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If the goal is to have a diversified portfolio (more towards the safe, conservative, long-term side), should you include assets that hold value, but are not productive per se, like gold, silver, coins, cryptocurrency, art?

Intuitively I don't see the advantage in having something that's not productive. Even if companies are not generating dividends, they could be (or should be) increasing their value. Real estate can generate rent. Even gov bonds and the like generate some (modest) return.

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    Things like gold and cryptocurrency do not "hold value" very well, look at price charts for gold and Bitcoin in the last couple years. Their worth is entirely dependent on the current market trends (but they may be more or less volatile than other holdings). – Nosjack Feb 19 at 13:27
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    If you're thinking about the long-term then owning objects that don't produce high gains over time is not really the best outcome. Diversification means nothing if it's not actually protecting you from anything. – Jonast92 Feb 19 at 14:05
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    On that note, safe and conservative doesn't mean better long-term results, quite the opposite. Safe and conservative means less chance of a loss in the short-term. – Jonast92 Feb 19 at 14:06
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    The question is unanswerable unless a time scale is included. The phrase "protect value" is meaningless without a time scale. – Fattie Feb 19 at 14:13
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Well they diversify your portfolio in the sense that they are probably not highly correlated to what you have, but they probably won't reduce risk (volatility of returns), which is typically the goal of diversification. Commodities and crypto are highly volatile, so they may actually increase risk. You should get higher returns on average because of that, but you can also get large losses, which is what I think you're trying to avoid.

You are right that real estate holds value (in most cases) and produces income; you might look at REITs to see if they also have low correlation to your portfolio (you may need a broker or other resources to do that) and if they reduce your overall risk.

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  • Risk and volatility are not the same thing though. Volatile markets are not risky in themselves but they're risky if you're dependant on them for a short-term gain, while being a safer option in the long term as they, usually (not always), result in higher gains over time (specifically talking about the stock market). – Jonast92 Feb 19 at 14:01
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    @Jonast92 Risk is typically defined in investing as volatility of returns. Not in the sense of maximum loss or probability of loss. There are other measures of risk like VaR but that's not what I'm talking about here. – D Stanley Feb 19 at 14:21
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I think that there are two parts to your question. The first is: Are Gold and similar assets a good way to diversify your portfolio to protect value? Ignoring last year, for the past three recessions:

  • In 1990, it lost about 10% of its value.
  • In 2000, it did nothing.
  • In 2008 it dropped 30% from its peak price before recovering and ending up 4% for the year.

Gold is ‘iffy’ during recessions.

The second part is Intuitively I don't see the advantage in having something that's not productive.

Like other investments, gold can be a very profitable if you time it right. I expect the kneejerk reaction to that statement will be you can't time the market True, but you can certainly buy it when it's on sale though you won't know if the sale will be even better at a later date. As stated by Warren Buffett: Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down. Is gold quality merchandise? That's not a debate for me.

What I will offer is that for more than 3 decades I have owned various gold stocks and very often I have written out-of-the-money covered calls and have generated good income for periods of time along with some capital gains. I also owned Krugerrands and caught a good piece of the big run up in the early 2000s.

IMO, gold and gold stocks aren't a good hedge. But at times, they can generate good income or be a good investment. If you want to protect the value of your portfolio, hedge directly rather than with another assets that may or may not correlate when your portfolio is under duress.

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If the goal is to have a diversified portfolio (more towards the safe, conservative, long-term side), should you include assets that hold value, but are not productive per se, like gold, silver, coins, cryptocurrency, art?

No. There are some issues with the stuff you mention

  • There is nothing produced by a coin or a piece of art. There is no dividend or interest payed. All its value is coming from appreciation
  • The value of such items is volatile. Just look at gold prices and how much they fluctuate
  • Even worse, gold is not necessarily in an anti cycle with stocks. Just look at the last year for gold: enter image description here It has the same drop in March as any major stock index. Maybe a bit smaller in magnitude but 25% is not nothing. Gold proved pretty worthless as a protection against the Covid19 crash
  • Storing physical items safely is not cheap. While you can buy any synthetic financial products for gold or silver, this is hardly possible for art. And if you buy a synthetic product you better hope the bank is not going down like Lehmann Brothers did

As a private investor the most stabilizing asset you can have during a market downturn is cash. Most countries protect your bank account to a certain amount (e.g. 100k) so it is as secure as it gets. However, the big problem is to know in advance when you need to turn your assets into cash...

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  • whilst I don't disagree with your answer, "Gold proved utterly worthless as a protection against the Covid19 crash" that sentence is confusing. (1) there was no covid "crash" (there was a brief dip) (2) the S&P has gone hugely up since then, one of the great historic runs up of all trime (2) similarly, gold has gone hugely up, straight up, since then (eg, just as your 3rd bullet point suggests) – Fattie Feb 19 at 15:16
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If the goal is to have a diversified portfolio (more towards the safe, conservative, long-term side), should you include assets that hold value, but are not productive per se, like gold, silver, coins, cryptocurrency, art?

The five you listed are speculative investments, which are the complete antithesis of your stated goals.

Intuitively I don't see the advantage in having something that's not productive.

That's true, given your goals. (Even savings accounts and CDs are productive, since banks lend the money for productive purposes.)

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Intuitively I don't see the advantage in having something that's not productive.

IMO this is completely wrong.

All that matters is that the price goes up.

Imagine an utterly, utterly useless asset, such as say Apple stock.

(Apple make - wait, Apple have made by Foxconn - by any measurable standards hardware that can only be described as "extremely bad" (so, a couple generations behind the power/price point). They do own a "music store" (noting that all music is completely freely available). And they own a completely flop TV station. The entire corporation exists because of a great logo and nice typography - and that's all there is. An interesting thought is that, if Apple totally ceased to exist tomorrow ... absolutely nothing would change - literally nothing. Everyone would still have a phone (indeed much better, faster, cheaper phones) and all music would still be freely available. Apple achieve literally nothing.)

So Apple stock is totally valueless by any rational measure. But. Say I was a time lord, and I told you (factually) that Apple would be trading much higher 6 months from now than today. Again - assume you know this to be true, you know it is going up.

Would you buy it? The answer can only be definitely yes.

Intuitively I don't see the advantage in having something that's not productive.

The trick here is:

You're missing the really fundamental aspect of the game theory that is markets.

Note that you are describing your reasoning for why a price goes up.

Consider this, we could discuss the pros and cons of your reasoning and that would be interesting.

However.

When you are hoping for higher prices. What you have to do is guess:

what other people, en masse, will use as reasoning for higher prices.

It literally doesn't matter at all if their reasoning is right or wrong, good or bad, logical or illogical (as you, or any party, sees it).

All that matters is predicting what the mass will do.

are gold, art etc a good way to [ ] protect value?

This is easily answered by looking at very long term charts of different assets.

You have to understand that when you say "protect value" you are inherently including a time scale.

Thus, the question should read ".. protect value in the 1-2 year time scale" or ".. protect value in the decade time scale" or ".. protect value in the human lifetime time scale" or ".. protect value in the multicentury time scale" (if you're a Chinese magnate who has a "thousand year plan!")

The question is unanswerable unless a time scale is included.

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    "The question is unanswerable unless a time scale is included." Read the first sentence of the question. – RonJohn Feb 19 at 15:07
  • @RJ - help me out, what do you mean? (Was the Q edited or something?) – Fattie Feb 19 at 15:13

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