For a variety of reasons, ranging from weakness in the U.S. dollar to a lack of obvious investment bargains, some investors are including so-called “hard assets” such as gold and energy among their asset allocations. Taken in small doses, such holdings may trim portfolio risks and possibly increase returns.
In hindsight, such an allocation would have been very helpful during the 2000-2002 bear market. According to Morningstar Inc., Chicago, the average domestic stock fund lost nearly 12 percent per year, for those three years; the large-blend group, the most widely-held, lost 13.5 percent per year. Simultaneously, natural resources funds (which tend to hold oil and gas stocks) gained 4 percent per year. Precious metals funds moved up by 17 percent per year, by far the best annualized return of any fund category.
Going forward, does it still make sense to invest in such hard assets? They are inherently risky by themselves but your overall risk can be reduced by adding hard assets to a portfolio that includes equities, fixed income, and real estate.