Want Diversification? Consider Smokes and Gold

Today, we offer an answer to the question many ask when presented with our “super-concentrated” portfolio warning. That question is, “How do I NOT own a super-concentrated portfolio?”
To recap our warning: Many investors take a position in commodities with the idea that they are “diversifying” their portfolios. And sometimes, it’s a sound idea. But as we’ve pointed out many times, it’s a dangerous idea right now. Stocks and commodities are moving in lockstep. So rather than owning diversified portfolios, many folks own “super-concentrated” portfolios.
#-ad_banner-#Our chart below shows two alternatives folks can consider to gets some diversification. It plots the return of gold (blue line), stocks (black line), and a dividend powerhouse we often mention, cigarette-maker Altria (green line).
As you can see, gold and Altria aren’t moving in lockstep with the broad market. Gold is marching to its own beat because it’s “real money.” And Altria is marching to its own beat because it’s a boring “basics” business. Plus, its large and growing dividend yield (5.7% right now) acts as a magnet that tugs upward at the share price. Want diversification? Consider smokes and gold!