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Economic Hedging

Following our discussion on asset allocation, below is a list of the best types of investments for each type of environment.

Economic Environment Best Investment
Hyper Inflation Gold
Double Digit Inflation Real Estate
High Inflation Real Estate / Stocks
Normal Inflation Stocks
Recession Cash
Depression High Quality Corporate Bonds

How you will allocate your assets will depend on if you are in or near retirement as well as other personal circumstances. Below are two basic allocation structures. You should review your own needs to decide what type of allocation meets your needs best.


Cash Bonds REIT Stocks Gold
15-20% 15-20% 30% 30% 2-5%


Cash Bonds REIT Stocks
25% 25% 25% 25%

(These percentages can be vaired slightly to fit in 2% Gold for better hedging.)

Over the past 30 years, average yields for these types of investments has been about as follows:

Investment Avg Yield
Cash 4%
Bonds 7%
Stocks 10%

For the retired plan then this would have yielded a safe 7.25% annual return. For the aggressive investor it would closer to 8%.


In order to keep the advantage of asset allocation you should rebalance your investments every year. When this is done is not important as long as it is done at least once per year. By taking profits from the investment types that are doing well and putting the money in those that are down, you are buying low and selling high without any emotional input that may cloud your decision. Rebalancing should then be done as follows:

  • Periodically (at least once per year)
  • If there is a major change in your life
  • If there is a major change in the financial market

text Money Mistakes - Make sure you are not making them text
Bonds - See how they can fit into your portfolio
Mutual Funds - Learn the basics
How to select a Mutual Fund
How to build a great stock portfolio
Diversify with real estate
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