- A no-brainer strategy
Nearly 2X better than the S&P
- …With far less risk
I don’t write this letter in a vacuum – thankfully my
analysis and scrawlings are propped up and influenced by true giants in the
commodity investing field. If you’ve been a reader for very long you probably
know that I closely follow the work of the legendary commodity investor Jim
Unfortunately, Jim doesn’t have a daily blog I can peek at.
But I’ve increasingly been looking at a semi-daily letter published by
prognosticator and economist David Rosenberg of the investment firm Gluskin
(You can sign up to receive Mr. Rosenberg’s letter for free
by clicking here
now – I strongly recommend it.)
Though he’s not specifically a commodity analyst, he’s
currently a precious metals bull, so I find myself agreeing with his analysis
most of the time.
Mr. Rosenberg recently revealed an interesting strategy that
I know some of you will be quite interested in.
He calls it his
The acronym stands for “Safety and Income at a Reasonable
In short, Mr. Rosenberg seeks out safe investments with one
measure of his portfolio, income with another, and the whole thing is tied
together with a precious metal barbell.
For the sake of an easy math example; let’s go over this
investment strategy assuming a $100,000 investment account, and let’s assume
you’re nearly fully invested in this strategy, with 10% sitting in cash.
Depending on your age, risk tolerance and/or time to
retirement, that may or may not be the case, of course.
So you have 40% of your portfolio in income investments,
whether they’re bonds, dividend stocks or some combination. This $40,000
yielding a target of 5% income every year gives you $2,000 a year in
Then another $40,000 might be in a money market account or
CDs, giving you about 1.5% (if you’re lucky) per year. That’s another $600
Then throw in the $10,000 golden barbell, which gives you
year to date gains of 15% – or $1,500.
In this example,
your one year gain (assuming no more gains in gold’s price) would be
That doesn’t sound like much, but the broad market so far
this year is only up 1.8%, and if it keeps its current pace will be up a
meager 2.25% by year’s end.
Over the past 10 years the S&P 500 is at zero percent
gains, but this strategy would have turned your $100,000 portfolio into over
Of course, you might have been able to eke out a much higher
increase from money markets or CDs on average over the past 10 years, and
maybe you would have had a lopsided barbell loaded up with 3-4% CDs for a
chunk of that time – but I’m assuming the 1.5% rate to keep my estimates
I’ve been urging readers to get a significant portion of
their net worth into precious metals as a part of a responsible and
deflation/inflation proof strategy.
It’s good to see that a major player agrees with me, and is
currently pursuing a similar strategy.
Notice that this
strategy doesn’t pursue any risky investments – the dividend income is pretty
modest at 5% – which is easily attainable through blue chip dividend stocks
as well as “safe” bonds rated BBB or better. Arguably, nothing is safer than
a CD or money market account. Even if you think gold is a risky asset, your
downside is limited to the weight of the barbell – but gold has never gone to
zero, so the downside is probably limited to half the weight of the barbell
over a given period of time.
The beauty of this strategy is that it takes very little
active management, requires little “thought” and is more or less inoculated
from the broad market.
Recessions in stocks typically mean long periods of time
when stock prices trade flat.
But who cares if prices are flat if you’re just in it for
the 5% annual income? At most, you have 40% of your investment capital tied
up in stocks, and that number could be much lower if you’re a bond investor –
and you probably should be.
I’m interested in what you think of this strategy, and how
it’s similar or different from your own retirement strategy. Drop me a line
and fill me in: [email protected].
disclosure: long gold and silver