Diversify (with gold): That’s the No. 1 lesson millionaires are learning

Amid the renewed giddy rush back into a stock market hitting new record highs, some analysts are quick to dismiss gold. But a new poll of millionaires finds that a failure to practice financial diversification ranks as the top mistake that these wealthy investors make.

A study by the deVere Group consulting firm polled 880 investors with investible assets of $1.5 million or more, more than 100 of whom live in the U.S.

“When asked their No. 1 investing mistake, 23% of those surveyed cited a failure to adequately diversify their portfolio,” CNBC reported.

“Spreading your money around is a vital tool to manage risk,” noted deVere CEO Nigel Green.

Other millionaire mistakes were: “investing without a plan” (22%); “making emotional decisions” (20%); “failing to regularly review the portfolio” (16%); and “focusing too heavily on the history of an investment’s returns.”

Gold’s primary role throughout history has been to serve as a store of wealth that can’t be eroded through inflation, deflation, currency destruction, and other economic calamities. Therefore, an investment portfolio should always carry a long-term allocation to gold and its most closely related precious metal: silver. Investors can add or subtract from their overall portfolio percentages according to their investment goals and time horizons.

But don’t stop at just gold and silver bullion. Rare coins are another part of the hard-asset equation. Numismatic collectibles share kinship with bullion but fluctuate in value according to other factors, such as rarity, condition, and collector demand. Owning collectible coins can help ride out some of the ups and downs in the gold and silver bullion markets.

But rare coins can pack an even more powerful portfolio punch: Penn State economist Raymond Lombra has found that high-quality rare gold coins not only outperform gold bullion but also other asset classes such as stocks and bonds.

His most recent findings in a study that has covered the past 35 years are:

  • Over a 35-year period, high-end rare gold coins were the place to be, offering higher returns than bullion as well as stocks.
  • Over the best three-year period, high-end rare gold outperformed all other assets classes.
  • The best one-year performance vehicle data showed staggering results for rare coins. Nothing else came close.
  • The results continue to suggest that over the longer run including rare U.S. coins within an existing portfolio could improve investment performance.

Lombra’s findings are supported by the Knight Frank Luxury Investment Index, which reveals that over the past 10 years, rare coins have generally outperformed most other high-end collectibles except for classic cars. The other categories are stamps, fine art, wine, Chinese ceramics, watches, jewelry, and antique furniture.

Despite recent record highs in the major stock indices, now is not the time for complacency. We’ve seen how gold has outperformed stocks so far this year, and we’ve seen how gold rose from the rubble of the 2008-09 financial crisis to reach new all-time highs. And, yes, conversely, we’ve seen how gold can lose momentum when stocks are firing on all cylinders.

With stocks near all-time highs thanks to the Federal Reserve’s bubble-making machine, the only way to go from here could be down. Mark Hulbert over at MarketWatch is predicting a potential “June swoon” because of negative sentiment. Meanwhile, along with a first-quarter negative U.S. GDP, corporate profits also fell to the lowest level since the Lehman Bros. collapse.

The only viable solution against unknown risks is diversification. Take it from the class of investors who know how to manage money: millionaires. Hedge your portfolio today against the risks of the stock and bond markets with a healthy counter-balancing of hard assets: gold and silver bullion plus rare numismatic coins and collectibles.