Opinion – From Grain to Grain: This is the asset you should invest to protect yourself

In times of great uncertainty, it is common for investors to seek and question which assets could provide protection. In these periods, some common sayings emerge: gold defends, international investment protects, with dollar and property you don’t lose and others. After all, are these statements true? What actually protects heritage?

You’ve probably heard from someone that at least one of the four applications above is the best for protection. Usually, it is commented on by someone who has won for some period with it.

The problem with these statements is that they are half true and the story behind them is seen only from the point of view of a successful period that was experienced.

After all, how can someone who has made money with an asset say that it has risk? Even more so if that person invested following a recommendation that there was no risk. Soon, she believed there was no risk and really she didn’t lose. Hence a belief is formed.

Before I explain further, I’ll do a test. Note the graphic below. This is the graph of an investment that over 4 years yielded 166.77% in the period, which is equivalent to a return of 27.8% per year. Now answer the next two questions.

1) Which asset do you believe is represented in this graph?
a) fixed income
b) Ibovespa
leather
d) dollar
e) International investments

2) Which of the above assets do you believe has the least function of protecting a portfolio?

I can bet that you answered, for the second question, that the Ibovespa would be the asset with the lowest capacity to generate protection for a portfolio.

Care must be taken when valuing an asset over a given period of time. All of the above investments appreciated in the long term, that is, over a period of more than ten years. However, it is not the fact that they have valued themselves that provides them with the ability to protect or lower risk.

Risk can be defined as uncertainty about future returns.

In this way, only the first asset, that is, the fixed income, has the function of protecting your portfolio and having less risk. But, it is not any fixed income that has this function. Even fixed income, when investing in long-term bonds, can generate short-term losses.

The other assets are risky and can result in losses when analyzed in a short period of time. For example, the volatility of gold, dollar and Ibovespa returns is 17%, 18% and 23% per year, respectively. Since 2007, that is, in the last 15 years, these three assets have already lost more than 25% in one year.

Therefore, even gold or the dollar can generate a short-term loss similar to that of a stock index.

I’m going to end your curiosity and answer what the chart’s asset is. The graph represents the evolution of the Ibovespa between December 2015 and December 2019.

Now imagine someone who heard that only stocks protect a portfolio and bought stocks in that period? You already understood what image she formed about having stocks. I’ve seen many define fixed income as “fixed loss”, arguing that only stocks protect a portfolio over the long term. The same is often spoken of gold, dollar and others.

I’m not saying that you shouldn’t have risky assets, for example, gold, the dollar, international investments and stocks. However, it is necessary to have a long-term horizon, that is, more than five years, to invest in these assets. In the short term, they carry a risk of resulting in a loss.

If you want to protect your portfolio, the most recommended thing is to maintain a balance between securities or fixed income funds referenced to the CDI and the IPCA with maturities of up to five years.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me on Whatsapp.

Follow and like De Grão em Grão on social networks. Follow the investment lessons in Instagram.

If you have any questions or suggestions for themes, please feel free to send by email.