Building a Global Portfolio

Every chapter so far has been about equity; which stocks, in which countries, through which funds. That's been the right place to start, since equity is where most global investing happens. But a portfolio built entirely from one asset class, however well diversified across geographies, is still only diversified along one dimension. This chapter introduces the first of two assets commonly used to add a second dimension: commodities.

Commodities are physical goods, gold and silver, industrial metals like copper and aluminium, energy, agricultural products, priced by global supply and demand rather than by a company's earnings. Gold is the one most investors meet first, and it's worth understanding why it behaves so differently from everything covered so far.

Gold has no earnings, pays no dividend, and its price isn't driven by growth or profit at all. It moves on currency changes, inflation expectations worldwide, and demand as a safe asset during uncertainty. That makes it a genuinely different kind of holding from equity, useful less for growth and more as a hedge against the specific kind of stress that stocks don't always protect against.

It's tempting to think that adding several commodity types automatically spreads risk further. That isn't always true. Gold and silver, for instance, tend to move together closely, both driven by similar forces, so holding both doesn't add much beyond holding one. Before adding a commodity for diversification, it's worth checking whether it actually behaves differently from what you already hold, rather than assuming "different asset" automatically means "different behaviour."

You've already met this idea in the tax modules, applied to equity: where a fund is domiciled changes your US estate tax exposure. It applies just as directly to commodities, and it's easy to miss because gold doesn't feel like the kind of asset that would trigger it.

A US-listed gold ETF is a US-situs asset, exactly like a US-listed stock or equity ETF. Hold enough of it directly, and it sits inside the same $60,000 exemption and 40% rate you met earlier, with no treaty relief for Indian residents. A fund tracking the identical gold price but domiciled outside the US, listed in London, for instance, generally sits outside that exposure entirely, while giving you the same underlying exposure to the metal. The lesson from the equity chapters wasn't equity-specific after all. It's a domicile rule, and it follows the asset class wherever US-listed products exist.

Commodities are a supplement to an equity-led portfolio, not a core holding in their own right. A commonly cited range for gold specifically is roughly 5 to 15% of a portfolio, often simplified to a 10% starting benchmark, enough to provide a real cushion during periods of stress without meaningfully denting the growth your equity holdings are there to deliver. Treat any number here as a starting point for thinking rather than a target to hit precisely.

Commodities add something equity structurally cannot: an asset that responds to currency and crisis pressure rather than company performance, with the same domicile caution that's applied throughout this course now extending to a new asset class. The next chapter looks at the second addition worth considering, one built around stability rather than crisis protection: bonds.