An equity/gold portfolio dampens volatility.
"Do not commit all to one boat," states an ancient Latin proverb. As investors we are so accustomed to hearing this advice that the message can easily fade to abstraction.
But how asset allocation works in real life can be seen clearly in a simple chart:
Both equities and gold show their distinct advantages in different economic circumstances. But notice what happens to a portfolio with a 50/50 allocation to each of them that is rebalanced at the end of every year.
Not only is the risk lower but also the performance improves, clearly illustrating the benefits of a simple asset allocation model.
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