Add the volatile sleeve.
Watch the whole book settle down.
Equity swings about 18 percent a year. Gold about 15, and it rarely moves in step with stocks. Put them together and the blend swings less than the equity sleeve did on its own. Illustrative.
| The mix |
Yearly swing |
| 100 equity . 0 gold | 18.0 |
| 90 equity . 10 gold | 16.4 |
| 85 equity . 15 gold | 15.7 |
| 80 equity . 20 gold | 15.0 |
Just average the two sleeves and you would expect the 80/20 book to swing about 17.4. It swings 15.0. The missing 2.4 points is diversification you got for free, paid out only because gold does not move in lockstep with equity.