I love those instruments for the vast majority of investors who don't have time for this. I just read the prospectus and they seem very reputable. The thing I don't like is their lack of exposure to emerging markets, its expense ratio is somewhat high, and their cash positions could perhaps be improved with a better bond mix. Overall, I think it's a great investment vehicle. https://funddocs.filepoint.com/standpoint/?file=Standpoint-Summary-Prospectus.pdf
Thank you for the well-written primer on risk-adjusted returns. One interesting consideration is your point about a hedge being specific to a particular risk. So what one is actually trying to hedge against is critical to portfolio construction.
If gold is a hedge against fiscal debasement, then owning it is about preserving purchasing power over a long time frame. Gold is unlikely to be a good hedge against short-term liquidity-driven volatility (where everything becomes correlated). While other hedges that offer little or negative correlation to equity/credit volatility are preserving short-term purchasing power by reducing exposure and draw downs.
So the challenge I personally have is in thinking about those two complementary objectives and how to balance my portfolio accordingly. The question becomes how much gold/royalties/etc. to hold versus other types of hedges? The implication seems to be that your optimal range also has within it an optimal balancing between types of hedges.
I’m happy to hear others thoughts. What do you think?
Thank you for this! you’ve identified something the article gestured at but didn’t fully unpack, and it deserves a more precise treatment.
You’re absolutely right. The framing of “hedge ratio” in the piece is necessarily simplified, but what sits inside that ratio matters as much as the ratio itself. A 30% hedge allocation composed entirely of gold is a fundamentally different portfolio than one composed of short-dated Treasuries, tail-risk puts, or a mix — even if the nominal coverage looks identical.
Your distinction between the two objectives is the key tension:
- Gold (and royalty structures, real assets) — you’re right that this is primarily a long-duration hedge. It protects against the slow erosion of purchasing power through fiscal debasement, currency depreciation, or structural de-dollarization. It does this poorly in acute liquidity crises precisely because those events trigger forced selling across everything, gold included, as we saw in March 2020’s initial days before the Fed intervened.
- Volatility-correlated hedges (puts, inverse structures, short vol instruments), these are short-duration hedges. They activate sharply in liquidity-driven selloffs and correlation spikes, but they decay constantly through premium bleed and offer no protection against the slow-moving risks gold is designed for.
So what you’re really describing is a second-order optimization problem: not just how much to hedge, but what mix of hedge types to hold across different time horizons and risk regimes. The optimal hedge ratio has an internal composition problem nested within it.
My honest view: the balance between the two depends heavily on what you believe the dominant risk regime of the next 5–10 years looks like. If you think the primary threat is fiscal dominance, debt monetization, and dollar erosion; you tilt toward gold, real assets, commodity exposure. If you think the primary threat is periodic liquidity crises and sharp volatility spikes in an otherwise functioning system; you tilt toward options structures and short-duration protection.
The intellectually uncomfortable answer is that both regimes are plausible simultaneously, and the 2022 episode showed they can overlap. That’s precisely why the internal composition of the hedge matters, and why I’d argue neither gold-heavy nor options-heavy alone is sufficient.
A follow-up piece on exactly this: the taxonomy of hedges by time horizon and risk regime — is probably warranted. Happy to hear where others land on this!
What's your thought on BLNDX as a All Weather portfolio?
I love those instruments for the vast majority of investors who don't have time for this. I just read the prospectus and they seem very reputable. The thing I don't like is their lack of exposure to emerging markets, its expense ratio is somewhat high, and their cash positions could perhaps be improved with a better bond mix. Overall, I think it's a great investment vehicle. https://funddocs.filepoint.com/standpoint/?file=Standpoint-Summary-Prospectus.pdf
Thank you for the well-written primer on risk-adjusted returns. One interesting consideration is your point about a hedge being specific to a particular risk. So what one is actually trying to hedge against is critical to portfolio construction.
If gold is a hedge against fiscal debasement, then owning it is about preserving purchasing power over a long time frame. Gold is unlikely to be a good hedge against short-term liquidity-driven volatility (where everything becomes correlated). While other hedges that offer little or negative correlation to equity/credit volatility are preserving short-term purchasing power by reducing exposure and draw downs.
So the challenge I personally have is in thinking about those two complementary objectives and how to balance my portfolio accordingly. The question becomes how much gold/royalties/etc. to hold versus other types of hedges? The implication seems to be that your optimal range also has within it an optimal balancing between types of hedges.
I’m happy to hear others thoughts. What do you think?
Thank you for this! you’ve identified something the article gestured at but didn’t fully unpack, and it deserves a more precise treatment.
You’re absolutely right. The framing of “hedge ratio” in the piece is necessarily simplified, but what sits inside that ratio matters as much as the ratio itself. A 30% hedge allocation composed entirely of gold is a fundamentally different portfolio than one composed of short-dated Treasuries, tail-risk puts, or a mix — even if the nominal coverage looks identical.
Your distinction between the two objectives is the key tension:
- Gold (and royalty structures, real assets) — you’re right that this is primarily a long-duration hedge. It protects against the slow erosion of purchasing power through fiscal debasement, currency depreciation, or structural de-dollarization. It does this poorly in acute liquidity crises precisely because those events trigger forced selling across everything, gold included, as we saw in March 2020’s initial days before the Fed intervened.
- Volatility-correlated hedges (puts, inverse structures, short vol instruments), these are short-duration hedges. They activate sharply in liquidity-driven selloffs and correlation spikes, but they decay constantly through premium bleed and offer no protection against the slow-moving risks gold is designed for.
So what you’re really describing is a second-order optimization problem: not just how much to hedge, but what mix of hedge types to hold across different time horizons and risk regimes. The optimal hedge ratio has an internal composition problem nested within it.
My honest view: the balance between the two depends heavily on what you believe the dominant risk regime of the next 5–10 years looks like. If you think the primary threat is fiscal dominance, debt monetization, and dollar erosion; you tilt toward gold, real assets, commodity exposure. If you think the primary threat is periodic liquidity crises and sharp volatility spikes in an otherwise functioning system; you tilt toward options structures and short-duration protection.
The intellectually uncomfortable answer is that both regimes are plausible simultaneously, and the 2022 episode showed they can overlap. That’s precisely why the internal composition of the hedge matters, and why I’d argue neither gold-heavy nor options-heavy alone is sufficient.
A follow-up piece on exactly this: the taxonomy of hedges by time horizon and risk regime — is probably warranted. Happy to hear where others land on this!