We investors have a problem. We want assets that might protect our wealth from recessions or bear markets, but the traditional ways of doing so – gilts and cash – offer negative likely real returns. What can we do?
One solution might be to hold some foreign currency. My table shows the point. It shows the average annual change in sterling since 1991 during three different types of bad times – falls: in US industrial production (an indicator of global recessions); in the All-Share index; and in UK house prices.
|Average annual change during falls in:|
|US output||All-Share index||UK house prices|
|gilts (total return)||7.2||7||11.4|
|Based on monthly data since 1991|