Protect your Shriveling Assets

Much has been made of gold increasing and dollar declining, both here and on other sites. However, for the majority of investors, this focus on precious metals and commodity plays is shortsighted. Once a person takes notice of the purchasing power of their assets, and how to preserve it, they should move to find ways to diversify and maintain an all-weather portfolio. As the picture above notes, the purchasing power of the S&P 500 has not recovered much in this recent rally. In fact, it has regained barely a third of the decline since the 2007 peak.

If you wonder how investors in other countries have fared, see the following chart. Notice how foreign investors vastly underperformed in '07-early '08, and again in the latest market rally. Their currencies have seen large increases against the dollar, the the point where Australian and Japanese investors are decimated in their US investments. We need to take advantage of unhedged foreign investments to maintain purchasing power.

One bulge bracket research group earlier this week recommended a 50/50 domestic/international allocation to stocks to us this week. Likely in the near future many will recommend weighting assets based on percentage of world GDP for the best diversification. Just remember that rarely does something happen in the market when everyone expects it. Everyone is calling for a dollar decline and a gold bull market. The dollar will decline eventually by a large degree, but with sentiment at such an extreme level, a counter-trend move of dollar strength is more probable than you think. Don't jump all in to international stocks or precious metals, keep your assets at a mix to where if gold falls and the dollar strengthens, you will not lose sleep.