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Science, Culture, & Humanities / Mutual fund Retirement investment strategies - is it different this time?
« on: December 27, 2010, 08:58:54 AM »
Is the bond market undergoing a secular change? The last 20-40 years have been characterized by a steady direction of interest rates that increased the value of bonds over time. Now they say its changing. That would mean that all of the retirement calculators, as well as the training & personal experience (= habits & biases) of professional investment advisors, are no longer correct.
I'm really wondering if everything I know about how to adjust my ratio of stocks : bonds over time is still statistically useful.
Bonds are used to adjust your "risk" element down to a variance that you can sleep with. You re-balance your mutual fund allocation yearly or quarterly or when it goes outside of a "band."
I wonder also if buying option puts or LEAPs might be a cost effective way to hedge downside variance, at least during periods when its difficult to sleep. If you have a portfolio that has a calculated return of say 9% with a variance of 25%, could you pay something reasonable like 1% of your portfolio value to limit any losses to say 15%. So your resulting numbers would be 8% with 15% downside variance. I've never seen anything talking about that sort of risk management for long term, retirement portfolios.
PIMCO says (of course, its their business) that investors will need to use actively managed bond funds instead of passive. OTOH the Vanguard/Bogle camp of statistical analysis proves that extra gains from active management over long periods is no better than luck.
I'm really wondering if everything I know about how to adjust my ratio of stocks : bonds over time is still statistically useful.
Bonds are used to adjust your "risk" element down to a variance that you can sleep with. You re-balance your mutual fund allocation yearly or quarterly or when it goes outside of a "band."
I wonder also if buying option puts or LEAPs might be a cost effective way to hedge downside variance, at least during periods when its difficult to sleep. If you have a portfolio that has a calculated return of say 9% with a variance of 25%, could you pay something reasonable like 1% of your portfolio value to limit any losses to say 15%. So your resulting numbers would be 8% with 15% downside variance. I've never seen anything talking about that sort of risk management for long term, retirement portfolios.
PIMCO says (of course, its their business) that investors will need to use actively managed bond funds instead of passive. OTOH the Vanguard/Bogle camp of statistical analysis proves that extra gains from active management over long periods is no better than luck.