Global Macro Traders and Diversification
Most long time investors have heard that diversification is the only free lunch on Wall Street. If you have used a financial advisor to pick your investments for you, you may have been told you were diversified but the way it usually works out your diversification is weak at best and in some cases is almost non existent. Obviously you just need to learn the proper way to diversify.
Usually a financial planner will invest your money in a mix of stock and bonds. Yes, this is better then only being invested in one of the two asset classes but it is still not really diversified as there are several other asset classes with different economic drivers.
Proper diversification will invest your money in several different asset classes as well as diversify in different trading strategies. Global macro traders have known this for years and consequently as a group have had positive returns over the last ten years.
Global macro traders diversify into asset classes such as domestic stocks, foreign stocks, Treasury bonds, investment grade corporate bonds, junk bonds, foreign government bonds, foreign corporate bonds, commodities, real estate, and currencies. Some traders even trade in collectibles like art. Why do they cast their investment net so wide? For the simple reason that one asset class may be in or out of favor at any given time.
One of the best known although regularly ignored tenets of successful investing is to look for the best risk to reward situations. If you dont focus on risk then it will come back to haunt you and cause you to lose lots of money. By looking across multiple asset classes you will be better able to find great risk to reward scenarios as not every asset class is always in a good position to make you money.
Luckily we can diversify not only across asset classes but also across different strategies in each one. For instance if you could allocate some money to a long term value investing strategy that looks at three to five years out investing in stocks and then also invest in a good short term trading fund. By doing this you can capture slightly different types of alpha or excess return. If you build a portfolio this way you will become extremely diversified and uncorrelated to regular investments.
By diversifying both wide and deep you will be able to capture alpha or returns in a more consistent manner. Will you make money every day, week, month, or even year? There are no guarantees but properly diversified you will almost always outperform stock market indexes, especially on a risk adjusted basis.
If you prefer to do all of this on your own then you will be well served to learn how to build or just buy several good models so that you can more easily track several asset classes. For instance you will want a few models for the stock market, a few for commodities, etc. The more efficient you set up the process the better your returns will be as you will miss less great risk to reward opportunities. - 23218
Usually a financial planner will invest your money in a mix of stock and bonds. Yes, this is better then only being invested in one of the two asset classes but it is still not really diversified as there are several other asset classes with different economic drivers.
Proper diversification will invest your money in several different asset classes as well as diversify in different trading strategies. Global macro traders have known this for years and consequently as a group have had positive returns over the last ten years.
Global macro traders diversify into asset classes such as domestic stocks, foreign stocks, Treasury bonds, investment grade corporate bonds, junk bonds, foreign government bonds, foreign corporate bonds, commodities, real estate, and currencies. Some traders even trade in collectibles like art. Why do they cast their investment net so wide? For the simple reason that one asset class may be in or out of favor at any given time.
One of the best known although regularly ignored tenets of successful investing is to look for the best risk to reward situations. If you dont focus on risk then it will come back to haunt you and cause you to lose lots of money. By looking across multiple asset classes you will be better able to find great risk to reward scenarios as not every asset class is always in a good position to make you money.
Luckily we can diversify not only across asset classes but also across different strategies in each one. For instance if you could allocate some money to a long term value investing strategy that looks at three to five years out investing in stocks and then also invest in a good short term trading fund. By doing this you can capture slightly different types of alpha or excess return. If you build a portfolio this way you will become extremely diversified and uncorrelated to regular investments.
By diversifying both wide and deep you will be able to capture alpha or returns in a more consistent manner. Will you make money every day, week, month, or even year? There are no guarantees but properly diversified you will almost always outperform stock market indexes, especially on a risk adjusted basis.
If you prefer to do all of this on your own then you will be well served to learn how to build or just buy several good models so that you can more easily track several asset classes. For instance you will want a few models for the stock market, a few for commodities, etc. The more efficient you set up the process the better your returns will be as you will miss less great risk to reward opportunities. - 23218
About the Author:
The Macro Trader helps investors find great Global Macro Trader opportunities. Volatility Trading is but one of the many strategies that we use to help find the best risk to reward opportunities across the globe.
posted by X - Men @ 6:21 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home