Where might conventions limit us?
What is there, that we might not see or understand, because we stay limited in our thinking?
For those with a more open mind there are deeper ideas to explore.
'Scandalous' but beautiful, reminding us that there is more to this world than just convention
(The Warren Cup, 5-15 AD)
Like the conventional stock market and the stock-picking, there are more, broad and well-acknowledged asset classes, but they are out of the main stream and probably nothing you will hear of if you only attend a conservative congregation.
So of course this is taking things a little over the top. But being gay we sometimes marvel how purple around us seem to be locked in conventional thinking in not only who you could live and have fun with in bed, but also do much more; as if there's an built in value to studying conventional.
When you're not so straight at all, one really needs to consider that what's normal might not be what's good for you.
Who knows, other ways might be something to consider.
And with finance, the real beauty is that we can bet on all at the same time.
Let's consider some alternatives.
Long term government bonds.
Long term bonds are bonds that promise a fixed payment far off into the future, as far as 25 years from now.
The price today is the market's valuation of what that future promise is worth today.
That means that the value of a long term bond today contains the markets consensus of long-term expectations on inflation, monetary policy and interest.
Small changes in those expectations has a large impact on the current price of the bond.
Why do we prefer government bonds? Well, because governments - and we're talking governments from stable countries here - are rather reliable when it comes to paying back their debts. At least, they own the money printing press.
And hence, the price of bonds are dictated by something very different than stocks.
It's a hedge out of the conventional.
Cash.
Cash? Can that be an asset class?
Yes. But many are blind to cash as an asset class, because of convention; almost an illusion - that keeps it the asset characteristics of cash out of sight.
Let's make a thought experiment to see the blind spot.
We usually measure wealth in a currency, that is, as if it was cash.
And so, when the portfolio drops in value, we have a hard time to see the situation from the other way around.
The drop of value in prices is exactly the same thing as the cash increasing in value.
Stocks falling 50%? That's one perspective.
Another perspective is that cash just increased 200% in value against stocks. 80% drop in the stock market? Or was it the other way around, and cash just increased 500%?
What about an option that is guaranteed to raise 500% in value if the stock market drops 80%? An asset that is guaranteed by the money printing press. And an asset that will be lovely to go on a shopping spree with when prices are low.
Don't underestimate the value of cash as an asset. Available cash when there is blood on the streets will build a vast fortune.
Gold
Why does governments keep gold in their reserves?
Gold is a value storage through space and time.
It keeps a piece of the long-term increase of value and production of all humanity, and it's much independent on political whims, short term booms and busts of stocks and unreliable monetary policy. It's even anonymous, if it is melted down.
And we know that we will always keep a reliably exchangeable piece of value with gold, and, when political turmoil and trust in the economy is low, it's more than unlikely that gold will have lost its value - quite the opposite, in most cases - and we will be in for a good deal.
The states know this.
When trust is low, gold might still trade.
Bet on everything: The Art of Re-Balancing.
As with all good things, there is balance to be found.
By doing a little bit of all, one also always have what the market wants.
Are you into Gold? We've got gold aplenty. Cash? A credit crunch and you need a bail out? We got you covered, just hand us some of those stocks in exchange.
Are you crazy about stocks? We've earned a lot while the markets went up and you realized you want some of the fever. We will sell of ours to you.
By knowing more asset classes than the most common kind of love, we're on a sure, steady spiral upwards.
For a better experience: mix it up
And just like life might be better by broadening the perspectives; the financial life might benefit, even find a new stability and security, if one mix in more dimensions.
Farewell,
//lucilius&antinous
More to read:
- What is asset allocation? Some thoughts here: How we dared to start investing
- Our thoughts on portfolios.
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