There is a common misconception in the financial world that gold moves in the opposite direction of the stock market. This unfortunate interpretation of historical data produces a misleading image that often results in confusion and bewilderment among investors when the two markets periodically move in the same direction.
Negative Correlation or No Correlation?
In order for gold and the stock market to move in opposite directions, there would need to be a negative correlation between gold and stocks. There is no evidence that such a correlation exists and, if there was, and it was true that gold moved in the opposite direction of stocks, it would greatly reduce gold's value as an investment alternative.
If gold and the stock market were on the proverbial see-saw that a negative correlation necessarily implies, there would be no reason for long-term investors to invest in both. The proper decision would be for individuals to choose which ever one outperformed the other over the long-term.
Fortunately, individuals are not faced with such a dilemma.
The fact of the matter is, gold is NOT negatively correlated to the stock market. Nor is it positively correlated to the stock market.
There is NO discernible correlation between gold and the stock market.
Gold: An Independent Asset
In other words, gold reacts independent of stocks, to economic and political factors and market events.
This makes gold the ideal diversifier for a portfolio of stocks. The reason for this is because of the unpredictable nature of world events.
When you get right down to it, consistently predicting near-term and medium-term movements in the stock market is just about impossible. No one has done so with any success to date and no one has developed any trading system that has done so over the long haul.
The same can be said of the gold market. No one has a crystal ball with which to predict the movements in gold either.
Likewise, no one can predict with certainty the timing and nature of the next economic crisis or perhaps the next terrorist attack. All of these kinds of factors impact the financial markets—including the stock market and gold market—and thus need to be accounted for.
Gold: Protection Against Inevitable Uncertainty
The best way to protect your portfolio against unpredictable events in the financial markets, the economy and the geopolitical arena is to diversify as completely as possible. This means not just diversifying across industry by selecting stocks of companies which are engaged in varying lines of business, it means diversifying across asset classes. In addition to a diversified portfolio of stocks from a variety of industries, individuals absolutely must include gold in their portfolio.
Why?
Because gold has no correlation with the stock market. The best way to achieve the stability of your portfolio is to include an asset that is as unpredictable vis a vis stocks as the very events which impact the stock market.
We know from history that gold will not react in the same way as the stock market to crisis, hyperinflation, depression, and other turmoil. This is what makes gold so vital for all people.
No one knows what to expect next from the financial world. One day the stock market is doing just fine and the next a storied name like Merrill Lynch is being bailed out in a deal put together by the Feds. One day the world is calm and the next a 23 year old tries to blow up an airliner over Detroit.
We can't change the unpredictability of future events and the stock market's reaction to those events, but there is something we can do to help protect our wealth from the fallout, and that is to own gold.
Tuesday, April 20, 2010
How Does Gold's Value Change with the Stock Market?
Monday, April 12, 2010
Why are organic and eco-friendly toys better for our children?
One of the greatest gifts to mankind given by the creator is nature. Now it is our duty to protect this gift. If nature is not properly used and protected, we put ourselves and our next generation into peril. So use of nature and natural products should be made with wisdom. It is also true in the case of manufacture of toys.
Care of child:
It is the duty of every soul in this world to care for the child. He is our successor. The care of his health is of utmost importance. In order to make the child industrious, we provide him with many toys. Unfortunately many of these toys are made of materials like plastic, fibers, etc. which are chemical based products. These products are known to affect the tender skin of the baby. Attracted by the pleasing color of these toys, the toddler puts these products in his mouth and as a result he gets infected. These products are known to be storehouses of many serious diseases. So the child is laid down with serious ailments. His future is affected. Ultimately we have failed in taking proper care of the baby.
Remedy:
The remedy is to stop providing such toys which are manufactured using artificial materials like plastic, etc. Instead, replace these with organic and eco-friendly toys. They do not harm the child. These toys are manufactured using natural materials. They are as attractive as artificial toys. Advantages of organic toys:
As they are made of natural material without any artificial lining around them, they are totally safe for the child. Of course, they cost little more than their counterparts; artificial toys. But looking at the long range benefit, anyone will be willing to pay more. They are free from all sorts of toxic materials. They can be used for longer period of time. They can be repaired and reused. But in any form they are eco friendly. If there is a need to discard these toys, they can be put back on the road; nature will accept them. For example toys made of wood, cotton cloth, clay toys are all eco friendly; when they are discarded in the open, they in no way harm the nature or the neighborhood. But it is not so in case of artificial toys. There are many examples of many electronic gadgets yet to be disposed off because they cannot be thrown in the open for fear of causing environmental hazard.
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