About a year ago, I gave my subscribers radical advice on what to do with their money.
The safest trades I could find at the time were short sales. (That included two hard drive makers, which dropped 32% and 49% by the time we closed the trades. We made 55% shorting Barnes & Noble. And our latest short, muni bond insurer Assured Guarantee, is up 25% in about two months.)
But I know a lot of my readers aren’t interested in shorting stocks or just aren’t willing to learn how. I think that’s foolish. Even so, I gave them an alternative…
The safest thing to do right now is to split your savings between short-term Treasurys and gold.
That’s the equivalent of a “cash” position, as the gold will hedge your dollar exposure and the short-term Treasurys will mitigate the volatility of gold. You can do this through exchange-traded funds (ETFs). The Barclay’s iShares 1-3 Year Treasury ETF is an easy way to own short-term Treasurys. The symbol is SHY. And GLD is the most liquid gold ETF…
[ad#Google Adsense]Understand, this totally safe approach will not generate much income. SHY is paying a 1.6% annual coupon, and GLD pays nothing at all. You’ll be earning less than 1% on your assets – but they will be safe.
Even though stocks performed well last year, if you followed our advice to go with cash and gold, you would have seen a double-digit gain in your portfolio.
Gold is up about 30% since last February. Assuming a 50% allocation, your total return would have been around 15%. That’s essentially the same return as the S&P 500. But you could have gotten it without any exposure whatsoever to the stock market.
And I still think it’s good advice.
Given my fears about an imminent devaluation of the U.S. dollar, it may seem odd I’m telling readers to hold the “cash” portion of their portfolio in SHY. But that’s why I also recommended the matching 50% allocation to gold.
If you’re not going to short stocks, you should take a “neutral,” liquid position. That’s what a 50% gold/50% cash portfolio will do for you. It will allow you to wait out a crisis without losing money to inflation or devaluation. The gold will hedge your exposure to the U.S. dollar, and the cash will provide some protection against the volatility of a soaring gold market.
I know this advice will sound pretty radical for new subscribers used to Wall Street’s “buy-and-hold” mantra. I strongly suggest you disabuse yourself of the notion that the only way to make money is to always be invested in stocks. It just ain’t so.
Still, most of my subscribers won’t sell stocks short. No matter how much success we have shorting stocks nor how easy it is to do, most people just won’t do it. Like I said, that just plain foolish. And I’ve begged my subscribers to reconsider over many, many years.
But if you’re one of those people who will not, under any circumstances, sell short, I advise you to move 50% of your assets into gold bullion and 50% into cash or cash-like vehicles.
Good investing,
— Porter Stansberry
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Source: Daily Wealth