This week I picked up a piece of research from the Global Investment Strategy team at the famous Swiss investment bank UBS AG. They were testing the assertion that commodities are a reasonable play against inflation. Here's what was reported:
"...Because commodity price returns are only weakly linked to stock and bond returns, it is assumed that commodity prices must provide a reasonable degree of diversification in a portfolio.
But UBS concludes that the emperor hiding behind this conventional wisdom simply has no clothes!
Their study shows that spot or current historic commodity prices have underperformed the consumer price index over the past 36 years by a cumulative 21%. Also, had an investor held interest-bearing cash throughout the period, he or she would have outperformed commodity prices by 46%.
UBS blames the returns on technological advances, which inevitably reduce the cost of production and depress commodity prices.
They also point to a sharp run-up in spot prices during the first few years of the 1970s and the last couple of years. They claim that this completely accounts for the strong performance of the Goldman Sachs Commodity Index for the 36-year period under review.
Basically, had it not been for these two periods of strong performance, commodities wouldn't have turned up on investors' radar screens..."
So, cash has a very low correlation with stocks and bonds though it does not have the higher "expected return" of other asset classes like commodities, real estate or natural resources. But then again, it is a good diversifier for the stock investor and those "expected returns" of commodities and other alternative categories are short-term expectations. Over the long-haul (and we are long-term investors, right?), you may find that the speculation is not worth the effortless comparison of investing some of your money simply in cash (CD's, money markets for example) where no market-timing is needed.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.