Our weekly newsletter is out, and this time weâ€™re taking a look at the long-term risks and benefits of diversification. Unfortunately, itâ€™s not always fun to do the responsible thing. People who pay their insurance premiums year after year may get a little envious when their neighbors spend that money on a new boat. Students who diligently crack open their textbooks on the weekends may pine for the kind of adventures that their less studious classmates are enjoying. And investors who have done the responsible thing and diversified may find themselves gazing longingly at the returns they could be getting if they had only stayed in stocks.
In the long run, the responsible choice is most likely to provide the best outcome and protect you from potentially catastrophic losses â€“ a storm that sweeps away your home, failing your classes and being expelled, or watching a market collapse wipe away your nest egg. But that expectation of future benefits doesnâ€™t make it any easier to ignore the feeling that youâ€™re missing out. And unfortunately for those who have diversified their investments away from a traditional portfolio, the last few years have been tough to watch.
60/40 Portfolio = 60% Stocks (S&P 500) + 40% Bonds (Barclays Capital Long-Term Treasury Index). 42/28/30 Portfolio = 42% Stocks (S&P 500) + 28% Bonds (Barclays Capital Long-Term Treasury Index + 30% Managed Futures (Dow Jones Credit Suisse Managed Futures Index). Disclaimer: past performance is not necessarily indicative of future results. The above index results are for illustrative purposes only and do not reflect actual investment gains or losses.
Naturally, this got us to thinking â€“ how long would the current rally need to last before the investor without any managed futures exposure would make enough money to overcome the additional losses he/she would incur in the next selloff by not being diversified?Â Click through to see what we found.
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Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The entries on this blog are intended to further subscribers understanding, education, and â€“ at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.
The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the clientâ€™s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.