Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
The times when bonds and stocks are positively correlated tend to be when the economy is good and stocks are in a bull market. They usually become negatively correlated during bear markets. It's not 100%, but pretty darned close. With that said, a stock+cash portfolio is not a bad way to go. The real power in any portfolio is the stock allocation. Bonds should give a bit of rebalancing boost that cash will not, but again it's not a 100% certainty.
Preferred stocks are an inferior asset class. Some advisors promote them because of the yields, but they are really best avoided by virtually all retail investors. Stretching for extra yield or return on the fixed income side is a bad practice in my opinion. If you want to go for higher returns, increase the stock percentage.
The times when bonds and stocks are positively correlated tend to be when the economy is good and stocks are in a bull market. They usually become negatively correlated during bear markets. It's not 100%, but pretty darned close. With that said, a stock+cash portfolio is not a bad way to go. The real power in any portfolio is the stock allocation. Bonds should give a bit of rebalancing boost that cash will not, but again it's not a 100% certainty.
Preferred stocks are an inferior asset class. Some advisors promote them because of the yields, but they are really best avoided by virtually all retail investors. Generally speaking, stretching for extra yield or return on the fixed income side is a bad practice in my opinion. If you want to go for higher returns, increase the stock percentage.
Correlating assets to the economy can always be counted on ....correlating assets to each other can never be counted on ..just because stocks fall does not mean bonds go up . 2008 proved that when corporate bonds fell .
Recessions that have rates lowered ,will always , I repeat always have long term treasuries soar ...those soaring treasuries will buy a boat load of equities at reduced prices when rebalancing . Far more equities will be bought with soaring long term bonds making 25% or so with every point fall .
Broad based equity funds will alway do well coming out of a recession and in to prosperity
If a depression hit cash will be king and treasuries will always do well
High inflation causing a weak dollar , gold should do very well
So we can’t say what assets will do in comparison to each other , but certain assets always correlate to the 4 major economic outcomes we can have.
I think that adviser would benefit reading our discussion
Last edited by mathjak107; 01-02-2020 at 02:50 PM..
Regardless of what he said, I don’t want bonds in my portfolio in this low interest rate environment. We will have to wait and see how bonds play out.
I would scratch this guy off just based on the fact his advice was wrong in what he said about correlating assets .
Especially recommending stocks as a proxy for interest from bonds ...
Just now I took a look at the FRED graph for 10-year Treasury yields. Eyeballing their chart, it looks like the 10-year yield increased during only one out of the past seven recessions, the one beginning in 1973. This graph goes back to 1962.
Just now I took a look at the FRED graph for 10-year Treasury yields. Eyeballing their chart, it looks like the 10-year yield increased during only one out of the past seven recessions, the one beginning in 1973. This graph goes back to 1962.
Look at the long term bond , the 30 year , what does that show ?
Go back to the Great Depression
Remember the 1970s in to the early 1980’s had the fed raising rates to stop inflation so those would not match my example ..I specifically said when the fed cuts rates in an inflation . See what I said below .
Your example is a prime example of why you can’t correlate assets ...sometimes in recessions stocks fall and bonds fall like the 1970’s BASED ON DIFFERENCES IN THE ECONOMY
But you can set your watch to the fact if the recession has rates cut long term treasuries will soar.
By the same token the fed trying to rein in that high inflation will hurt the dollar and gold will be strong
Quote:
Originally Posted by mathjak107
Correlating assets to the economy can always be counted on ....correlating assets to each other can never be counted on ..just because stocks fall does not mean bonds go up . 2008 proved that when corporate bonds fell .
Recessions that have rates lowered ,will always , I repeat always have long term treasuries soar ...those soaring treasuries will buy a boat load of equities at reduced prices when rebalancing . Far more equities will be bought with soaring long term bonds making 25% or so with every point fall .
n
Last edited by mathjak107; 01-02-2020 at 02:54 PM..
Look at the long term bond , the 30 year , what does that show ?
As you probably know, the 30-year has not been issued continuously, and the FRED data has gaps in that series during the times it was discontinued. Feel free to do the legwork and report the 30-year stats if you like. The 10-year numbers are good enough for what I wanted to see.
Quote:
Originally Posted by mathjak107
Go back to the Great Depression
Remember the 1970s in to the early 1980’s had the fed raising rates to stop inflation so those would not match my example ..I specifically said when the fed cuts rates in an inflation . See what I said below .
Your example is a prime example of why you can’t correlate assets ...sometimes in recessions stocks fall and bonds fall like the 1970’s BASED ON DIFFERENCES IN THE ECONOMY
But you can set your watch to the fact if the recession has rates cut long term treasuries will soar.
Sure, and water will always run downhill. I'm not disputing anything you said previously. Very little is 100% certain in investing.
As you probably know, the 30-year has not been issued continuously, and the FRED data has gaps in that series during the times it was discontinued. Feel free to do the legwork and report the 30-year stats if you like. The 10-year numbers are good enough for what I wanted to see.
Sure, and water will always run downhill. I'm not disputing anything you said previously. Very little is 100% certain in investing.
There are certain assets that given the same economic outcomes will always respond the same .
Interest rates being cut in a recession,long term treasuries
Prosperity Equities
High inflation weak dollar. Gold
Depression cash and treasuries
You can pretty much set your watch to those 4 assets being the most reliable when correlated to the economy ... there are no other assets that worked reliably in endless hours of back testing and trying them .
The rest like commodities , reits ,international stocks ,etc all are unpredictable as to what they will do even when matched to those 4 economic outcomes
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
