“Rates Are Up and Bonds Are Down”
Top 5 of the Week of October 29th
Beginning our Top 5 this week, Ashby Daniels discusses how best to deal with emotions and retirement planning. Swan Global’s Marc Odo reflects on the financial news surrounding the anniversary of the 2008 Financial Crisis. And from Of Dollars and Data, Nick Maggiulli examines supply and demand’s impact on markets.
A Wealth of Common Sense’s Ben Carlson considers the future of Fed rates. And Justin Mallory, writer of The Real Wealth Farmer, reveals why investors can’t afford to follow the crowd…
Setting Emotional Boundaries
- When it comes to retiree financial planning, there is a sizeable amount of risk involved—one wrong move and it could be fateful
- Part of the risk to deal with is that retirees tend to overestimate their capabilities to make sound and objective decisions and underestimate their emotional impartiality
- One way of dealing with this is balancing a two portfolio strategy which compromises both what you can financially and emotionally deal with
Ten Years On
- Financial media has been inundated with stories reflecting on the ten-year anniversary of the 2008 Financial Crisis
- Despite the profound impact it had—shown by the investor shift towards preserving capital over chasing returns—there are indicators that some investors are still making the same mistakes from before the Crisis
- On a portfolio level, we’re matching the same asset allocations as investors pre-Crisis, meaning many of us have no protection if a similar event occurs again
Is you portfolio weighted similar? Share your comments in the section below
The Future Is Bright?
- One of the best predictors of future stock market returns are the fundamental influences of supply and demand on average equity share
- When typical investor allocation to equity is high, returns for the next decade are low, and when typical investor allocation to equity is low, returns for the next decade are high
- But, setting up an investment model based on average equity share would be psychologically very difficult to hold—especially during times when the framework sets you in bonds while everyone else is doing well in stocks
“Rates Are up and Bonds Are Down”
- Many market prognosticators are predicting further Fed rate increases from the current 3.3% to as much as 6% for the 10-year treasury yield
- If this happens, such a rates rise could have a significantly negative impact on bonds, particularly if the increase goes hand-in-hand with higher inflation
- However, because the future is entirely unpredictable, rates could actually fall instead which means bonds could still rally as a short-term safety alternative to stocks—it could happen either way really
Avoid Herd Mentality
- To beat the market, investment managers especially those who are fundamental or quantitative investors cannot afford to be part of the herd
- Herd mentality can negatively impact results for both professional and individual investors due to inflated equity prices crashing after market timing drives valuations up
- To surpass the market long-term, your portfolio must look different from the market
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
Anything you would like to discuss about this week’s top 5? Do you have another favorite that isn’t mentioned here? Feel free to add it below. Let’s start a discussion in the comments section!
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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article. The Become a Better Investor Team doesn’t necessarily endorse any stocks or shares mentioned in the articles or the author of such articles linked to and summarized in Top 5 of the Week and cannot guarantee the accuracy of its information.