Diversifying with Gold and Bonds: How & Why
Why Gold?
- Inflation hedge when purchasing power erodes.
- Crisis asset during financial stress.
- Diversifier with low correlation to stocks and bonds.
Conceptual overlaps: gold doesn’t fully overlap with equities or bonds.
Why Bonds?
- Income (varying yields).
- Stability, especially with high-quality government bonds.
- Recession hedge, particularly with longer duration.
Combining & Rebalancing
- Define target weights for gold and bonds (e.g., 10% gold, 30% bonds).
- Choose cost-efficient ETFs with good liquidity (hedged if needed).
- Rebalance periodically to restore target weights.
Idea: rebalance to keep weights aligned with targets.
FAQ
Is physical gold better than ETFs?
For most portfolios, gold ETFs are more liquid and convenient. Consider costs, structure, and currency hedging.
Short or long duration bonds?
Long duration hedges recessions but is more volatile. Many investors blend durations to balance risk.