As you know there have been all sorts assets exhibiting heightened volatility of late. While that has been going on there have been a few things doing close to nothing which in a down 10% in five weeks world is not a bad thing.I think owning things that don't do much makes sense in the context of a diversified portfolio but it is important to have the correct expectations for this sort of hold.
One example of this might be in the currency ETFs. I have personally owned the British Pound (FXB) for a while. I bought it with a $195 handle and most of the time since I bought it has traded in the $196s or 197s--spending just a little time at $194 and all of a sudden it is at $200 now.
A $5 range for a $195 product over several months is not a big range obviously. A hold like this is a cash proxy and so most of the time the recent action is what should be expected.
Every so often they will have a big move. FXB was at $211 once and I expect it will move $10-$12 again at some point but those are far and few between.
If you hold anything with these characteristics you are probably glad you have it now. However the next time we have a huge bull run you may become impatient which would be a mistake. A diversified portfolio should maintain some exposure to both steady eddies and hot potatoes, the balance probably needs to change over market cycles, but still some exposure to both is what makes the portfolio diversified (among many other characteristics).
3 comments:
Roger, I'd like to allocate a portion of my portfolio to some kind of inflation-protected vehicles, like TIPS. But I don't trust the government to measure inflation accurately. Can you recommend a way to synthesize something like TIPS using other readily-available products? Or is my skepticism misplaced, can I "trust" TIPS to do a decent job of what they're advertised to do? Thanks -- Rick in WA
Rick B. You have the same reservation about TIPS that I have. You may wish to take a look at WIP; this is an international government inflation protected bond ETF.
i think tips can be trusted but that isn't really your issue you wonder whether they make sense to own as I am guessing you are worried enough about the G fiddling with the numbers to have doubts about the exposure.
the question really is should tips still be bought even though they only capture part of the true inflation pciture (the spread between what is reported and and your perception of reality).
I can't answer that for you. I use tips because some of that effect is better than not having exposure in my opinion. Nothing wrong with viewing it differently.
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