All Seasons Portfolio - Risk Parity Investing for everyone

Read more about the article eToro Post – Different Types of Inflation and Assets That Hedge Against Each

eToro Post – Different Types of Inflation and Assets That Hedge Against Each

  • Post author:
  • Post category:eToro
  • Post comments:2 Comments
  • Reading time:15 mins read

Surely you have not missed the talks about inflation the past year. Even from the Fed and Yellen, the sentiment about inflation has changed from “not a problem” to “transitory” to “longer than first expected” and now to “good for the economy”.

While the price of risk assets, such as stocks, may also inflate due to the rise in inflation, they are not rising as much in real terms.

Rising inflation, and especially inflation that is higher than expected, is harmful to most common portfolios that comprise of stocks, or a combination of the two like the 60/40 Portfolio. Both stock and bonds are assets that perform well in times of low or decreasing inflation, and will lag in times when inflation rises.

It is thus vital to have a portfolio which also includes inflation hedges to mitigate the risk of unexpected inflation prints.

In this post, we will be looking at different types of inflation - as inflation can manifest in different ways - and how you can protect your wealth against each of them with different assets.

Continue ReadingeToro Post – Different Types of Inflation and Assets That Hedge Against Each
Read more about the article Portfolio Update – February 2022

Portfolio Update – February 2022

This month, I will be trying a slightly changed format for this monthly update post.

Previously, I have combined a deep dive/insights text with an update of my portfolio performance, but I have been considering changing things up a bit.

Instead, I will today be first focusing only on a market update for the past month, together with looking a trends in economic growth and inflation (remember, the four regimes that the All Seasons Portfolio strategy is designed to fend off), before presenting my portfolio update on the back of it.

In February 2022, as well see from the indicators, we remain in an inflationary boom - for now - but it seems like stagflation could be on the horizon as the growth rate is falling.

Continue ReadingPortfolio Update – February 2022
Read more about the article eToro Post – Systematic Trading and Strategic Rebalancing of Commodities

eToro Post – Systematic Trading and Strategic Rebalancing of Commodities

  • Post author:
  • Post category:eToro
  • Post comments:2 Comments
  • Reading time:14 mins read

This pot was originally shared on my eToro feed on 13 March 2022. Make sure to follow me there as well, and did you know that you can copy my trading there for free? Create an account today, copy my portfolio by searching for user "Allseasonsport" to automatically duplicate my All Seasons Portfolio strategy effortlessly.

The benefit of a systematic strategy - like the one I run here on eToro - rather than a discretionary strategy is that you don't get in your own way when following rules that are proven to work.

Hence, by taking a trader/person with cognitive biases out of the equation, you increase the probability of success by avoiding mistakes caused by limits of the human brain.

It is intuitively hard to buy assets that are trending, as it feels more expensive by the day when the price goes up, and you tell yourself you will "buy the dip".

The problem is that when that dip occurs, the trend may be broken and the asset is no longer an attractive buy. That is when our cognitive biases hinder us from success.

When we go against rules, we tend to make mistakes, as the rules were set in place for a reason.

Due to these rules, I will be strategically rebalancing Commodities and Long-Term Treasury Bonds in my eToro portfolio as they have exceeded their rebalancing spans. Read more about my reasoning here.

Continue ReadingeToro Post – Systematic Trading and Strategic Rebalancing of Commodities
Read more about the article Portfolio Update – January 2022 – Interest Rate Risk

Portfolio Update – January 2022 – Interest Rate Risk

January 2022 was a shaky month for capital markets, and this turmoil has continued into February as well.

Russia’s invasion of Ukraine’s and a severe violation of a free nation’s sovereignty has certainly caused much volatility on the markets. But the fact is that while conflict is leading to a changed world with a new world order, it is actually not the sole culprit for the turbulence we have seen at late.

Sure, the was has a great impact on commodity prices (more on that later), as, firstly, the sanctions limiting trading with Russian oil, takes a vast amount of barrels of oil off the market on a daily basis, which certainly will drive up prices.

But the fact is that the main driver of asset prices is not the war in Ukraine, but still the same story as has been told since December 2021, namely inflation and expected interest rate hikes.

Interest rate risk is an important type of risk to be aware of as an investor, as it affects stocks and bonds indiscriminately. That is especially harmful for investors only investing in stocks or using a "balanced" stock-bond portfolio.

We will therefore be taking a closer look at what it is and whether there is anything we can do as investors to protect our wealth and portfolios against it.

Continue ReadingPortfolio Update – January 2022 – Interest Rate Risk
Read more about the article eToro Post – Prediction vs. Preparation

eToro Post – Prediction vs. Preparation

  • Post author:
  • Post category:eToro
  • Post comments:4 Comments
  • Reading time:23 mins read

Is a good investment outcome always a sign of a great investment decision?

Intuitively, one could believe so, but more often than you might believe, that is actually not the case.

The past decade has favored stocks massively, meaning that investors who ignored diversified investment strategies and who applied poor risk management, have actually benefitted, while prudent investors have seen their neighbors get richer on meme stocks, cryptos and ARKK ETFs.

But are all these stock investors geniuses for achieving such a great outcome? Hardly. Such a belief among these investors – that they are superior investors – is just a form of outcome bias or “resulting” as described by Annie Dike in her book “Thinking In Bets”.

In short, this means that not all decisions with good results are necessarily good decisions.

Continue ReadingeToro Post – Prediction vs. Preparation
Read more about the article Portfolio Update – December 2021 – How Roll Yield Influences Bond ETF Performance In Rising Yield Environments

Portfolio Update – December 2021 – How Roll Yield Influences Bond ETF Performance In Rising Yield Environments

Recently, a lot of discussions have been revolving around government bonds and whether they are still a sensible investment even in a balanced portfolio such as the All Seasons Portfolio, now that yields are rising and the West could be facing geopolitical uncertainty.

When attempting to find answers on what to do with treasury bond investments, I began thinking about how roll yield could potentially be an important factor to consider when assessing bond returns. I will be explaining more in detail what that is further below, but I think you might find it interesting too how roll yield is likely to impact Long-Term Treasury ETFs like IS04/TLT (iShares $ 20+yr treasury Bond ETF) in a scenario when rates rise.

As I searched for more certainty what will happen with these investments, I sought to quantify the impact of roll yield. To achieve this, I modelled the returns by simulating 100 bond portfolios similar to IS04 in the event that rates would rise, and compare that return with a portfolio that does not benefit from roll yield to see the difference. The results were quite clear actually.

With this post, I am not attempting to convince you that investing in government bond is a good idea - I give no judgement in that. Rather, I share my observations and findings from my research about roll yield as a phenomenon, and you can use that information as you wish in your analysis. I hope it adds to your process.

Continue ReadingPortfolio Update – December 2021 – How Roll Yield Influences Bond ETF Performance In Rising Yield Environments