Friday , 18 August 2017


Asset Allocation: How Sound is the Foundation of Your Portfolio Pyramid?

Regardless of the size of your financial pyramid, without a core-holding foundation, you are building it on sand. Core holdings are for protection, not for profit. They function as insurance against a catastrophe. [Let me explain.] Words: 754

So said the co-founder of ASI (www.assetstrategies.com), Glen O. Kirsch, in a twenty-one year old article* which is presented again by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), who has edited the article further below for length and clarity – see Editor’s Note at the bottom of the page. (This paragraph must be included in any article re-posting to avoid copyright infringement.). The message it contains is important – and timeless – and ASI could think of no better way to honor Glen’s memory than by sharing these thoughts with you now.

Kirsch’s article went on to say, in part:

We get a lot of questions about core holdings: “What are they? Do I need them? How much should I own? ” So we decided to write an article that answers these frequently asked questions.

1. What are “core holdings”?

Core holdings are your emergency money. They’re your ace in the hole – the gold and silver (and maybe some platinum) that you hope to God you never have to use, but thank God you have if you do. They are your bridge across social, political and economic chaos.

2. What form should they take?

Core holdings have four crucial qualities:

  1. they have to be liquid – something you can sell in a heartbeat.
  2. their value should be widely and instantly recognized. When blood is running in the streets, you don’t want to find yourself trying to sell some off-the-wall asset.
  3. they should be easily and quickly divisible. A bar of gold is inconvenient when all you want is to buy a loaf of bread. You may not be able to get change.
  4. they should not require assaying. In other words, their quality and purity should be instantly recognized.

We know of only one medium that answers all of these essential criteria for core holdings: precious metals. Bullion bars meet the first two requirements, but not the third and fourth. Bullion coins meet all four criteria perfectly. Coins have all the advantages of bullion with none of its limitations.

3. Is one kind of precious metal in core holdings adequate?

Owning one is infinitely preferable to no core holdings at all but, as in any other investment, diversification cuts risk and maximizes returns. We agree with many financial planners who recommend you allocate 10% of your net worth to core holdings.

Of that 10%, we would suggest putting:

  • 40% into gold,
  • 40% into silver and
  • 20% into platinum.
  • The gold and platinum should be mainstream bullion coins, such as Canadian Maple Leafs, American Eagles or Australian Koalas or Kangaroos.
  • The silver should be in the form of 90% U.S. junk silver coins.

4. What kind of profits can I expect?

Core holdings are for protection, not for profit. They function as insurance against a catastrophe. True, they are likely to earn you a profit, but that is not their main purpose. Just as you would not cancel your fire insurance because your house didn’t burn, neither should you sell your core holdings because they went up in value.

5. How do core holdings fit into my personal finances?

Envision a pyramid that represents your wealth – everything you’ve saved and own. On the base are the most important building blocks – those things that are the foundation of your financial health. They would include such investments as your home, life insurance and your core holdings. As I said above, your core holdings should represent 10% of the total pyramid.

If your total net worth is $1,000,000, then $100,000 should be allocated to core holdings. You would divide this into $40,000 in gold, $40,000 in silver and $20,000 in platinum.

6. Why ten percent?

To many Americans, 10% sounds high. To most non-Americans, it would be low. Many Europeans would ask, “Why only 10%?” That’s because they or their parents have experienced currency upheaval or rampant inflation. The only people I’ve ever heard say, “I’m not liquid enough to allocate 10% of my net worth to core holdings,” are Americans. That’s because most Americans have the bulk of their net worth tied up in the equity of their home. This is a serious indicator of illiquidity that makes the entire financial pyramid vulnerable.

Emergency money is not a luxury, but an absolute necessity for your financial health. Regardless of the size of your financial pyramid, without a core-holding foundation, you are building it on sand…

*http://www.gliq.com/clients/assetstrategies/ALERT_01-19-12.html 

Editor’s Note: The above article has been has edited ([ ]), abridged, and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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