'Stay the course' with international stock but give up on value?

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garlandwhizzer
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Re: 'Stay the course' with international stock but give up on value?

Post by garlandwhizzer » Wed Oct 09, 2019 2:03 pm

My 2 cents worth on diversification. When in comes to diversification of an equity portfolio and, more importantly portfolio risk reduction, nothing works as well dollar for dollar as quality bonds. Personally, I am not convinced that alternates, multi-factor approaches, commodities, etc., are worth their increased costs and complexity for the goal of portfolio diversification. Diversification approaches other than bonds tank along with equity when you need them most during a severe bear market at which time all risk assets without exception approach a correlation of 1.0. Their so called diversification benefit disappears when you need it most. The only thing you can count on in such a situation is high quality bonds. The other approaches produce high levels of income for those who create and market them and provide career advancement for academics who "discover" their diversification benefit. There is no doubt that these more complex approaches increase costs and portfolio complexity but whether they actually help investors reach their financial goals is another question entirely. Personally, I believe the current financial industry obsession with non-bond related portfolio diversification is a self-serving solution in search of a real problem.

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vineviz
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Re: 'Stay the course' with international stock but give up on value?

Post by vineviz » Wed Oct 09, 2019 2:46 pm

garlandwhizzer wrote:
Wed Oct 09, 2019 2:03 pm
Diversification approaches other than bonds tank along with equity when you need them most during a severe bear market at which time all risk assets without exception approach a correlation of 1.0. Their so called diversification benefit disappears when you need it most.
It’s easy to see that this conjecture is objectively untrue.

While I agree that long-term US treasuries are the most powerful source of portfolio diversification, the equity allocation itself can be easily and inexpensively diversified as well and the benefits of that diversified are readily observable.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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