Today, I'm kicking off a new risk management series here at Barchart called "Look Both Ways Before You Cross Wall Street."
Instead of hitting you with my topical trade ideas, I'll get a little more nitty-gritty and into the weeds – explaining the what, why, how, and the real risk/reward math you need to know as a DIY manager of your own wealth.
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Think of it as the best of my fund manager "Rob-servations" from decades in the industry… distilled for a retail audience trying to navigate the nuttiest market any of us has ever seen.
Let's get started this week with a major soft spot in most investors' education.
What Would You Do for 5% Yields?
Here's the question I've been asking anyone who will listen – a group that includes my subscribers, family and friends.
If you knew you could make a 5% average annual return for the next 10 years with no risk of dollar loss, what percent of your portfolio would you invest in it?
How would you answer? My personal percentage is actually something more like "a majority of my liquid assets." For others, it could be anywhere from zero to 100%.
Note that I did not say anything about what you'd be investing in. Only that:
You make a 5% annual return.
For 10 to 20 years.
You will not lose dollars (inflation is not part of this exercise, and it IS just an exercise).
In fact, I'll add another detail: during those years, you can take money out of the investment at any time you like, as often as you like. It might be worth more or less than you put in, but the closer you get to the end of the term, the higher the value is likely to be.
The 10-year U.S. Treasury yield was rightfully ignored for years. But a move from 0.5% during the pandemic of 2020 to 5% recently has forced many investors to sit up and take notice. I know I have.
Who Is This For?
Before we go any further, let's establish who needs to pay attention to this:
The AI & High-Beta Equity Investor: You've had a massive run in mega-cap tech and stocks, but deep down you know you're playing with fire. And I don't mean the "Financially Independent Retire Early" kind of FIRE, either. Just the opposite is more likely if you plan on the past being a prologue.
The TLT Bagholder: You took a beating holding long-duration bond funds during the 2022 rate hikes, and learned that owning any one ETF is not "bond investing." Yes, $50 billion worth of TLT chaser capital can be wrong. You now realize you need a smarter, hedged, or ultra-short yield strategy. Or maybe all three.
The Bond Novice: You spent the last 15 years ignoring fixed income because 0% yields made bonds completely irrelevant to your wealth building.
The Stock-Heavy Boomer: You are approaching or in retirement, sitting on a portfolio overwhelmingly weighted in equities, and facing historic market valuation shifts.