Why do we here at MoneyWeek go on about gold so much? And “what’s gold got to do with me?” you may be asking yourself.
The brouhaha kicked off again this week over an article that compared house prices with gold.
Readers main gripes are that they don’t earn gold, don’t hold gold and they certainly don’t arrange mortgages based on gold! So what’s gold got to do with the price of houses?
Let me try to explain, and we’ll see why valuing investments with a different yardstick can be really useful.
Currencies matter for ‘big picture’ investors
It’s incredibly useful to consider the ‘big picture’ when it comes to your investments, and that includes houses. After all, for most people it’s the single biggest investment of all. To see the big picture, we have to remove the currency effect. Here’s why.
It doesn’t make sense to talk about the value of anything without relating it to a currency. For example, if your Japanese stocks go up 5%, but the yen falls by 10%, then your investment is actually down.
The currency makes all the difference. So which currency should we use? Of course for most people, sterling is the most pertinent. But what if sterling (like the yen in our example) is falling? Could we be missing the bigger picture? We can console ourselves in the fact that house prices aren’t falling in sterling, but that’s to ignore what’s happening in a ‘global’ sense. But there’s a problem.
There’s no such thing as a ‘global currency’. The closest we get is the dollar, but then, the dollar bounces around all over the place too. Arguably, gold is the most stable currency over the long-term – and it’s certainly the only independent one.
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To get a fuller picture of how our investments are ‘truly’ performing, we can take off the ‘sterling blinkers’ by using gold as the basis for valuation.
If this all seems a bit abstract, then there’s a simpler way of seeing the currency effect in action. And you can do this by simply getting more international exposure to your portfolio. Once you’ve got foreign stocks in your portfolio, pretty soon you’ll notice the currency effects.
And today, with most of the major currencies looking vulnerable, it’s a very good idea to ‘internationalise’ your portfolio and get some positive currency effects.
So, which currencies are safest?
Tim Price, editor of The Price Report, likes the Canadian dollar, Swiss franc and Singapore dollar. Tim manages billions of pounds worth of private client wealth and these people pay serious money for his advice.
Tim says Canadian assets are practically compulsory for his portfolios:
“Not one Canadian bank needed a bail-out, because the Canadians never compromised their financial regulation… the government has run 12 years of budget surpluses… the economy expanded by 5.5% in the first quarter of this year”
Why on earth would you want to stay in sterling, when you can put your assets into that sort of safety?
It’s all too easy to sit back and assume our assets are mildly appreciating in sterling terms. Suddenly you wake up one day and realise that sterling has been falling for years and you’re a lot worse off than you thought you were.
I urge you to put at least some of your long-term savings into the safety of another currency. Tim’s advising his readers to get into one particular Canadian stock that’s set to benefit from further financial turmoil. You can get more details about The Price Report here.
• This article was written for the free investment email The Right Side.
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