Gurus, Experts, FAs and those commercially compensated investment writers and products endorsement love to advocate bonds/equities XX%/XX% but NO cash! It is like saying Cash is really trash!!! No allocation!
Chun bo?
Cash is both Trash and King over market cycles! Really?
You decide to believe who say it?
Practical and realistic investment portfolio allocation over market cycles is Bonds or Bond-like (CPF for SG)/Equities/ Cash and CPFIS in XX% /XX% /XX% based on our own investment journey
Climbing Investing Mount Everest
1) Going up Mountain.
2) Near Mountain top and how about going down to Base Camp to stay safe before trying out Mountain top at the next season.
3) Going down Mountain to Base Camp to stay safe for a longer time before deciding whether it is worth to test the Mountain top one more time?
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Uncle 8888
ReplyDeleteGot money(cash), got honey
Uncle8888,
ReplyDeleteLol, you forgot about rebalancing ... it's the yin to the yang of XX/XX for smoother risk-adjusted returns.
Usually when stocks drop hard, safe bonds go up or stay stable. E.g. during the 2 months of Covid plunge, stocks dropped over -30% while intermediate Treasuries went up +4%. Or during GFC where Treasuries went up +13%.
Investors are supposed to rebalance during such situations ... sell treasuries & buy stocks. If psychologically they can't, then low-cost balanced ETFs or robo advisors may be the solution. Sell high & buy low is hard to do.
Of course there are periods where both stocks & treasuries go down significantly, like in 1979, 1980 ... and 2022. Usually when markets anticipates the Fed aggressively hiking rates. But these usually don't last long, maybe up to 1 year.
Maintaining cash warchest means active investing & market timing. Most people are better off automating their long-term investing & focusing on their careers.
This is a recent article on the importance of holding cash, and why the most successful active investors like Buffett are strong proponents of it. (Ignore the salesman pitch at the end.)
Basically how successful an investor is during bear markets depends on the size of his warchest, AND his stomach to deploy it.
Think I shared this before, but anyway this is someone's suggested warchest amount for different categories of investors.
CW,
ReplyDeleteBecause FAs can't earn commissions recommending cash?
And who would pay $$$ for a course or seminar to be told that shoving cash under the mattress is perfectly OK?
It's like asking a fishmonger whether his fish is fresh?
You expect him to say no!?
Smol,
DeleteThere are some investors who would benefit from paying money to IFAs to be told to keep "cash under mattress". ;)
The ultimate objective is to have total portfolio returns that (1) beats 100% stocks on risk adjusted basis, and (2) achieves financial goals.
Then again, most people would prefer to learn from crash-got-sound on their own. Can't blame them with the type of FAs & financial regulations in S'pore. :)
Spur,
DeleteIndeed. How many clients of IFAs are aware they and their advisors do not have a fiduciary relationship?
Well, that's what you get for "free"...
Only fee based IFAs with clear fiduciary duty to clients, will recommend shoving cash under the mattresses, if that's in their clients' best interest!
Just look at the number of ILPs sold in Singapore to bei kambings tapping CPFIS for the first time....
But, but, it's CPF approved wor....
I guessed the experts considered equities and bonds in a single big basket. I mean if you want to talk about real diversification, it should include precious metals, properties and other asset classes.
ReplyDeleteWe have not changed our asset allocation since we turned 50, 11 years ago. We continue to inject money into both equities and bonds on a monthly basis with the objective of growing our dividend income. We are also growing our CPF aggressively, notwithstanding the inflationary risk.
And the cash (or war chest) is an important component that we always maintained. The last time we deployed some of the war chest was in 2020. Now the situation does not warrant deploying it yet. Patience is key.
SSB = Cash? or Bond?
ReplyDeleteSSB interest rate now getting attractive
At same time can withdraw with just one month's notice with principal and interest to-date all intact (like a one-month FD but with long term bond interest rates)