JFP_SF wrote:Given the big run-up in stocks over the last 8 years (and bonds too), most investors aren't really worrying about risk right now. Investing has fashions like everything else in human affairs.
Me, I worry all the time
so when all the assets move in the same direction as they have been every time there is a sniff of rate increase you must still worry all the time .
with the historical interest rate average of 6.30% on the us bond index from 1963 to 2016 which stands at 2.48% today , if you believe in reversion to the means you may still got a whole lot of worrying to do . i know my golden butterfly has been moving as much as a 100% stock portfolio at times .
in fact my golden butterfly now holds the distinction of racking up the biggest one day loss and the biggest one day gain in dollars i have experienced since toning my portfolio down for retirement more than 10 years ago ,
these kind of risk paired portfolio's only do their job when conditions are such that assets don't move together .
the catch 22 situation is that long term these things smooth out and eventually the draw down shrinks . but we use these portfolio's because we are not really interested in the long term gains as much as we are the shorter term and mitigating those temporary drops and swings . .
long term over decades equity's almost always win out . but we want to avoid the wild swings in the shorter term so we are not 100% equity's .
but think about the logic .
we are trying to mitigate the temporary short term drops and swings with assets that can try do that but if you are a longer term investor that mitigation permanently hurts long term gains .
so if these risk paired portfolio's do swing as much in the short term when assets correlate then we are not getting what we signed on for and are merely just giving up long term gains in the end from other assets like equity's . .
these are really unconventional times and we don't really know what to expect from our investments anymore . nothing can be counted on to act like it used to as we have some awful strange bedfellows now .
to be honest , i signed on to the butterfly concept because of all the uncertainty and i wanted to mitigate the shorter term volatility while holding on to the lovely gains i had accumulated in my other portfolio over the last few years . but so far in the months i have been using it i have seen more volatility and less gains than my other model i typically follow . so , the jury is still out as far as the portfolio doing it's job over the time frames you would want it to do it's job best .
i find the dilemma is you want the portfolio because you are more interested in the short term volatility than maximizing gains in the long term yet right now you are getting the volatility of going for maximum gains but not getting them so you say to yourself "whats the point ?" i may as well do what i always did if i have to wait for the long term for the volatility to smooth out anyway . . .
these risk paired portfolio's seem to be more a fair weather friend that stays a friend as long as the expectations are not for continuing of rising rates going back towards the historical norm . otherwise they can't do some of their job's properly like mitigating that volatility in the short term . .