The odds of at least one large bad streak of returns on
risky assets during retirement is high, and few retirees will build up a buffer of slack assets to prepare for that.
Also, financial insiders are still reporting there is a lot of cash on the sidelines after people stopped investing in equities and other
risky assets during the bear market.
As zerohedge.com points out, «geopolitical risk is causing a pause... Investors tend to flee
riskier assets during times of turmoil.»
Not exact matches
The weakness of this approach was revealed in 2008 and
during the European debt crisis when supposedly safe
assets turned out to be dangerously
risky.
Since the 2008 - 09 global financial crisis, a broad array of
risky assets, including commodities, have tended to move in lockstep
during times of panic and heightened uncertainty.
However, the high correlation between
risky assets experienced recently like
during the recession of 2001 - 2003 and the global financial crisis in 2007 - 2009 has caused many investors to reconsider allocating by traditional
asset classes defined by security type like stocks, bonds and real estate or commodities.
To keep performance high, credit - focused managers are moving back into some of the
risky assets that got tarnished
during the financial crisis like collateralized loan obligations, or CLOs, securities cobbled together from pools of corporate loans.
In doing so we are reducing the portfolio's exposure to downside when high risk
assets become
riskier late in the cycle and adding to high risk
assets during downturns when they become less
risky.
That is liquidity, and as such most
risky assets do not have significant liquidity, though many trade every day
during bull markets.
Like stocks and commodities, cryptocurrencies are highly speculative and
risky assets, while investors always rush towards safe - haven
assets such as gold and bonds
during the period of high volatility.