The plunge in the stock market is rightly worrying for investors, but there is also something to learn.
Diversified portfolios help during times of stress.
Gold bullion bars. Photo credit: ASSOCIATED PRESS
During the bull market years, from 2009 until earlier this year, holding shares of high-flying tech stocks such as Netflix, Facebook, Amazon.com, and Google made good sense for investors.
What didn't seem to make sense over that period was owning gold. Over the last five years, the S&P 500 gained around 36% not including dividends, while over the same period the SPDR Gold Shares exchange-traded fund rose a mere 1%, and there are no dividends.
But that didn't mean you shouldn't have had some holding of the precious metal in your portfolio. You should always have some gold.
Gold is like owning life insurance. You buy life insurance to help look after your family if you expire. No one wants to die and leave their family, but most conscientious people purchase life insurance anyway.
It's the same with gold and your portfolio.
Look at the recent moves in asset prices. In the month through Thursday, the SPDR S&P 500 exchange-traded fund, which tracks the S&P 500, lost almost 10% while the value of the SPDR Gold Shares ETF gold rose by 4.5%. Gold mining shares, such as those help in the Van Eck Vectors Gold Miner ETF, rose almost 9%.
"Commodity traders appear excited about gold again as stocks are on pace for their worst year since 2008," writes CEO of U.S. Global Investors Frank Holmes in a recent report.
The rise in gold prices didn't offset the entire loss in the broad stock market,...