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.
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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!
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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 |
Weekend investing mantra |
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29 Responses to "One big lesson from America's 'tin decade'"
jatinder narang
Dec 12, 2009i am buying mcx gold on dips in form of 8 gms. goldguines.i hope gold will see low of rs. 16500 and then again rise to 18500 and more.
anwar
Dec 12, 2009gold is bought primarily as a hedge fund to protect currency downfall asst allacate only about 5% of your corpus, buy in small quantities every month or so spread your investments over a 5 ywar period atleast and cost even you purchase or risr the volitility
Rameshbhai Mehta
Dec 12, 2009Your mantra is well deserving. It should ever be born in mind while investing to have good deal of control over investment made.
T. P. G. Nair
Dec 12, 2009As a retired person (Senior Citizen) I want to wait for some weeks, before I ivest in gold.
arif khan
Dec 12, 2009No, I am waiting for the Gold to come below $1000/- an ounce to rush to by it in good quantity. arif khan.
Gopal Krishna Kejriwal
Dec 12, 2009I would think that there is consensus on the USA dolar gaining strength vis a vis other currencies in Jan 2010 if not the whole quarter (Q1) of 2010. Gold prices are I think inversely trending to Dollar prices...so might be better to buy gold from April 2010 rather than now. With gold prices off by over $100/oz. from their highs, shorting gold is not without risk either....could go all the way back to $1,000/oz. I think.
K.D.Viswanaathan
Dec 12, 2009The suggestion to adopt an asset allocation plan that sensibly divides money between stocks, cash, gold, bonds, real estates etc. is a sound one. As opined, periodical rebalancing, taking into consideration the changing trends, will ensure the best possible returns for the investors.
Retheesh
Dec 12, 2009No