Being an investor who does not dislike bonds; I find the current movements with bonds to not match with what I/we have experienced in the past....in particular, the past 7 years since the market melt.
'Course, many bond areas have had a decent run for awhile and most so in the past 7 years.........uh, well except for the past 6 months or so.
Since mid-August when equities started their downtrend, bonds normally would have found larger and stronger upward price moves to help offset equity losses. That magic seems to have left the building. I do not find comfort within the overall markets with any of this; being equity and bonds.
So, did this exiting equity money go to mostly cash and inverse investments (shorts against equity(s), funds, etc.) or WHERE?
Diversification is not helping investors at this moment.
Didn't say as much as planned............
Body is trying to fight against what seems to be a head cold and the OTC meds are winning the battle at this time; but affecting thinking processes, too.
Must sign off for tonight.
Any thoughts welcome as to what else is coming our way with investment areas in the near term.
I just don't like the "smell" of the markets right now !!!
Thanks.
Catch
Comments
Could not agree more, but then consider that when Q/E & ZIRP were expanding, that tended to benefit ALL assets. Now that monetary policy is becoming less accomodative, it seems intuitive there is no place to hide -- other than cash. There is no law requiring we stay fully-invested at all times, and its impossible to "buy low" if one is fully invested all the way down....
Catch - It just goes ."Doesn't have to go anywhere in particular. When markets tumble in unison, the money just goes!
Sorry to be so brutally honest.
When the marketplace is delivering positive returns, we regret the conventional wisdom to hold cash reserves for a rainy day; that philosophy is sure a drag on our portfolio performance during these periods.
Today, that little bit of wisdom is gold. The traditional wisdom to diversify is likewise still a golden nugget. I don’t share your doubt about the benefits of diversification, even over the last several months.
Yes, a conventional portfolio of only equity and bond products has disappointed year-to-date. But a totally equity portfolio would have performed even more poorly. Bond segments have attenuated the downward swing of the equity components.
Since you mentioned an earlier 7 year period, I examined the correlation coefficients between various equity holdings and various bond holdings in that timeframe. Both generated great returns, with bonds yielding lower returns but having a defensive negative correlation coefficient against the equity actions.
Over the last few months, returns have been a let-down in both major categories, but the correlation coefficients have remained roughly the same. Bonds have provided downside protection. Bond diversification has muted the negative impact of equity positions. Not great, but bonds are doing their assigned job.
Perhaps I misinterpreted your misgivings. I am not persuaded to abandon portfolio diversification based on current category performances.
I don’t consider the current market action as a reversion-to-the-mean. It is simply within the normal volatility of market behavior. The historical data says that we should expect an equity market annual downturn about 30% of the time. This appears to be one of those 30% years. Too bad. I don’t subscribe to the Gambler’s Fallacy.
Your most important duty is to take care of your head-cold. Get well.
Best Wishes.
Sssssh...Don't tell anyone or this gimmick will not work.
This "cash" isn't sleeping.
As to an individual and cash; well, this then may become a market timers game, too.
I know of those who always hold "x" percent of cash in a portfolio; but why? And to purchase what and when?
We don't hold cash, our "cash" is always working somewhere; and yes indeed, is subject to a loss. That aspect rests upon our shoulders and our judgments.
I/we have already worked too hard and been too prudent with our cash spending to let it sleep today. We here will take our chances with the "cash", as it is gambling....er, investing, right?
If the machines are so very smart or the folks who make the final decisions feel true cash positions are the best choice at the time; then there are indeed problems in the traditional investment market places.
Just me two cents worth.
Catch
My best to you Catch, I hope you are feeling better soon. Sometimes the common headcold can indeed get the best of even the younger folks and is nothing for us seniors to take lightly.
Although I keep an ample amount of cash on hand within my portfolio, I do form time-to-time put a special investment position (spiff) into play for a sum equal up to five to ten percent of my overall portfolio. Let's say that five percent equals 20% of my cash. If I make a return on the spiff of ten percent then this, to me, means I had a two percent return on my total cash position. Do that twice a year then that equals a four percent return on my cash so on and so forth. Anyway, this is how my thinking goes.
Years back I use to receive interest payments in the four to five percent range ... Now, I have take a part of my cash and be active with it to get the same results, a four to five percent return.
Take care of yourself,
Skeet
Yes, today; tis a bit difficult to "claw" a return above taxes and inflation from many bond funds for this house. 'Course, some bond holdings are also a cushion against a larger down side when equity areas (or other areas of one's choice) are not happy.
We're about 60% equity at this time. Hoping no forced sales in this area in the next 2 months.
Down to about 40 degrees tonight, after 2 weeks of some of the most delightful weather I've seen in Michigan for many years. But, no rain; so I'll be able to finish a few more outside chores before the winter "cocoon" months arrive.
Take care down your way.
Catch
My take on the comment @hank made was to look at it from the perspective of the investor who still owns the investment that has decreased in value. The funds are "just gone" -- at least for some unknown period of time -- to that individual investor.
I am a 65 year old retiree and make quarterly withdrawals from my investment portfolio. I set the maximum amount for those withdrawals at the start of each year....I want the portfolio to outlive me. Two quarters worth of withdrawals are held in cash in the portfolio. Another 6 quarters are held in what for me is "near cash". This currently includes RPHYX, ZEOIX, and MWCRX.
My portfolio currently includes 16% short term investments....which I interpret as being cash. My portfolio includes funds such as FPACX, WHGIX, and WEMMX where the managers actively time the market based on their investment criteria. I pay these managers more than I would pay for index funds. I view the extra payments like an insurance premium. I am paying for reduced volatility with competitive full cycle returns. Perhaps the extra payments will never pay off. But if there is a substantial market decline I expect to reap some rewards from my those extra management payments.
Investing in the bond market is making less and less sense to me. When I re-position my portfolio closer to the end of the year, I am considering reducing my investment in bond only funds and equity only funds. I would use the proceeds to increase my investments in FPACX, WHGIX, JABAX, GLRBX, and BERIX. I may also establish a position in RPGAX.
Anyway, for me having some cash in my portfolio makes sense.
FWIW,
David