After a 30% move in US equities in 2013, and a powerful move off the March 2009 lows (Nasdaq +221%; S&P 500 +164%) investors are confused by today’s markets, the headlines, as they fear another major correction.
With commencement of the Fed taper the markets will need to stand on its own fundamentals. Even leading economists (Summers, Krugman) warn of being trapped by “secular stagnation”, which causes many professional and individual investors to question if the run on equities can continue…as a result many are under weight risk assets.
Emotional investing, and predictive investment models are prone to mistakes. Whether its behavioral finance or faulty forecasts the only way to capture market returns is a strategic asset allocation that exposes the investor to maximum drawdowns of the asset classes. The lesson learned from the last 13 years is that the benefits of diversification can disappear during fast markets as correlations rise and even quality assets fall.
“Smart diversification” recognizes that diversification is a good first line of defense to managing volatility, but also balances the need to be tactical as a second line of defense to a portfolio. Successfully executing a smart diversification strategy requires a reactive investment process, instead of a predictive process, as markets can remain irrational longer than investors can remain solvent.
To learn more visit, http://www.ManagedVolatility.com
US economy may be stuck in a slow lane for long run (CNBC.com)
Tim Boyle | Bloomberg | Getty Image Job seekers fill out applications at a job fair for concession employment opportunities in International terminal at O’Hare International Airport…
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