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Ask HN: What's the best investment strategy for a highly volatile market?
For someone who would like to have a stable passive income stream from their investment portfolio, how should one invest their money? Vanguard index funds sound great, but how does that type of portfolio fare when faced with:
1) Extreme market volatility (nobody seems to think we could face the worst economic depression in centuries, but every "worst event" was, by definition, worse than every preceding event.)
2) Inflated equity prices in light of the US Federal Reserve's quantitative easing policy. Near-0% interest rates pushed a lot of money into equities in order to return anything.
3) Bonds yields at historic lows.
4) Possibility of political unrest/war.
For 1 and 4, I'm not saying that's what will happen, only that there's a non-zero chance of it happening. Just as one sleeps better knowing they have medical or fire insurance, protecting oneself from economic risk should do the same.
So I suppose my question is more along the lines of: how can one protect a portfolio from downside risk while still earning a decent passive income stream?
- minsight 10y agoI read an amazing book about portfolio allocation a few years back and reallocated my holdings. The thing that impressed me was a historical analysis which showed that, as long as you split your fixed income and equities, you would do quite well. The interesting thing was that you could split them sub-optimially and the whole thing would do well. Getting the proportion exactly right would get you a slightly better return, but much less than I expected. When the market is charging ahead, it might seem that holding bonds/fixed income might be a waste, but it's really just a form of insurance. Another interesting thing I learned was that holding inversely correlated things led to higher returns and less volatility. So an all-equity portfolio would generally have a slightly smaller return than one with even 5 or 10% fixed income. Anyways, the book was by a guy named William Bernstein, and his (very dated looking) site is at http://www.efficientfrontier.com/ http://www.efficientfrontier.com/. His book is called the Intelligent Asset Allocator. The first 2 chapters are on the author's site. The book can be ordered from Amazon at: https://www.amazon.com/product-reviews/0071362363/ref=cm_cr_dp_syn_footer?k=The%20Intelligent%20Asset%20Allocator%3A%20How%20to%20Build%20Your%20Portfolio%20to%20Maximize%20Returns%20and%20Minimize%20Risk&showViewpoints=1 https://www.amazon.com/product-reviews/0071362363/ref=cm_cr_...