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Diversify With Defensive Assets

By LINDON, Utah - May 25, 2018 No Comments

In Charles Schwab’s summer quarterly newsletter On Investing, CEO Walt Bettinger says “it may be wise to diversify with defensive assets, including cash investments, U.S. Treasuries and even precious metals.” Wow.  Let that sink in for just a minute.  The leader of one of the biggest banks and brokerage firms on the planet is advocating that we should take a portion of our portfolio and diversify it into a tangible asset like gold. That is huge.  Why?  Because companies like Schwab make money managing people’s money.  And when a portion of that portfolio is reallocated to precious metals, there is no management fee on that portion anymore. It’s like Gap telling you to go to Levi’s for at least one of those pairs of jeans you want to buy. 

So, why is the guy at the helm of Schwab saying this?  Because he is a savvy investor and an astute CEO and he knows what is coming.  He knows we are in one of the longest bull runs ever, and he knows that in 2008, when the market turned, equities lost as much as 50% of their value, while gold did just the opposite.  In the same newsletter, the article “Playing Defense” emphasizes that there are asset classes that can help your portfolio during a downturn.  And one of those is precious metals.  “Because of its finite supply, gold tends to maintain its value even during periods of economic upheaval.” It goes on to highlight that “Even during a bull market, the prices of precious metals tend to move independently of stocks, enhancing any diversification benefits. And because their prices tend to rise along with inflation, they may also provide a hedge against broad cost increases.” 

I agree wholeheartedly with Schwab’s CEO.  As a matter of fact, gold has increased over 300% in the last 17 years.  But very few people know that.  And, until now, very few major institutions have taken the right step to encourage investors to consider diversifying a small portion of their portfolios into a tangible asset like gold.  What I have been advocating, and now others are beginning to encourage is this: Get your defense on the field---NOW.  Even when the offense is still scoring points, the defense stands ready.  Because it’s the defense that is going to carry you through the downturn ahead.

I love the quote attributed to famous coach Bear Bryant.  “Offense sells tickets, but defense wins championships.”  Get your defense ready.  Because, it’s not just what you have, it’s what you keep.  And you want to keep your championship portfolio no matter what the market conditions are ahead.