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Someone has got to be left holding the bag in the next downturn.
by greesil 7y ago
Someone has got to be left holding the bag in the next downturn.
- SpikeDad 7y agoExactly. No different than gambling. Stick to no fee mutuals and other balanced investments.
- brookside 7y agoWhen the market turns sour it will be largely irrelevant if you own a collection of individual stocks or a packaged mutual fund, which is of course just a larger collection of stocks (or other securities).
- smabie 7y agoIf anything, diversification is going to hurt you. The idiosyncratic risk of holding only a few stocks is going to be a lot higher than if you have a bunch. As such, the correlation to the market is going to be lower, thus potentially helping during market downturns
- andreilys 7y agoDepends on the diversification. If you hold uncorrelated bets, some may actually benefit from a global downturn
- ryandrake 7y agoHonest question: what kind of investment, equity or otherwise, would pay out in the event of a global downturn? Besides gold, canned food, and guns/ammo of course. I can imagine some kind of “contra world economy” fund but could you suggest an example?
- smabie 7y agoA bond fund might do okay. Or a distressed debt fund. But in general you wouldn’t want a fund with negative correlation to the market (since it’ll lose money all the time) but instead, one with low or zero correlation to the market. This is the idea of a market neutral fund: have zero market exposure so the return stream is completely uncorrelated.
- andreilys 7y agoA fund that makes money in the event of black swans can do quite well (i.e. 2001, 2008, 2020 (?)) It can lose money for months and/or years, but all it takes is one black swan to make all the money back and more.
- smabie 7y agoRandom trading with no fees should only give you slightly worse returns than an index fund. Gambling doesn’t usually have such positive returns.
- fortran77 7y agoSadly, it may be the taxpayers who will no doubt have to bail out people who speculated, just as they did during the real estate bubble, the dot-com bubble, etc. (Yes, the Government forgave capital gains taxes on stock options for speculator-investors who claimed not to understand the tax event caused by exercising options but not selling them.)
- lotsofpulp 7y agoIt will be the people holding USD due to the devaluation due to bailing out equity owners. And if the US isn’t in position to bail out equity owners, then it has bigger problems and you should be investing in your network, food and water supplies, and guns. Just like in past bailouts, too much of the voting populace is invested in the value of their equity holdings, including taxpayer funded defined benefit pensions and regular 401k/IRA plan. It’s not politically tenable to let those values go down, assuming the US has the ability to print money still.
- andreilys 7y agoIn the event of a global downturn, what would be the safe haven currency if not USD?
- raintrees 7y agoThere are quite a few who would answer Commodity, not Currency. Something that will retain value if currencies do not.
- lotsofpulp 7y agoI don’t know, I assume if USD stops being the safe haven currency, then there has been a change in the world order, which could be due to war. In that case, I would think you’d need to diversity and have multiple passports and assets in those countries. But that’s planning for those with 8+ figures in wealth. But at the end of the day, your priorities will be access to water, food, heat, and shelter. So for most people, it might not even make sense to worry about which currency to have, as it will be too late to move into it probably.
- lainga 7y agoIt might go back to the good old days where shops would accept gold dollars, silver dollars, treasury bills, or pieces of eight. I know the "reserve currency" of Warlord-era China was the Mexican dollar.
- greesil 7y agoWhat would characteristics would make a currency "safe"?
- wonderwonder 7y agoExactly this. Large investors such as hedge funds will be trading knowing there is a top and will begin scaling out at a certain point. Once that begins, others will follow leading to a collapse and all those mom and pop investors having bought the high. The wealthy pay others to keep an eye on this and will cash put before the turn.