The investment bet: first quarter.

April 19, 2012, by

TE BLOG. Gold Bars. 04.2012. iStock_000015332874XSmall[1].jpg
As March yields to April, Lars is excited to check the first-quarter results of his investment bet with his wealthy Uncle. Nils, a winner in his real estate career but (Lars thinks) naïve in securities investing, has put all his entry in the bet ($500,000) in precious metals: half in gold and lesser percentages in silver, palladium, and platinum.

How has Nils done in the first quarter? Gold has done well, with an almost 7% increase. Although his other three choices are also precious metals, they don't correlate with the gold. Palladium is down just a little. The other two, silver and platinum, are up more than 16% each, rather spectacular for just three months. Nils doesn't know why his commodities don't correlate. Lars wonders whether it has something to do with industrial demand for some of them. On a weighted average basis, Nils's choices for the quarter are up 9.21%, not counting management fees or commissions (a subject for another day).

Our friend Lars has invested his $500,000 more sensibly, he is sure: five equal portions of international stocks, domestic stocks, intermediate corporate bonds, real estate investment trusts, and for the last 20% the same mix as Nils employs for all his. Lars is investing as trustee of a trust Nils funded for relatives, so he is legally obliged to have greater diversification than Uncle Nils has chosen with his own money.

How has Lars fared with the trust through March? The two stock funds and the REITs are all up in the 10%-13% range. The bonds have returned little more than half a percent. Lars had guessed that stocks would outperform bonds in 2012, since big companies were making good money and stocks had lagged behind bonds in recent years. Lars had feared that the REITs would falter this year but added them to his mix anyway, wanting to diversify well despite his hunches.

Overall Lars has gotten a 9.07% return for the trust, pretty much the same as Nils's metals. Three months is too little time to produce any real conclusions, but Lars feels good that he has matched Nils while taking less risk of betting on a narrow thing. Their 9% returns are too high to sustain, but you gotta take the good months when they come. Surely there will be a test of confidence at some point in the year.