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Gold and bitcoin won't help you. When stock prices move down, correlations between stocks go up. If you look at the last couple downturns you can see that this

Gold and bitcoin won't help you. When stock prices move down, correlations between stocks go up. If you look at the last couple downturns you can see that this correlation between assets and asset classes has increased. Stocks dropping leads to people selling their bitcoin and gold which causes those prices to drop. Falling prices make speculators get scared and sell to cut their losses which drives prices down further and the cycle continues. What you really want to find is an asset that is negatively correlated to the stock market while stocks are dropping.

pcdoodle 6y ago
Please share an example of something that has this property.
- jmalicki 6y ago
  For a long time timber (as in, owning a forest and letting people log it occasionally) has been one of the favorites of large endowments and hedge funds. https://investmentsandwealth.org/getattachment/cc0f7589-7411-41d8-82c2-f287892ac2da/IWM15SepOct-SeeingForestForTrees.pdf https://investmentsandwealth.org/getattachment/cc0f7589-7411...
- fredophile 6y ago
  There aren't many examples. Volatility is the best one I'm aware of. However, if you're regularly buying volatility to hedge your stock exposure you're going to lose a lot of money that way.
- reducesuffering 6y ago
  Long term US bonds are definitely the most prominent example for the last 40 years. Past 100 years though, not really. Check the ETF TLT compared to total US stock market, VTI, on https://www.portfoliovisualizer.com/backtest-portfolio https://www.portfoliovisualizer.com/backtest-portfolio or the asset classes on https://www.portfoliovisualizer.com/backtest-asset-class-allocation https://www.portfoliovisualizer.com/backtest-asset-class-all... Their negative correlation zig-zag is remarkable the past few decades. Some research postulates that in a decreasing interest rate environment (past 40 years), they’re negatively correlated, while in a rising rate environment they’re positively correlated, leading to the past 100 years minimal (almost 0) long term correlation.

pcdoodle 6y ago

Please share an example of something that has this property.

jmalicki 6y ago
For a long time timber (as in, owning a forest and letting people log it occasionally) has been one of the favorites of large endowments and hedge funds. https://investmentsandwealth.org/getattachment/cc0f7589-7411-41d8-82c2-f287892ac2da/IWM15SepOct-SeeingForestForTrees.pdf https://investmentsandwealth.org/getattachment/cc0f7589-7411...
fredophile 6y ago
There aren't many examples. Volatility is the best one I'm aware of. However, if you're regularly buying volatility to hedge your stock exposure you're going to lose a lot of money that way.
reducesuffering 6y ago
Long term US bonds are definitely the most prominent example for the last 40 years. Past 100 years though, not really. Check the ETF TLT compared to total US stock market, VTI, on https://www.portfoliovisualizer.com/backtest-portfolio https://www.portfoliovisualizer.com/backtest-portfolio or the asset classes on https://www.portfoliovisualizer.com/backtest-asset-class-allocation https://www.portfoliovisualizer.com/backtest-asset-class-all... Their negative correlation zig-zag is remarkable the past few decades. Some research postulates that in a decreasing interest rate environment (past 40 years), they’re negatively correlated, while in a rising rate environment they’re positively correlated, leading to the past 100 years minimal (almost 0) long term correlation.