So full disclosure, this is NOT a discussion on timing the market, or predicting when a crash might occur. Nobody is good at predicting a crash, and time in the market generally beats out time out of the market waiting for a correction.
However, from the perspective of portfolio allocation, this is a worthwhile discussion. Traditionally, being 30-50% in bonds in a bull market can save you a lot of headaches when a major recession occurs, and will provide you the ability to sell off your bonds as they reach high prices during the height of a recession to purchase equities for very cheap. This of course is if you time the bottom well, but that's a separate discusssion.
Bond Rates Causing Issues?
I'm not an expert, but I've seen a decent amount of writing that the bond market is somewhat over-valued. I currently own a portion of long-term bonds, but I'm not entirely sure how useful these would be in the current environment if a correction would occur. Given the low central bank interest rates we currently see, the traditional policy of lowering interest rates to stimulate economic growth during a recession probably will not be quite as strong as it has in the past. So with that in mind, are government bonds still a strong hedge in your portfolio if a recession were to occur?
Would gold be a better commodity to place into your portfolio right now? Are there any other safe haven assets that are not liabilities to own in the current environment (such as a short position) that would likely perform well during a recession?
Submitted August 14, 2017 at 12:21PM by cbus20122 http://ift.tt/2uHor9C
