OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I have been thinking a little more about the fixed income side of portfolios lately because I've been helping a nonprofit select a manager and invest about $4M. One question I've been turning over in my mind is this:
Pretty much all of us start with some kind of asset allocation. 50/50, 60/40, or whatever and put a bunch of money into the "safe" side: Fixed income. Then I think almost all of us start looking for ways to increase yield over the really safe options like high-grade corporates, govvies, and agencies. Inevitably these higher-yielding choices involve increased risk and increased volatility. TANSTAAFL, after all.
Why do we do this? Why don't we just allocate a small additional amount to equities, adding roughly the same amount risk and volatility to the portfolio, then relax and just buy nice safe govvies and agencies for the "safe side?" Risk correlation might be the reason, but I don't think the equity risk and the risk of, say, junk bonds is uncorrelated. If things get exciting, both are going to move southward.
What say you?
Pretty much all of us start with some kind of asset allocation. 50/50, 60/40, or whatever and put a bunch of money into the "safe" side: Fixed income. Then I think almost all of us start looking for ways to increase yield over the really safe options like high-grade corporates, govvies, and agencies. Inevitably these higher-yielding choices involve increased risk and increased volatility. TANSTAAFL, after all.
Why do we do this? Why don't we just allocate a small additional amount to equities, adding roughly the same amount risk and volatility to the portfolio, then relax and just buy nice safe govvies and agencies for the "safe side?" Risk correlation might be the reason, but I don't think the equity risk and the risk of, say, junk bonds is uncorrelated. If things get exciting, both are going to move southward.
What say you?