Diversification works within the fixed income category as well as the overall marketplace.
Andy Martin, a fund manager, writer, researcher, and “Dollarlogic” author noticed one of my tweets last week and has been kind enough to send me interesting material to read. You can find it here. I noticed some things I did not know. Mortgages plus corporate bonds are 50% more than government bonds. The bond market is more than $100 trillion. Twice or more than the stock markets of the world. A bond fund could be as dynamic as a stock fund.
Some time ago I wrote about the asset class quilt and how it can help people to understand the idea of diversifying their investments. The point being that not all classes pay the same return all the time and that most people could not tell you the order of return by class two years ago. If you cannot understand the past, predicting the future will be challenging.
For people with patience you could likely make a quilt of every asset class as well as the overall market.
Here is one from Andy on bonds
Apparently “Fixed Income” is not a very useful description of an asset class.
Andy has written a book that will appear in November 2015, “Dollarlogic”, that sums up his view of investing. It is a view that has considerable merit for those willing and able to do their homework. The table of contents promises a great deal; most of which we know but are unable to execute because the world is playing by different rules.
Dollarlogic Table of Contents:
Day 1) Risk does not equal reward
Day 2) Stocks are less risky than bonds
Day 3) Seek lower returns
Day 4) Predict yourself, not the stock market
Day 5) Investments don’t make money, people do
Day 6) Don’t chase returns, chase odds
Investing success is closely tied to people and how they behave. Knowing yourself is crucial. Risk avoiding or risk seeking. Patient or impatient. Technically skilled or not. Experienced or novice. It is easy to see that a six day journey through the book is likely to prove financially rewarding.
Until the book appears you can find him on Twitter here. He tweets regularly and much of it is insightful.
Most investors follow a balanced approach, but seem to have little interest in the fixed income part. Given the size of the marketplace and the diversity of returns, that seems to be an oversight. Maybe fixed income seems boring.
Boring is actually an investment advantage. The goal of investing for most of us should be to live well in retirement and sleep well in the meantime. Inestigate the fixed income part of your portfolio.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.