One big lesson from America's 'tin decade'
In this issue:
» SEBI twists fund houses' ears once again
» Jim Rogers bearish and bullish on US dollar
» Pimco's El-Erian is a worried man these days
» US Parliament passes financial reforms bill, but then...
» ...and more!!
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Chart of the day |
Data Source: Yahoo Finance
Nevertheless, this last 'tin decade' for US investors offers a great deal of learning for investors around the world.
The foremost lesson is that asset allocation works. Not the asset allocation that divides money between large-caps, mid-caps, small-caps, penny stocks, dot com stocks, or realty stocks (as US investors thought).
But an asset allocation that divides money between cash, stocks, bonds, gold, real estate, commodities, and international markets.
There is an important lesson for you in this. A proper allocation between these asset classes - cash, stocks, bonds, gold, and real estate - will go a long way in safeguarding your portfolio when any one of these asset classes crash.
While a single allocation does not work well for all kinds of investors, those with a 10-year horizon can have around 40-50% allocation to stocks. Another 5-10% can be put into gold, 5-10% in cash/liquid funds (for emergency needs), and 30-40% into property.
But always remember, periodically rebalance such an allocation. For instance, if your 40-50% stock allocation rises to 60-70% (possibly as the markets rise), then sell some stocks and add to other asset classes to bring your portfolio in line with your original allocation.
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The market regulator, in a circular to all mutual funds and asset management companies (AMCs), has instructed, "You are advised to ensure compliance with the instruction of the investor informing his desire to change his distributor and or invest directly, without compelling that investor to obtain an NOC from the existing distributor."
Let's call it another way towards investor independence and empowerment. But there will be a lot of hearts (distributors') that will burn!
02:05 |
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From a long-term perspective, Rogers is bearish on the US dollar. However, he believes that the dollar will rally in the short term. What is more, he has increased his holdings in the currency. The reason for it is simple. While the dollar has its share of serious problems, other currencies are not exactly endorsed by strong economies either. And in the medium term at least, it seems unlikely that the dollar's status as the world's reserve currency will be challenged. However, we believe in the longer term, the case for a weaker dollar holds given the gargantuan debt that the US has amassed over the years.
02:49 |
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But the sad part is that these are not permanent sources of growth. Sustainable growth in the US can come only from the private sector - consumers and companies. However, these sources are unlikely to pitch in with their share of consumption anytime soon due to the tremendous headwinds of unemployment they are currently facing. Indeed these tough times do not look they are about to end in a hurry.
03:34 |
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These reforms are likely to not only restrict Wall Street profits but also ensure good governance. But then, as with all other reforms, the key will be implementation!
04:05 |
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Note: Countries are representative of their benchmark indices
Talking about gold prices, and that of silver (which declined 7% during the week), we do not see this correction as changing their long-term trend, which is of rising prices. This decline in fact can be used by you to buy into these metals in small lots to build up an allocation of 5-10% of your total investment portfolio. Of course, these prices can fall more but you can then just average out your costs.
So, are you buying gold and/or silver at the current levels? Share your views
04:43 |
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04:59 |
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29 Responses to "One big lesson from America's 'tin decade'"
rinkesh
Dec 13, 2009i am looking to buy gold but waiting coz i think more fall can be seen in gold price in short to medium term.
k b raut
Dec 13, 2009I am buying gold two grams every month for the last 12 months.I have still 13 years to retire and I would continue to do the same till I retire.At the end I should have at least 14x12x2=336 gms .Also my wife is doing the same she has 17 years to retire and she will have 18x12x2=432 gms. In all 336+432=768 gms as some sort of security for our golden years.
swaminathan.g
Dec 13, 2009gold will be down another 7-8%during last week of Decr;09.
but will pick up in the 3rd week of Jan'10.
SRK
Dec 13, 2009Anyone can pick up a ten-year period that suits them statistically and prove that that decade was a 'golden' one or a 'rotten' one depending on what is intended to be inferred. By the way, the full year of 2010 is before us to comment on performances by asset classes.
Sai Surya Chandra Bharat Deevi
Dec 12, 2009No I will not purchase gold and silver at these levels but would prefer to wait for correction by 8-10% more.
Mahesh Chandra
Dec 12, 2009one should buy on every decline.Prices will rise further to a level no one would have imagined.
himanshoo
Dec 12, 2009I feel that gold will drop to as low as USD 1050 or may be even 950 USD due to short term strength in US Dollar. In INR also it will drop to certain levels and this should be used as an opportunity to accumulate gold. I personally feel that we could touch 2000 USD / oz price in some part of 2012.
BABIT BAWEJA
Dec 13, 2009No, Not at current levels