Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
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Wall Street's brightest minds reveal the most important charts in the world
From Business Insider: "Here they are: the most important charts in the world. As many of the charts in our latest collection from some of Wall Street's top strategists show, questions right now center on what the future holds for the US economy, for emerging markets, and the Federal Reserve."
Here's a sample that was borrowed from Josh Brown and Michael Batnick:
Any investment over any given period of time can be described as trending either higher (gains) or trending lower (losses) over that time duration. An Investment has to overcome previous market volatility, inflation, taxes, management fees and trading costs to provide a positive real return.
For stocks, gains happens about 75% of the time. It is during the other 25% of the time that charts (like these above) makes us fear stocks more than 25% of the time. Three fourth of the time we tend to look at the gains as temporary. One fourth of the time we think of these losses as permanent. Both are temporary. Only over longer time horizons does it become apparent that the (75%) "ups" and (25%) "downs" smooth out these charts into pretty pictures and positive real returns.
Over these longer time frames we should be more focused on inflation, management fees, and trading costs as they create a constant drag (100% of time) on real return compared to market's volatility.
One stock fund that has incorporated all of the shorter duration charts (shown above) is LEXCX...here's the bigger picture (LEXCX holds no bonds):
I am impressed with your nerves of steel! This retiree is uncomfortable holding an all stock portfolio. My allocation has about 50% in stocks as it has for the past several years (plus or minus a few %). That's where my comfort levels centers itself. My dilemma has involved the bonds and cash portion of my portfolio. For me, they represent ballast, a source of funds for periodic account withdrawals, and a source of funds for annual rebalancing. Over the past 2 to 3 years it has become apparent that the era of low interest rates is hanging around for longer than I had expected and that it has no clear end in sight. So, the question of how to allocate between cash and bonds took hold in me. I had no good answer to that question. So, I decided to reduce the size of the cash and bond portion of my core portfolio and also to reduce the size of the stocks only portion of my portfolio. By doing that, I was able increase the investments in my asset allocation funds from 30% to 60% of my portfolio. That puts more in the hands of those active fund managers to decide how to allocate between stocks, bonds, cash, and other investments. I jumped the gun on my year end portfolio review and did most of that during the first week of October. The optimist in me thinks the market has better than even odds of trending higher for the rest of the year and most of my investments are in a taxable account.
I agree that a portfolio should have cash and bonds for all the reasons you mentioned. I was just pointing out that we compare these investments (bonds and cash) to stocks as if they are very similar when they are very different.
In other words, what would these charts look like the other 75% of the time? Both charts would tug on our emotions and incite us to act irrationally.
So, if holding a certain percentage of "safer" assets allows an investor to leave the "riskier" assets alone to trend higher over longer time frames I would say they have a successful portfolio. Also, If hiring professionals to make asset and portfolio decisions that helps keep an investor "out of the kitchen" then, by all means, pay this fee.
Comments
For stocks, gains happens about 75% of the time. It is during the other 25% of the time that charts (like these above) makes us fear stocks more than 25% of the time. Three fourth of the time we tend to look at the gains as temporary. One fourth of the time we think of these losses as permanent. Both are temporary. Only over longer time horizons does it become apparent that the (75%) "ups" and (25%) "downs" smooth out these charts into pretty pictures and positive real returns.
Over these longer time frames we should be more focused on inflation, management fees, and trading costs as they create a constant drag (100% of time) on real return compared to market's volatility.
One stock fund that has incorporated all of the shorter duration charts (shown above) is LEXCX...here's the bigger picture (LEXCX holds no bonds):
I am impressed with your nerves of steel! This retiree is uncomfortable holding an all stock portfolio. My allocation has about 50% in stocks as it has for the past several years (plus or minus a few %). That's where my comfort levels centers itself. My dilemma has involved the bonds and cash portion of my portfolio. For me, they represent ballast, a source of funds for periodic account withdrawals, and a source of funds for annual rebalancing. Over the past 2 to 3 years it has become apparent that the era of low interest rates is hanging around for longer than I had expected and that it has no clear end in sight. So, the question of how to allocate between cash and bonds took hold in me. I had no good answer to that question. So, I decided to reduce the size of the cash and bond portion of my core portfolio and also to reduce the size of the stocks only portion of my portfolio. By doing that, I was able increase the investments in my asset allocation funds from 30% to 60% of my portfolio. That puts more in the hands of those active fund managers to decide how to allocate between stocks, bonds, cash, and other investments. I jumped the gun on my year end portfolio review and did most of that during the first week of October. The optimist in me thinks the market has better than even odds of trending higher for the rest of the year and most of my investments are in a taxable account.
I agree that a portfolio should have cash and bonds for all the reasons you mentioned. I was just pointing out that we compare these investments (bonds and cash) to stocks as if they are very similar when they are very different.
In other words, what would these charts look like the other 75% of the time? Both charts would tug on our emotions and incite us to act irrationally.
So, if holding a certain percentage of "safer" assets allows an investor to leave the "riskier" assets alone to trend higher over longer time frames I would say they have a successful portfolio. Also, If hiring professionals to make asset and portfolio decisions that helps keep an investor "out of the kitchen" then, by all means, pay this fee.