In this episode Josh Bennett and Isaiah Douglass discuss better ways to invest, and how to be more thoughtful about risk in your portfolio.
My co-host, Isaiah, and I talked about modern portfolio theory and "diversification" in the second episode of the "Happy Hour Money" podcast. Many investors could be harmed by this strategy.
Diversification is one of the most widely held investment views. You may have inquired on diversifying Modern Portfolio Theory (60-40 stocks/bonds). If you added international stocks to do this, if you are riskier, your portfolio will have more equities; if I'm less risky, it will have more bonds; if I'm over 65, it will have more conservative investments. All of these stories or anecdotes concerning this concept can be condensed down to Modern portfolio theory. We're going to speak about that concept as a whole, including how it's used globally, if it's still relevant, and whether or not it benefits investors. There are some other topics we'll cover, including the notion of the market cap weighted index strategy, which is what the majority of US investors use.
Let’s dive in.
What is it? A capitalization-weighted index uses a company's market capitalization to determine how much impact that particular security can have on the overall index results. Market capitalization is derived from the value of outstanding shares.
The market cap weighted index technique is employed by the vast majority of US investors. For example, Berry Plastics has a longer waiting list than Amazon or if you have a S&P 500, you'll wait for the more famous or bigger names etc. But how where these companies historically chosen? Isaiah went on to make a good point here. He says that it doesn't actually make sense. Here’s why.
Stay in the loop and subscribe to the Happy Hour podcast! A new episode is released every Thursday. Grab a drink and tune in!
The 60/40 portfolio is a tried and tested 'set it and forget it portfolio' where you invest 60% of your long-term assets in stocks, typically a diversified index portfolio, and the remaining 40% in bonds. Which is supposedly, the best you could manage. That claim was made in 2019 and is believed that it’s the only way anything can get done in that timeframe. But It's a fool's errand. Why try so many different things? Well, everyone has the right to an opinion.
However, it's intriguing because there isn't really much scholarly support for the claim that this portfolio is appropriate. Yes, this has worked, and it has worked wonderfully. The fact that we are coming off of 12 to 13 years of really strong US market conditions where, if you're US heavy, and own stocks and bonds, you've done fantastically. It is part of the reason it has worked successfully, Isaiah explained. Additionally, there was also a longer super cycle, where, in the early 80s, you had interest rates that were 10 year treasury bonds, US Treasury bonds, which are kind of risk free or similar to the “best debt” you can have in the world, somewhere around 16%. And it dropped till it was about two and three quarters to its current state. Dropping interest rates, low inflation, and strong stock performance are all positive factors for bonds. As a result, that combination has been deadly for quite some time, and the typical financial advisor has grown up in that environment.
Nowadays, there aren't many people working with clients and managing money who were there in the early 1980s or late 1970s. But that's simply not the world in which they have lived. As a result of its success, the 60/40 portfolio is somewhat dominant from that perspective. Because it works and is simple to market, we can do it at a really low cost. I believe that's why many robo-advisors have joined together with several simply larger institutions. From a compliance perspective, it's like, "Stick with this, it's work, don't go off course or you're going to lose business."
First things first, what is the Modern Portfolio Theory?
The modern portfolio theory or MPT, is a mathematical technique for developing the "optimal" mix of assets (or asset classes) in a portfolio for a given amount of risk. When equities are performing well theoretically, either bonds are simply remaining constant or are performing poorly, or in some cases both bonds and stocks. We have heard it time and time again. In order to keep your portfolio doing better overall, you must counterbalance over the bonds. You can then sort of follow this risk frontier as the risk assets are increased. Consider the efficient frontier and gradually raise your risk over the course of this nice, tidy short. We all know that's definitely not the situation in actual life.
The main reason is that it is incredibly marketable and it's pretty simple to comprehend. “Don't put all your eggs in one basket”. And by doing that, you're more likely to have a stronger portfolio. Alternatively, depending on your age, you should either take more or less risk depending on your age. And all you have to do is move your neat little portfolio along this line of risk. There is a chance of failing quickly and a chance of failing slowly. And at the end of the day, after taxes, fees, and inflation like net net after everything, what do you actually have left? Do I have more purchasing power now? Or is my purchasing power declining? On a day? Is that it? Why would you ever want to risk losing money for that reason? That's how we look at investments.
One of the things you need to comprehend and something that many individuals don't know about are the other options available. Putting all your eggs in one basket when you work for these trillion dollar behemoth companies, is essentially what they are telling you. It's a tale we can all identify with. Whether it is the best method or not, you have seen an increase in portfolios using contemporary portfolio theory simply because it is very marketable and simple to build a business around.
Some of the questions that we are usually asked by clients would be "Should I invest with Schwab, Betterment or WealthFront. Which should I use?” Well, they are all the same. There are numerous studies that demonstrate the various asset allocations in the current portfolio theory, including even the Bible. However, in essence, no matter how you did it over time, they all ended up in the same area. Indexing, keeping costs down, and sticking to it are what count, but again, making money is theoretically quite simple. That's usually the background to Modern Portfolio Theory.
"Indexing" is a form of passive fund management. Instead of a fund portfolio manager actively stock picking and market timing—that is, choosing securities to invest in and strategizing when to buy and sell them—the fund manager builds a portfolio wherein the holdings mirror the securities of a particular index
The concept behind the 60/40 portfolio as mentioned before, (60% is invested in stocks and 40% in bonds) is that bonds provide a sort of ballast when stocks perform poorly. Since the last 12 to 18 months, when interest rates have reached record highs and inflation has increased over the previous four years, we haven't experienced a period of rising interest rates over a sustained length of time. Therefore, if you consider that the majority of your portfolio, whether it be in a 401 K or a Robo advisor, the aggregate bond index in the US, you can see that a 1% increase in interest rates causes it to go from 2% to 3%.
If you think about that as the bulk of your portfolio, that's probably where the majority of people have their money today. Because all bonds are issued at par, or $100, this is terrible for bond prices. They will pay you a fixed amount every single year after that. The best-case scenario is that you earn that each and every year and that you receive a refund of your investment. The majority of people will own a bond in an ETF or mutual fund if they hold it to maturity, while others will go out and buy the bond directly. So, there's a little bit of work done for you. However, that 1% increase is equivalent to a negative 3% total return, which means that it will remove a whole year's worth of income as well as about half of your future income. This is because the aggregate bond index is currently just under 2%. That's like, already having a bad effect and we haven't even evaluated what is thought to be a real return, Isaiah explained. Isaiah and I discuss why this is total nonsense in a later episode, but according to CPI, inflation measures somewhere in the eighties. The theory behind it holds that when stocks do poorly, enormous profits result, and vice versa.
Isaiah went on to say, “a prime illustration of that is this year, 2022, as they all declined at the same time and provided no diversification advantage. Because of how poorly Bonds have performed, the Wall Street Journal's headline for the first quarter was "worst quarter for bonds in a decade, possibly decades."
This could cause a lot of confusion because bonds are considered to be secure investments. So how did those decline when stocks fell or bonds declined? Many people will eventually get the concept of how these items truly interact structurally. What are they doing, exactly? This duo has collaborated for so long, after all.”
"To me, Isaiah stated, “that is absolutely something that needs to be understood. The other thing to think about this is actually just some fun little tributes that Deutsche Bank did a look back of 10 year treasury bonds, which there's gonna be some of those in an aggregate bond index, where US Treasuries are part of it. 10 years is the one that everyone focuses on so much, but they look back in history and they had to use some proxies, pre 1941. But they went back all the way to like the 1700s, or something like that late 1700s 10 year treasury bonds, at worst starting through April and on record, which is wild, that is wild.” In most cases, this is not a positive sign for what is ahead. An investor in bonds who has patience should just wait through this. Which is fair.
Possibly, just like everyone else, you should just continue to hold through this if you are resolute in your belief that interest rates will continue to fall in the future. The current level of interest rates is just a touch below three. Therefore, they are either going to go negative, since that is the bet that you are placing, or they are going to go to zero, as there is a little bit of wiggle room there. It's nearly as ludicrous as asking someone whether they are interested in purchasing an oceanfront property in Arizona; it just doesn't make any sense.
In addition, if you just consider the 10-year Treasury Bonds as an investment option between the years 1941 and 1981, you will notice that their real return was negative due to the rising rate of inflation. Because of this, you may believe it is OK to inquire, "I invested my $10,000; I got my $10,000 back; what does that $10,000 pay you?" And if you consider the decade that followed the end of World War Two to be ten years, you will see that if you had invested $10,000 in Treasury bonds at that time, you would have received approximately $6,600 in return along with a full return of your principal because the government did not default on its obligations. This is because the government did not default on its obligations. But the question that needs to be answered is, "What exactly have you been able to purchase with it?"
This is indicative of a persistent mentality of slowly giving up. Yes, but I've been missing the negative red on my screen, so in that sense, it does seem better now that it's gone.” People's brains need to be rewired in that area, in my opinion, because they've never actually been forced to contend with the issue in question. On the other hand, the past forty years and the subsequent forty years will be very different from one another. A lot of investors just aren't prepared for it yet.
The Golden Standard was created in the 1950s, roughly ten years after World War 2. As part of the effects of World War Two, there was very little, if any, globalization. Since then, there has been significant globalization, the US dollar has replaced gold as the world reserve currency, and many other factors have altered significantly over the previous 70 years. But if we examine companies like McDonald's, which derives 50% of its revenue from outside the United States and 50% from within, and there are many others like that, such as KFC or Microsoft, we see that because the dollar is so strong and these companies generate a lot of their revenue outside of the United States, they have a lot of problems with FX or currency.
Which is believable. However, this leads to still another fundamental problem with modern portfolio theory, because, plainly, the concept of risk is at best ill-defined in this theory. We kind of demonstrated it with the Bond, which was your safe investment in the spectrum, as you may be nonexistent for decades on end as a safe investment, or even a safer one.
However, in a similar way, there are instances where the modern portfolio theory, one of its methods for calculating risk, determines that bonds are less dangerous because they are based on what is known as variance, or, more simply put, “the ups and downs” of an asset class. So, how frequently or how large are the market swings, correct? The issue with that, though, is that you can have mathematically equivalent variations of one that simply goes up and down 10% frequently. You have the same variance as a portfolio that goes down, epically ever so often. As a result, there are more opportunities for Black Swan events as a result of globalization, which makes it more likely that things that could seriously harm a portfolio and result in those 90% declines would actually happen.
Even one of our strongest allies has switched to using Chinese currency in place of the dollar because it is related to what, to their base, and to their reserves.
Examine what would happen if China suddenly closed its borders and many US stock market companies, such as Apple, Google, and KFC, derived a significant portion of their revenues from China. This scenario would also have a significant impact on our bond and likely our treasury bonds as well as our dollar value because these companies receive a large portion of their revenues from China. Which we have reasons to believe that they purchased the leverage from us. However, this exposes a serious problem in modern portfolio theory: how can the 90% collapse be hedged? I think that is not true in modern portfolio theory. The traditional asset classes that are kept there are beginning to exhibit huge correlation as a result of the previous two crashes, and we are producing nothing.
Some are saving to their 401K's and some save excess cash, it all points in the same direction, and it pushes those assets up higher, which if you look at the way that the S&P 500 is constructed, it's a market cap weighted index. The names at the top get more of the flow of money. You have examples like:
All of those will experience increased flows, and as more money is invested and these names develop, the index will continue to rise, which is what works. However, if you go back in time to the 1950s and 1960s to understand why the market cap index was chosen, you will find that they wanted to achieve an equal weight for all items. Meaning all 500 Abrahamic companies will be given the same weight. The difficulty was that they lacked the necessary computational capacity back then. According to Wizardry, the S&P 500 index, is 10 times as much better and much worse, but at least it isn't overweight. It is going to own a lot more on the things at the top because typically what happens is you get overvalued at the crash, and then you see a link seep out of that. There was still more worthwhile research.
It basically made the joke that monkeys tossing darts could choose a better index weighting approach than market cap weighting.
And there are hundreds of other studies like this one from 2015 and 2016 as well. Just the fact that it defies logic while costing so much money is fascinating because it serves as the de facto standard. People simply look and say, "Yep, that's what we do." That is how it must be. And they don't inquire as to how we arrived here. However, in this setting, people will begin to feel somewhat compelled to wake up to that.
Avoid that crippling student loan debt with the Master College Funding Course! This course will cover everything you need to know on how to pay for college the RIGHT WAY down to the very penny. AKA “no shock bills” With the MASTER COLLEGE FUNDING COURSE, you’ll have the tools and knowledge to save *thousands* on college costs. Click the link for all the details.
Everywhere uses the US dollar as its benchmark. Because of the dollar's dominance in the global economy, the US no longer produces anything; instead, we export dollars to other countries. Although we do provide financial services and some technology, we don't really produce anything ourselves; instead, we import everything from nations with lower production costs. However, if you look at which central banks maintain global reserves, at their maximum, it was 73, or 74% of them that held US Treasury securities.
Thus, it appears that they were stealing access surpluses. In other words, if I'm a family household and I'm holding my emergency savings at the bank in dollars will be sovereign countries, we're essentially storing it in US Treasury bonds, and it was at a peak like 73, seven 4%, that's down to 59.
“Again, the amount of the decline is more important to consider than just the fact that it is occurring. It's been really severe, and if you look at other nations across the world, some of them may not agree with you that they use and possess more natural resources than you do before declaring, "Okay, we're going to start having more gold than active Gold Buyers." And they are the kinds of things, in my opinion, that signal that the atmosphere is changing and that, for the first time in a long time, hard assets are beginning to be seen as desirable in the 2020s.
For example, while bonds and the S&P 500 are both down, commodities are up by over 30%. It's astounding how bad commodities have been for such a long time when you consider a return on commodities over a period of ten years. But when it comes down to it, you need these things to manufacture materials fundamentally and govern the world. And supply chains get messed up when they are in short supply. You can feel the strains, and the prices are simply skyrocketing. With that said, let's just say that our portfolio is 60/40. How do I make it right? I believe the natural response to it would be, "Okay, it's fantastic that you've explained to me that, you know, this home is on fire. How can I put it out like a fire extinguisher?" Isaiah stated. Which is really the key question.
The modern portfolio theory has some positive components that should be kept in the mix. That makes sense, just as how, for the typical investor, not putting all of your eggs in one basket, you know, I think you have to be an idiot to disagree with this. Yes, it's a smart move.
The problem with a modern portfolio theory is they're choosing the wrong eggs. Investors should therefore really focus on "Okay, what are the risks I'm preventing or protecting against" since there are many distinct risks that are all working against you at the same time.
In order to guard against as many risks as possible, not just volatility, we need to diversify because as we have previously discussed inflation, risk, drawdown risk, and a host of other concerns. For instance, we employ strategies like momentum investing, which effectively uses role-based math to identify when to exit out of an asset class, to protect against drawdown risk, even though this isn't necessarily an asset class. Therefore, if equities are underperforming, you should just sell them. After that, you stop the significant downturn. Therefore, all the calculations will tell you to leave if those Black Swan events occur.
Let's use inflation as an example of another risk that can be diversified. Let's examine inflation from a risk perspective first, and then discover asset classes we like, such as Bitcoin, gold, farmland, rental property, real estate, and those that do well in inflationary conditions. You may compare the benefits to potential hazards for each of those asset groups because they each have unique components. In the end, you start to have a diversified portfolio similar to contemporary portfolio theory, just not necessarily holding the same thing, if that makes sense. This is because you start to see all these other things coming together. The majority of investors, however, are generally set up for the current climate rather than the one that lies ahead. And so, there is a really useful chart from resolve asset management that we frequently refer to in discussions about investing. It shows that there are actually four different market environments, two different types of inflation—rising and lowering—and a four-year high, as well as four different market environments overall.
Therefore, I feel very confident in stating whether your economy is expanding or contracting. Consequently, there is inflationary stagnation. We last witnessed that at that point and have arrived. However, in my perspective, wages are not rising at the same rate as private prices as evidenced by the late 1970s and early 1980s gas lines. People feel impoverished, or I don't have as much money to spend, there are problems, I can't buy the things I want to buy, and it sounds frighteningly similar to where we are now. Then there is the possibility of an inflationary bubble, like the one that occurred from around 2002 to 2007 when everyone was talking about the BRICS (Brazil, Russia, India, China) and how they were going to take over the world and that the US was no longer relevant. That was when you would have seen great growth, but the inflation rates had to be higher, so commodities worked. You had to own things outside the United States.
Commonly referred to as a major financial crisis, With COVID, everyone began to feel as though they may have had too much risk, not enough liquidity, or a number of other issues at this point.
It has been the scenario in the US since roughly 2009, with the exception of the COVID -19 Pandemic. Generally speaking, it poses a risk to US stocks, bonds, and real estate. It's a danger right now, even though we could have talked about it in 2018 and there was a little wobble. Therefore, the bulk of investors regularly assess their portfolios and declare, "Hey, I want 70 to 90%," when new investors come in, followed by a mix of stocks and bonds; nevertheless, many of them have a 90% stock allocation due to their youth. usually geared for a younger audience. But once more, are you paid for that risk? We recently completed a ten-year period in which you earned an annualized 14.5%.
In the past, the S&P 500's compound annual growth rate has been between six and twelve. You've just reached the peak of that extremely difficult task, and ten years from now, you're still performing the same tasks. Let's copy and paste now. That is not how it operates.
From 2000 to 2009, the US stock market lost 1%. Again, we observe this. We may say things like we don't know what the future holds. You need structural diversification, according to the diversification theory. It functions in those many settings. Only in that disinflationary boom, which is actually working well, do US equities and bonds operate really well. Once more, none of those many environments will be lovely 25% increments with a move. We can tell that it works like a clock from here to there. They can move around, and you're never quite sure where you are.
Investing might be complicated and challenging, but you want as prepared and many ingredients as possible. For example, Isaiah used a food analogy that I loved, “I want all the ingredients for my supper, not like, "Hey, I have the cupboard full, I have the fridge full, I can pull out what I want," but rather, "Hey, I have the cupboard full, I have the fridge full, I can make something wonderful, delicious, and nutritious."
Investors ultimately want that. You prepare ahead and think about things like March Madness to make it through the day. However, some people operate with the assumption that they will succeed, so just give it your best; it won't fail us. Many people are returning to Ranger discussion rather than reaching the stage where they hate performing well and they get to that burn out stage. Or they're changing; the circumstance has altered.
Okay, let's take a look at what you've actually accomplished.
You've put in X hours of labor, but since your returns don't account for the risk you're taking, you aren't being compensated for it. That is ultimately what people need to understand. Everyone will perceive it in their own unique way.
"These weights don't have a 12-34 or a five-item investment requirement. And it is the proper method for everyone. You need to have some knowledge of the surrounding circumstances for that person. This is the crux of the matter because a lot of what was said seemed like diversification and was repeated Modern Portfolio Theory, but I believe the key differentiation in this situation is protecting against risks other than volatility."
Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured from either the standard deviation or variance between returns from that same security or market index.
Simply put, volatility is a natural part of all investing. One of the topics we also covered was the fact that losses, whether they stem from inflation, volatility, or other factors already in existence, are the toughest hurdle to overcome. Losses are also exponential.
Additionally, if you decline by, let's say, 10%, the portfolio only loses about 11%. so that you are aware that in order to break even, the $100 must likewise become $9. Returning to that 100 Yes, you must be quite wealthy. So, digging the hole didn't take too long. In contrast, you'll only make $50 if you lose 50% tonight. Once more, I have to double my money. But if we dissect that a little, is the 10% yearly stock market return a 10-year average? If you go down to do ours, you often spend 10 years simply digging yourself out of a hole since the first 100 is a 10 year recovery. If you can cut down on those losses, you won't need to create as much money. As a result, since this is sustainable and you wouldn't be digging your way out of a hole, you don't need as much upside volatility to have a successful and sustainable—sort of what we discussed—and become prosperous rather than rich. These are some of the elements that can help you understand where the risk in your portfolio is coming from.
Alternatively, where dangers have existed historically and in many environmental contexts. Building a portfolio that can essentially perform well and at the very least perform decently in any of those many circumstances is not all that difficult. We've been putting a lot of effort into that over the last two years. From the perspective of diversity, it essentially boils down to protecting your portfolio against as many risks as you can in order to reduce losses and spend more time really generating wealth.
Work is where you need to start, after all. Because they are aware of the differences between real rental property, farming, and hands features, many individuals will choose to utilize Robo Advisors in place of actual ones. It's not so simple, as we discovered through extensive investigation. But in the end, that's what you have to do if you want to create true wealth and avoid these ups and downs.
At Vincere Tax, we have professionals standing by to answer your tax questions and to help you maximize your refund using all allowable credits and deductions.
If it's similar to how, depending on your ability level, you may spot something that is inexperienced very fast. It takes a while to appreciate it. However, when you become more familiar with it, you may look at a Robo allocation and realize that it is still just one bet. This is a wager on the performance of the US stock market. Let's say for instance, 25 different ETFs. The objective is still to have something that can flourish or at the very least survive and perform passably. Because most individuals will normally keep adding money to those accounts, right?
The first five years before you retire in the five years immediately following that are the most crucial; you can't have a significant drawdown because that's when you're going to start taking money out. If you're approaching retirement, you can't go make more money somewhere else as a younger person. But you can increase your level of risk-taking if you are capable of doing so.
There are two distinct inherent risks. There's risk capacity, and then there's risk tolerance. Your risk tolerance is a measure of how much risk you're willing to accept. Your risk capacity is how much risk you're financially able to accept
In simple terms, risk tolerance is like:
Therefore, you should know that there are times when you have the power to give yourself the ability to take on more risk. But I believe that a lot of people fall into the trap of thinking that, well, it really ought to be the S&P 500.
But the math doesn't work out as well, and if you're going to be an investor for a longer period of time, you should be aware that doing so may not always be the most cost-effective thing to do. For example, if I have 30 or 40 years, I want all of these different components to be able to mix so that they work together so well that they actually compound much, much more effectively when I add to them.
Despite the fact that it may be challenging for some people to take the time to sit down and think about it, the math still remains true. If you want to do the math, diversification will be the result of the fact that if you constantly think, "Oh, I should have done this other thing.
If you are able to, you should invest more aggressively.
It's possible to regain 50% of the loss in ten years. If you are still young, doing so will allow you to recover and resume your previous level of financial success. Therefore, rather than spending that 10 years attempting to dig yourself out of a financial hole, why not use that time actually building up your wealth instead? It is possible that it will move more slowly. As a result, you should not shy away from taking chances simply due to the fact that you are unable to do so.
Because we are in this severe drawdown and you aren't, you can be opportunistic when other people aren't, which means that you can do so when other people have nothing to take pleasure in. And even though to some people that might sound like a bad thing to do, the truth is that it's exactly what you should be doing since you're in a position to buy something. As an illustration, the real estate market is currently out of control. If you invested in real estate, there are actually 10 properties that are up for sale; but, nobody can buy them because there is no liquidity in the market. That didn’t put too much of a dent in the value of my stock portfolio, you are now free to put money into those other assets. During this period, if you come across somebody who is having difficulty selling something, you may buy that right away.
Let’s say, there is a charge of one dollar. That is fantastic. You have then brought up the requirement that you either acquire some of yours or carry out this action in order to satisfy this necessity. As a result, your heroes become your enemies. If you think you can contribute to discussions about investing at dinner tables with your friends who have no knowledge in the subject, you are, to the best of my ability, doing it incorrectly when it comes to investments. If you think you can do this, you are doing it wrong.
"Another instance is when I hear individuals talking about how they want to invest in Tesla and other items that are similar, and then someone ends up buying Tesla because they were talking about it with their buddies. It is a nonsensical thing for a person to do in terms of investing because people are lousy investors"-Josh stated.
Almost certainly, they've just heard something from a completely unrelated stranger who has no idea what they're talking about. Due to the fact that you are only generating wealth and not attempting to become rich by placing bets on stocks and CEOs, you want to be in the position where, quite frankly, you have nothing to say to a conversation of that type. As a result, it's challenging for people to do. They both aspire to belong to the tribe and the herd, respectively. The freedom and other advantages that come with really having the money to be should, in my opinion, far outweigh having just one dinner conversation. You will definitely see some hedge fund returns this year; but, given how heavily many of them have leveraged technology names, I was really astounded. However, unless it is your day job, it's like, If you're not planning like the micro cap sector and you're not really doing due diligence, even though you're compensated and highly paid to do it, it's unlikely that you'll know anything that the market doesn't already know about utilizing stock XYZ.
If you're in the wrong place, you'll still get hit.
Penny stocks can also contribute to micro caps, even though they sometimes run successful enterprises. But once more, like at that time, you must work hard to complete it. There are various variations there as well. The fact that so many people consider security selection makes me believe that it is a tricky issue. Therefore, I will choose Tesla over Amazon. And it will provide you with a superior return than asset allocation, stocks versus real estate, stocks versus commodities, or stocks versus stocks. According to the finest emerging markets manager ,the absolute leaders in managing capital in emerging markets, which would be Southeast Asia, Latin America, and Eastern Europe.
First, everyone else in the globe still underperformed in terms of percentage returns compared to US large cap managers, who were by far the worst performers. Therefore, the person who had the best job in emerging markets for the first half of the year still outperforms Right Dollars and Cents.
The point is that, despite its size and strength, the Marine Corps' biggest desire still remains unfulfilled. Therefore, even if you have the best name, you will still get struck if you are in the wrong place.
And frequently, it seems to come down to which asset class you don't want to be in. Returning to the framework of the four different market situations will help you understand that if you understand the broad picture and the concepts of higher inflation, lower inflation, a growing economy, and a slowing economy, you can sort of determine what has to be taken into consideration.
Recap: You can improve a 60/40 portfolio by adding five 10% weightings. That's my last piece of portfolio theory criticism. So, run the numbers and examine the results. As a long-term investor, it is often enough to say, "Okay, I'm structured to be successful.” Long-term investors should prioritize diversification. I believe in structural diversification and context-appropriate solutions. If you're interested in an investment advisory or financial planning relationship, please consider Vincere Wealth Management.
Check out the latest episode here!
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
