A recent study by JP Morgan AM, published in the quarterly market guide, demonstrated, that the average U.S. financier has earned less than 2,9 % per annum. Let's figure it out, what was the prerequisite for such unimpressive results and is there a method to make them better, at the same time it is essential. Spoiler - yes. Simple and challenging at once, and sometimes overwhelming for the most part.
Slightly above the rise in the general price level
According to the opinions of professionals, the average financier in the United States has somehow managed to outshine the rate of increase in the general price level. With all this, there were plenty of opportunities on the market., to achieve the best result, even for beginners. Investments in REIT have become the most profitable over the past twenty years's, emerging markets and small cap stocks. The commodity markets proved to be the worst. (-half a percent).
Diagram, which was presented below, especially hot at the moment, when the market is experiencing a large influx of new financiers. Person, first time into the world of investments, often not prepared at all, what situations can happen.
Why?
The preconditions for this weak result have long been known., but, probably, nothing has changed over the past twenty years. Inflated expectations, reassessment of one's own strength, underestimation of risks, cupidity, lack of tactics and self-discipline - this is what leads to a sad result. Confirmation that, that the average financier mostly makes the wrong decisions in an attempt to speculate, is not only on the stock market and not only in the last twenty years.
For clarity, let's analyze that, How did the individual speculators behave? (Small Spec) in the markets of futures contracts - a graphical reflection of the effectiveness of their actions will be very demonstrative. For example, let's take the British pound futures and see, how the speculators acted. Having studied the period, up to 2003 G., Find, that then the state of affairs was the same. The market was unfolding at that time, when Small Spec persistently increased or reduced to a minimum their positions.
The current state of affairs in the economy and low deposit rates in the United States, and in the Russian Federation require learning to make reasonable investment decisions. In a different way clusters, purchased on a bank deposit, will not be enough, to get around the rapidly increasing in the near future "inflationary tax».
General rules have long been known: learn to set investment goals at first, plan their merit, implement it with tried and tested tools. And keep in mind, that markets are not constantly growing.
The most (not)usual method
For those, who took the 1st hard step and understood the need for reasonable investing, there is a common method of how to break out of the mass of the "unlucky". It is simple in form, but for the most part it is very difficult to implement. Virtually everyone knows about it., but stubbornly does not use it - otherwise the statistics would be different.
After analyzing, we can see, that a long portfolio of stocks and bonds, which was composed in any proportion, would be able to help the average financier at least two to three times bypass the performance indicators, which were calculated by JP Morgan AM.
Everyone can decide for themselves, what possible risk is ready to take and make a portfolio with a certain fraction of stocks and bonds. In the US market, based on the beliefs of risk / efficiency, the ratio of 30/70, with a preponderance of bonds.
Financiers, Formerly?? focused only on bonds, it is worth directing attention, that adding 10 to twenty percent of the shares to the portfolio did not only increase the efficiency, and reduced the highest drawdown. And financiers, who ignore bonds, need to understand, that the purchase of only shares leads to a disproportionate increase in risk in relation to the possible effectiveness.
Almost all financiers have made a mistake over the past twenty years that it is not enough to assess the benefits of owning bonds.. That, how fundamentally adding bonds to the portfolio, shows schedule ratios of different bond indices and changes in their yield during crisis periods.
A source: realinvestmentadvice
A source: realinvestmentadvice
so, what should investors do
If trading in the stock market is not your profession and you do not have the time and qualifications to pay full attention to research and analysis, then using the model 30/70 for basic strategy formation can be one of the best solutions.
Building a portfolio of stocks and bonds is just the beginning of building a robust portfolio. As we found out earlier, and buying "boring" stocks can bring the investor a good return with less risk.
Can't do without the inclusion of alternative asset classes: real estate, raw or gold. Adding assets to the portfolio, negatively correlated, with the same level of risk, you can get a higher return. Strategies are the most valuable, able to limit risks and preserve capital during a crisis. And in a growing market, many can earn.
Ray Dalio in his book Principles: Life and work "showed, how important is diversification, calling it the "Holy Grail of Investing". With a decrease in the percentage of asset correlation, the risk of loss of funds and the standard deviation of the portfolio value decrease, and the risk-reward ratio is growing.
A source: Ray Dalio's book "Principles: Life and work "
A source: Ray Dalio's book "Principles: Life and work "
You can create a portfolio yourself, or take the advice of legendary investors as a basis, but a more rational solution would be to turn to professionals.
About that, securities of which companies should be included in the share of shares when compiling a portfolio 30/70, based on the current state of the market, read the material, which will be released on the portal in the near future.
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