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I don't feel comfortable posting actual numbers, so I'm going to post some percentages. My question follows at the end:
As a percentage of my total liquid assets, I have the following:
10% in bond funds
19% in equity ETFs, mutual funds and stocks, quite diversified across sectors, countries, currencies and caps
71% in cash (term deposits)
I consider myself moderately risk-averse. My investment portfolio is 65-35, so somewhere between balanced and growth, but I'm able to sleep at night knowing that I have 71% in cash. Do I have the wrong strategy? For example, if I moved more money from cash into bonds, gold and commodities (trying to get negative correlation to equity), can I improve my returns while keeping the total risk the same?
On the fixed asset side, I have 65% of equity in my home paid off and no other debt. I have only one house.
I hope you have a lot more money than you need. If that's not the case your lack of exposure to growth could be a problem long term. How much mire negative correlation from equities do you need if you only have 19% exposure?
02-28-2015, 06:37 PM
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Quote:
Originally Posted by Lowexpectations
I hope you have a lot more money than you need. If that's not the case your lack of exposure to growth could be a problem long term.
this.
Those numbers do not constitute moderately risk averse.
I don't feel comfortable posting actual numbers, so I'm going to post some percentages. My question follows at the end:
As a percentage of my total liquid assets, I have the following:
10% in bond funds
19% in equity ETFs, mutual funds and stocks, quite diversified across sectors, countries, currencies and caps
71% in cash (term deposits)
I consider myself moderately risk-averse. My investment portfolio is 65-35, so somewhere between balanced and growth, but I'm able to sleep at night knowing that I have 71% in cash. Do I have the wrong strategy? For example, if I moved more money from cash into bonds, gold and commodities (trying to get negative correlation to equity), can I improve my returns while keeping the total risk the same?
On the fixed asset side, I have 65% of equity in my home paid off and no other debt. I have only one house.
What's the difference between what your cash is earning and what the mortgage is costing? Is paying that much really worthwhile?
Have you accounted for the fact that inflation can erode your money and make it tough to retire without more stock exposure?
I consider myself moderately risk-averse. My investment portfolio is 65-35, so somewhere between balanced and growth, but I'm able to sleep at night knowing that I have 71% in cash. Do I have the wrong strategy? For example, if I moved more money from cash into bonds, gold and commodities (trying to get negative correlation to equity),can I improve my returns while keeping the total risk the same?
Yes, I am with you on this, in thinking about building a portfolio with potential negative correlation of returns. The problem is that correlations between assets are ever evolving, so is difficult to get this part right.
If your investment horizon is fairly long, then I would take the approach of being patient, and wait for the buying opportunity to come up. And adopt the philosophy of buying assets at "wholesale" level, holding these long enough until you could sell them at "retail" price. This is easier said than done for sure, and you need to know enough about a particular asset to know if it is selling at cheap enough level to warrant an investment, with enough margin of safety.
To answer you specific question re:bonds, gold and commodities. This is my take.
Bonds: stay away from bonds with any maturity less than 7 years. These will perform poorly when the Fed eventually (albeit moderate raise IMHO) raises interest. Paradoxically, I think 10-year and 30-year bond might not do as badly as the shorter maturity bonds (even those these have longer duration risk), as globally growth is still anemic, and rate would have to stay fairly low for a while. My view is that the yield curve will flatten, with shorter maturity bond rates raising a lot faster than the longer maturity bond rates. The right trade would be to wait for the Fed to start the tightening cycle, for the market to overreact, and to use that overreaction to opportunistically add to the 10-30year maturity bonds (long duration bonds, or ETFs such as TLT, EDV)
Gold: will be difficult to shine, as long as the dollar stays strong, and we know that the yellow metal is priced in dollars. There have been speculation that China has been quietly adding to its strategic holding. This is just rumors though. As a value investor I would rather wait until it drops closer to the $1,000/oz level before getting aggressive. That is a believed to be the marginal cost of production of high cost producers (however, with cost of energy to produce gold dropping, even this could be lower). My preferred trade in gold would be the miners (GDX or GDXJ), as leveraged plays.
Commodities: The biggest of which is the crude oil. I believe it is the biggest risk factor in the market at this point. The recent weakness in oil price has caused inflation to drop globally, and contributed to put a lid on US inflation. Whenever, the price of oil price stabilizes and start rising for good, that's when I know the Fed would be close to start tightening (The Fed has mentioned recently that it is waiting for the annualized inflation rate to hit the 2% to start raising interest; inflation currently running at 1.5% level). I would follow very closely the price action of the energy products (use as proxy the ETF XLE). Note how XLE and crude were tracking closely but have started to diverged since early January; this might be an indication that the market believes that the price of crude oil has bottom out. XLE Interactive Stock Chart | Yahoo! Inc. Stock - Yahoo! Finance
Personally, I would wait for another pullback to initiate a position in oil.
One commodity that I like is copper. My play would be the ETF COPX. As a derivative play on copper, I like Peru (ETF EPU).
I don't feel comfortable posting actual numbers, so I'm going to post some percentages. My question follows at the end:
As a percentage of my total liquid assets, I have the following:
10% in bond funds
19% in equity ETFs, mutual funds and stocks, quite diversified across sectors, countries, currencies and caps
71% in cash (term deposits)
I consider myself moderately risk-averse. My investment portfolio is 65-35, so somewhere between balanced and growth, but I'm able to sleep at night knowing that I have 71% in cash. Do I have the wrong strategy? For example, if I moved more money from cash into bonds, gold and commodities (trying to get negative correlation to equity), can I improve my returns while keeping the total risk the same?
On the fixed asset side, I have 65% of equity in my home paid off and no other debt. I have only one house.
I agree with the others that 71% in cash is definitely not balanced. It's very cash heavy. Do you have enough cash to pay off your house? That might be better than investing in bonds, since interest rates are so low.
10% in bond funds
19% in equity ETFs, mutual funds and stocks, quite diversified across sectors, countries, currencies and caps
71% in cash (term deposits)
Cash is not investing. That's being a coward. You gotta make your money work for you. Take that cash and invest it.
Quote:
How can I improve my return while keeping my risk the same?
You can't. Anyone who says you can is usually trying to sell you some high commission, snake oil financial product like an annuity.
i think you have an obsession with just complaining about annuities whether it is in the subject or not . i didn't even see the topic come up in the subject.
I don't feel comfortable posting actual numbers, so I'm going to post some percentages. My question follows at the end:
As a percentage of my total liquid assets, I have the following:
10% in bond funds
19% in equity ETFs, mutual funds and stocks, quite diversified across sectors, countries, currencies and caps
71% in cash (term deposits)
I consider myself moderately risk-averse. My investment portfolio is 65-35, so somewhere between balanced and growth, but I'm able to sleep at night knowing that I have 71% in cash. Do I have the wrong strategy? For example, if I moved more money from cash into bonds, gold and commodities (trying to get negative correlation to equity), can I improve my returns while keeping the total risk the same?
On the fixed asset side, I have 65% of equity in my home paid off and no other debt. I have only one house.
the first question is do you mean volatility or do you mean risk ? they are very different from each other.
something like the permanent portfolio has very low volatility and low risk while historically returning around the same as 100% investment in the s&p 500 . however where the s&p 500 fund counts on good times to do well the permanent portfolio can do well even in down markets .
on the other hand an s&p 500 fund has high volatility and low risk over the long term and will do better in a straight up bull market.
investing in a handful of individual stocks have high risk and high volatility.
any asset ,even index funds can be high risk if you mismatch time frames and use long term assets for short term investments.
i think you have an obsession with just complaining about annuities whether it is in the subject or not . i didn't even see the topic come up in the subject.
Like I say, I believe you are an insurance salesman or somebody in your family is selling these crap products. You go WAY out of your way to defend this rubbish.
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