarely been times as unsettled as these, as a perusal of any day’s news will show. Markets soar and sink with every headline and tweet. Trying to punt by keeping all our money in cash seems to be a self-defeating option with the historically low interest rates we are experiencing.

The nearest parallel to today’s economic environment is the late 1920s and early 1930s, when a rolling thunder of competitive currency devaluations and retaliatory tariffs led to the collapse of the international trade system and eventually much worse. Could it happen again? There is no way to know for sure.


Which Assets Will Hold Value in Volatile Markets?

What we do know is that some assets will retain some value as long as there is a civilization; and that their prices will fluctuate differently. Unfortunately, we can’t know in advance which ones will be the best at holding or increasing their values. However, a long history does suggest that in combination, the big four asset classes, as I’ve just decided to call them – cash, stocks, bonds, and gold – have held up remarkably well as a group, even when some of them have had big drops.

Holding a portfolio with a combination of cash, stocks, bonds and gold, when properly re-balanced periodically, has proven to be a good strategy for maintaining value through all kinds of economic situations.


Pros and Cons of Holding Cash

Pros: There is no price risk with cash and it offers the ultimate amount of liquidity and returns rise in times of rising interest rates, with little lag.

Cons:  Cash typically offers low returns, especially in times of low interest rates. Often, after taxes, returns are actually negative.


Pros and Cons of Holding Stocks

Pros: Stocks typically offer the highest average return of all asset classes. Though stocks may suffer losses, corporate influence and the way the system is designed makes likely that drops in the stock market will only be temporary.

1 2 3
View single page >> |

How can a free workshop change your financial future? You can keep on doing what you’re doing to manage your money. Or you can more

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.