Diversification is a strategy designed to manage overall risk.

Assets are divided into "Classes." Two assets that respond in the same way to economic changes are said to be "Correlated." Two assets that respond differently to economic changes are said to be "Non-Correlated."

Stocks and Precious Metals are two different asset classes. Each class has its own advantages and disadvantages, but a diversified portfolio makes you less dependent on a "Single" asset class for overall performance.

When stocks and precious metals are combined into a single portfolio, a "Non-Correlated" asset is created. The "non-correlated" relationships of these two classes are ideal partners! When Gold is rising in value, stocks are generally falling in value, and vice versa.

The following charts illustrate the benefits of diversification

In January of 2001 Bob, Mary, and Steve each had $50,000 to create a portfolio.

Bob takes his $50,000 and acquires five of the most widely held stocks. Bob puts $10,000 in each of the five following stocks: AT&T, Citigroup, G.E., Johnson & Johnson, & Merck. Since all of Bob's assets are in a single "Class" (stocks) he has created a "Correlated" portfolio. After five years and rising interest rates, Bob has experienced a $6,000 LOSS! The value of Bob's portfolio is down 11% to $44,000.

Mary wanted to diversify her portfolio by owning "Two Classes" of assets (stocks & gold coins). Mary acquired the same five most widely held stocks: AT&T, Citigroup, G.E., Johnson & Johnson, & Merck. Mary put $7,000 into each of these stocks. Mary was left with $15,000 to put into Gold coins. By doing this Mary created a "Non-Correlated" portfolio.

Mary Purchased 55 one ounce Gold Eagles (non-certified bullion coins) in January of 2001 @ $271 per coin. By January of 2007 bullion prices reached $623 per ounce. Since Mary had 55 ounces of Gold she saw the value of her bullion go from $15,000 to $34,265 which offset the losses her stocks experienced over the same five year period. After five years and rising interest rates, Mary experienced a $12,294 GAIN! The value of Mary's portfolio has increased 30% to $62,984! By creating a "Non-Correlated" portfolio, Mary avoided the 11% losses Bob experienced and had a 30% gain.

Steve also decided to diversify his portfolio by acquiring "Two Classes" of assets (stocks & certified Gold coins). Steve also acquired the same five most widely held stocks: AT&T, Citigroup, G.E., Johnson & Johnson & Merck. Steve put $7,000 into each of these stocks. Steve like Mary, was left with $15,000 to put into precious metals and also created a "Non-Correlated" portfolio. However, Steve invested in Certified Gold coins.

Steve acquired 17 of the 1914 $20 one ounce Gold pieces certified Mint State 63 PCGS certified. There are only 529 of these coins in a Mint State 63 condition in the entire world. This fixed low supply was the key to increased value. As the demand for Gold grew, the law of supply vs. demand took over. The value of these coins increased from $850.00 per coin in July 2001 to $2,990.00 per coin in January of 2007. These prices are actual prices paid for these coins at auction. Steve saw the value of his $15,000 of Certified Gold Coins increase to $52,764 for an increase of 351% over the 5 year period. After five years and rising interest rates, Steve’s diversified portfolio of falling stocks and rising Certified Gold Coins experienced a $31,907 GAIN! The value of Steve's portfolio has increased by 64% to $81,907!

The main factor that determines which classes move up and which ones move down is "Interest Rates." Luckily for us, interest rate cycles are long and slow-moving, giving us plenty of time to make adjustments. These cycles tend to last 15-20 years before reversing.

Recent Examples of Interest Rate Trends

• 1960's - 1980's Interest Rates were rising
                         Gold rose from a low of $35 to $875
                         Stocks struggle to perform
• 1980's - 2000's Interest Rates were declining
                         Gold struggles to perform
                         The Dow rose from 759 to 11,750
• 2000 - Present Interest Rates are rising
                         Gold has risen from a low of $250 - $920
                         Stocks struggle to perform

Having more Gold and fewer stocks in 1960 to 1980 was a winning combination. However, that trend reversed in the 1980's. Having more stocks and fewer Gold coins from 1980 - 2000 was the winning strategy.
We are currently at the beginning of a new "Interest Rate" cycle. Combining these two "Non-Correlated" assets (stocks & Gold coins) will help increase the performance of your portfolio and help lower your risk!

We have now learned that the asset class and interest rate trends are two important investment factors.

It is important to recognize not every certified coin performs the same way. Having a professional that knows the rare coin market was the key to Steve's success. The key is finding the right rare coins to diversify your portfolio with. Our research department is continuously analyzing market trends, population reports, mintage figures, conditions, and past performance of all rare coins so that we can serve our clients’ interests best. Call us at 1-800-775-3504 and speak with one of our experts. Let us hand select a portfolio for you today.