Total return strategies liquidate
portfolios during market declines.
On Thursday, Cabot Market Letter and Cabot Top Ten Trader Editor Mike Cintolo wrote about the Conservative Aggressive style of investor, and also discussed the two ways to go about managing
your portfolio during a market decline.
Not exact matches
Comprehensive loss to shareholders and book value per share were impacted by
declines in both our fixed income and equity
portfolios, driven by an increase in interest rates and unfavorable movements in the equity
markets during the period.
Putting aside the performance of bonds
during the bear
market beginning in 1980 (both because the starting yields on Treasuries were so high but also because the bear
market was relatively mild as the
decline began from relatively low levels of valuation), what's interesting about the above chart is how dependably bonds protected a
portfolio during equity bear
markets.
The best framework for bonds protecting
portfolio capital
during equity bear
markets is: average to above - average starting bond yields, with an average to above - average rate of inflation — which is set to
decline in a recession - induced bear
market.
Notice that
during the last three bear
markets, and especially
during the last two major stock -
market declines beginning in 2000 and 2007, bonds ramped up their defensive characteristics, helping a standard policy
portfolio avoid between roughly 55 and 70 percent of the drawdown.
So of course even with a balanced or conservative
portfolio they will
decline during bear
markets, but as you can see the
declines are far less severe than an all equity investor.
For the 50/50 and 40/60
portfolios they were back at even quicker at 9 and 6 months, respectively, since they
declined far less
during the bear
market.
Portfolio returns will be lower
during market declines and higher in years when
markets rise, but how do you know if you've done well or poorly?
These other assets usually (but not always)
decline less
during stock
market routs, which cushions the impact to your overall
portfolio.
This
portfolio allows the investor to be aggressive, but improve the odds of reducing their risk to permanent loss by better shielding the
portfolio from stock
market declines during periods when the equity
markets are riskier than normal.
Such a
portfolio declines less
during bear
markets as these are «defensive» sectors that hold up well even in recessions.
This is a key principle that guides our
portfolio management decisions, and it is never more important than
during market declines.
The Aggressive
Portfolio should provide some strong upside growth potential in rising stock markets but the portfolio value will most likely fall during declining stock
Portfolio should provide some strong upside growth potential in rising stock
markets but the
portfolio value will most likely fall during declining stock
portfolio value will most likely fall
during declining stock
markets.
You can bail out of your stock -
market investments, as many investors do
during steep
market declines, or use these
declines as an opportunity to purchase more shares at lower prices, through monthly
portfolio contributions or timely rebalancing from bonds to stocks.
Notice that
during the last three bear
markets, and especially
during the last two major stock -
market declines beginning in 2000 and 2007, bonds ramped up their defensive characteristics, helping a standard policy
portfolio avoid between roughly 55 and 70 percent of the drawdown.
Putting aside the performance of bonds
during the bear
market beginning in 1980 (both because the starting yields on Treasuries were so high but also because the bear
market was relatively mild as the
decline began from relatively low levels of valuation), what's interesting about the above chart is how dependably bonds protected a
portfolio during equity bear
markets.
The best framework for bonds protecting
portfolio capital
during equity bear
markets is: average to above - average starting bond yields, with an average to above - average rate of inflation — which is set to
decline in a recession - induced bear
market.
To avoid a loss greater than $ 100,000
during a 35 % stock
market decline, you would want to limit your stock holdings to $ 286,000, or 48 % of your $ 600,000
portfolio.
It should be noted that diversification, while it may reduce risk, doesn't eliminate it entirely; if
markets as a whole fall, as occurred
during the financial crisis of 2007 - 2009, even the most diversified
portfolio is likely to
decline along with them.
Despite the recent volatility and overall stock
market decline in March, the Dividend Meter
portfolio checks in with a gain of $ 115.60 in annual dividend income, produced by only two transactions and a dividend raise
during the past month.