Apr 7, 2019
For years you’ve been told that to get better risk adjusted returns you should diversify with some percentage in stocks and some in bonds. Yet when you look at the inflation adjusted annualized returns, is the idea of a 60/40 portfolio to manage downside risk more of a myth? In this interesting conversation Derek Moore and Jay Pestrichelli discuss why bonds may not offer much of a real return given where rates are. Plus, they delve into whether a 60/40 portfolio offers better risk adjusted returns using classic measures like a Sharpe Ratio. Also, is gold still a modern hedge in portfolios? Stay tuned for Part II coming soon.
- • Exploring historical real returns on a classic 60/40 stock and bond portfolio.
- • How real returns after inflation are determined and whether historical bond returns offer much growth
- • Has gold been an effective hedge of downside moves and inflation given its periods of negative real returns?
- • Historical risk adjusted returns measured by Sharpe Ratios
- • If a portfolio of stocks and bonds is so good, why does it have theoretically subpar Sharpe Ratios?
- • What are TIPS (Treasury Inflation Protected Securities) and how do they hedge inflation?
- • Real versus Nominal returns for stocks and bonds
- • Why investors need to not only keep up with inflation but exceed it to grow purchasing power
- • How using options to define downside risk may be a more optimal hedge
- • Introduction to the concept of Buying and Hedging a market with a defined downside floor.
Mentioned in this Episode:
Contact Derek Moore www.razorwealth.com
The Hedgers Opportunity by Jay Pestrichelli https://www.investmentnews.com/article/20190401/BLOG09/190409991/the-hedgers-opportunity
Historical Gold Prices https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM#0
How do Treasury Inflation Protected Securities TIPS work? https://www.thebalance.com/how-do-tips-work-417128