A lot has been written about asset allocation and diversification. Most advisors including me recommend dividing investments among equities, bonds, gold, and real estate funds, so as to spread the portfolio risk. Having asset classes which are not correlated help during volatile times.
Real estate has been the preferred asset class for decades. But, being an illiquid investment, we will focus only on the liquid assets. Wealth managers typically advise 10-15 per cent allocation to gold and up to 10 per cent to international equities.
Does this allocation reduce volatility significantly?
Let us consider the absolute returns and volatility measured by standard deviation on various asset classes.
Comparing the returns and volatility of equities, gold and global equities, does not yield any definitive trend. Each year, some asset classes perform, and others underperform. There are years when volatility in gold has been higher than in equities.