TY - JOUR

T1 - The Golden Rule of Investing

AU - Van Vliet, P.

AU - Lohre, H.

PY - 2023/12/31

Y1 - 2023/12/31

N2 - Although gold is a volatile asset, it is often considered a safe haven that offers protection during bear markets. The authors study this safe-haven hypothesis by analyzing a strategic allocation to gold for a loss-averse investor with a one-year evaluation horizon. A modest allocation to gold indeed helps to reduce the downside risk of traditional stock–bond allocations, yet such risk reduction comes at the cost of return. Conversely, low-volatility stocks are more effective in reducing losses without giving up returns. As a result, a stock–bond–gold allocation considerably benefits from embracing low-volatility stocks and allows for increasing the equity allocation at the expense of bonds. Notably, the effectiveness of this defensive multi-asset portfolio increases with the investment horizon.

AB - Although gold is a volatile asset, it is often considered a safe haven that offers protection during bear markets. The authors study this safe-haven hypothesis by analyzing a strategic allocation to gold for a loss-averse investor with a one-year evaluation horizon. A modest allocation to gold indeed helps to reduce the downside risk of traditional stock–bond allocations, yet such risk reduction comes at the cost of return. Conversely, low-volatility stocks are more effective in reducing losses without giving up returns. As a result, a stock–bond–gold allocation considerably benefits from embracing low-volatility stocks and allows for increasing the equity allocation at the expense of bonds. Notably, the effectiveness of this defensive multi-asset portfolio increases with the investment horizon.

U2 - 10.3905/jai.2023.1.203

DO - 10.3905/jai.2023.1.203

M3 - Journal article

VL - 26

SP - 23

EP - 40

JO - Journal of Alternative Investments

JF - Journal of Alternative Investments

SN - 1520-3255

IS - 3

ER -