8 ms·

>diversify your investments Diversify into what though? Once market crashes, it takes everything down with it.

by dominotw 9y ago

SteveCoast 9y ago
Not cash.
- Raz2 9y ago
  Could you explain why? In 08/09 everything became cheaper -> cash became more expensive. Isn't it?
  - mathgeek 9y ago
    The benefits of having assets in cash during a crash only outweigh the downsides if you know when the crash is going to happen. Since you don't know that timing, you're statistically better off investing anything beyond your emergency funds.
ppeetteerr 9y ago
Healthcare index funds weathered the last recession very well (e.g. https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=5485&ps_disable_redirect=true#tab= https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... )
the_gastropod 9y ago
This is not necessarily true. To avoid volatility, invest across asset classes with low correlation [1]. E.g., bonds will probably not tank when U.S. equities do. [1] https://www.investopedia.com/terms/c/coefficientofvariation.asp https://www.investopedia.com/terms/c/coefficientofvariation....
- qznc 9y ago
  Bitcoin does not correlate with anything. Should people diversify into it?
  - ac29 9y ago
    Bitcoin wasnt around during the last recession. We don't know what will happen in the next one.
  - the_gastropod 9y ago
    I said asset classes ;-) Bitcoin is not an asset in financial terms.
    - drewbug 9y ago
      But cash is?
      - soundwave106 9y ago
        I would call Bitcoin a "speculative asset" right now, actually. Compared to major currencies, it is highly volatile. Bitcoin also is, in some sense, similar to a fiat currency (Bitcoin has no intrinsic value) without having the typical fiat currency backing (a supporting government, complete with armies, laws and their enforcement agencies, etc. sponsoring the currency). This adds a degree of risk to Bitcoin most other currencies do not have. Definitely I'd see it as an asset though.
        qznc 9y ago
        Not being government backed does add risk? Bitcoin cannot declare bankrupty, but governments can (ok, affecting bonds primarily). Also, governments can abandon currencies and use different ones.
        soundwave106 9y ago
        Governments can attempt to legislate away / restrict Bitcoin at any time, and have muscle power to attempt to enforce this. The converse is not true. This is the main reason I say that there is added risk. You are correct that government backed currency is indeed absolutely not risk free either in all cases; if confidence in the government is lost, the "official" currency might end up as worthless, and alternatives may prosper even despite heavy-handed government efforts in some cases. There is such a thing as speculative fiat currency. Having said that, even though forex is generally considered more risky than other sorts of investments, the likelihood of the governments of the major currency players executing the sort of serious humdingers to move their currencies into the "speculative" category seems quite low to me. (Of course, nothing in investing is guaranteed, but still...) I'll also add that, from what I see, Bitcoin "governance" -- the technical code decisions (https://www.economist.com/blogs/freeexchange/2017/09/not-so-novel https://www.economist.com/blogs/freeexchange/2017/09/not-so-...) -- is somewhat in flux right now, eg the dramas over bitcoin blocksize limits. This also adds risk.
- sytelus 9y ago
  I think this is no longer true. Many bonds would default and even if they don't the yields on bonds is so small right now that you might as well just keep cash.
b4lancesh33t 9y ago
As long as you don't need the assets during the downturns, this doesn't matter.
dragontamer 9y ago
US Treasuries went up in 2007 by like 20% or something ridiculous. There's always an asset class that outperforms during a crash.
namlem 9y ago
Bonds, precious metals, ETFs tracking industries that do well during downturns.

>diversify your investments Diversify into what though? Once market crashes, it takes everything down with it.

SteveCoast 9y ago

Not cash.

Raz2 9y ago
Could you explain why? In 08/09 everything became cheaper -> cash became more expensive. Isn't it?
- mathgeek 9y ago
  The benefits of having assets in cash during a crash only outweigh the downsides if you know when the crash is going to happen. Since you don't know that timing, you're statistically better off investing anything beyond your emergency funds.

ppeetteerr 9y ago

Healthcare index funds weathered the last recession very well (e.g. https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=5485&ps_disable_redirect=true#tab= https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... )

the_gastropod 9y ago

This is not necessarily true. To avoid volatility, invest across asset classes with low correlation [1]. E.g., bonds will probably not tank when U.S. equities do. [1] https://www.investopedia.com/terms/c/coefficientofvariation.asp https://www.investopedia.com/terms/c/coefficientofvariation....

qznc 9y ago
Bitcoin does not correlate with anything. Should people diversify into it?
- ac29 9y ago
  Bitcoin wasnt around during the last recession. We don't know what will happen in the next one.
- the_gastropod 9y ago
  I said asset classes ;-) Bitcoin is not an asset in financial terms.
  - drewbug 9y ago
    But cash is?
    - soundwave106 9y ago
      I would call Bitcoin a "speculative asset" right now, actually. Compared to major currencies, it is highly volatile. Bitcoin also is, in some sense, similar to a fiat currency (Bitcoin has no intrinsic value) without having the typical fiat currency backing (a supporting government, complete with armies, laws and their enforcement agencies, etc. sponsoring the currency). This adds a degree of risk to Bitcoin most other currencies do not have. Definitely I'd see it as an asset though.
      - qznc 9y ago
        Not being government backed does add risk? Bitcoin cannot declare bankrupty, but governments can (ok, affecting bonds primarily). Also, governments can abandon currencies and use different ones.
        soundwave106 9y ago
        Governments can attempt to legislate away / restrict Bitcoin at any time, and have muscle power to attempt to enforce this. The converse is not true. This is the main reason I say that there is added risk. You are correct that government backed currency is indeed absolutely not risk free either in all cases; if confidence in the government is lost, the "official" currency might end up as worthless, and alternatives may prosper even despite heavy-handed government efforts in some cases. There is such a thing as speculative fiat currency. Having said that, even though forex is generally considered more risky than other sorts of investments, the likelihood of the governments of the major currency players executing the sort of serious humdingers to move their currencies into the "speculative" category seems quite low to me. (Of course, nothing in investing is guaranteed, but still...) I'll also add that, from what I see, Bitcoin "governance" -- the technical code decisions (https://www.economist.com/blogs/freeexchange/2017/09/not-so-novel https://www.economist.com/blogs/freeexchange/2017/09/not-so-...) -- is somewhat in flux right now, eg the dramas over bitcoin blocksize limits. This also adds risk.
sytelus 9y ago
I think this is no longer true. Many bonds would default and even if they don't the yields on bonds is so small right now that you might as well just keep cash.

b4lancesh33t 9y ago

As long as you don't need the assets during the downturns, this doesn't matter.

dragontamer 9y ago

US Treasuries went up in 2007 by like 20% or something ridiculous. There's always an asset class that outperforms during a crash.

namlem 9y ago

Bonds, precious metals, ETFs tracking industries that do well during downturns.