Hi Do, Here are Todd’s latest fun picks to take your financial skills to the next level... I have two valuable resources for you today...
The first is an investment research report (see below) that made it's way through my private Advanced Wealth Planning community, and the comments motivated me to share it with you today.
The report shows conclusively how the inverse correlation between stocks and bonds is an aberration of the recent past, driven by deflationary declines that were reliably modulated by an activist Fed.
But, as it turns out, that's an aberration of recent economic history. A much longer and broader historical perspective shows positive correlation between stocks and bonds. Yikes!
This is critically important to understand because there are only three risk management tools available to conventional passive, buy and hold, investment strategy - diversification, dilution, and rebalancing.
The most useful of those three risk management tools is diversification, but it only adds value when you have negative correlation between the diversified asset classes. When they positively correlate to the downside, as the research report below demonstrates, then conventional investment strategy has a serious risk management problem.
I teach a much more advanced risk management discipline in my Expectancy Wealth Planning course that isn't dependent on conventional asset non-correlation. This includes "deep diversification" by source of returns, time tranching, market sell disciplines, and valuation. When asset diversification fails due to positive correlation, these advanced risk management disciplines are required; otherwise, your portfolio growth will violate the asymmetric math of compound growth. That's not good.
This week's research report (see below) explains which conditions deliver positive correlation between stocks and bonds, and which economic regimes deliver negative correlation.
Of course, the positive correlation, as driven by the inflationary economic backdrop, is one of the central tenets of my recent epochal change call, which is why you need my recommended investment risk management solution here.
But it was interesting to hear people in the community were "surprised" by the expected positive correlation. They just assumed negative correlation between stocks and bonds was normal when the data proves otherwise. If you think similarly then this report is a must-read.
The truth is stock/bond correlation is conditional on the economic regime you're investing in.
As stated and proven, both by research and actual experience over the past two years, the economic regime of the past 40 years changed. A new investment epoch began in the final quarter of 2021 that is expected to continue for 10-15 years and requires a fundamentally different investment strategy to prosper.
Okay... enough on correlations...
Another subject we work with in my Advanced Wealth Planning community is time.
Time is your ultimate scarce resource. You trade time for everything you have in your life, including money. All other resources are abundant, but your personal time is finite.
We all live with this deadline... literally. It defines the game of life.
Most people attempt to evade the anguish of this inescapable reality through mental diversions - endless time management, busyness, obliviousness, and more - until it's too late.
I've found huge personal value in coming to terms with my personal finitude. It has shaped my daily life in a positive way.
I think Oliver Burkeman's recent book, Four Thousand Weeks, makes this discussion actionable.
I've listened to many interviews with Oliver as he promoted his book to bestseller status, but I think Peter Attia's interview (linked below in the resources section) does the best job of skipping the fluffy part and diving deep into the most important, life-changing issues.
The ideas in this book impacted me greatly. So much so, that eventually we'll fully dissect it in detail as a value-added community resource in my Expectancy Wealth Planning office hours sessions.
Until then, I hope you find useful insights in the interview linked below... The correlation between stock and bond returns is a cornerstone of asset allocation decisions. The correlation can move considerably over time, which can have a large impact on portfolio construction. Our empirical evidence points to inflation and real returns on short-term bonds, and the uncertainty surrounding inflation as important factors for understanding the sign and magnitude of the stock-bond correlation. My recommended solution to implement improved risk management during this new investment epoch when stocks and bonds correlate is here... Oliver delves into the pervasive idea that time can be mastered, exploring whether maximizing productivity is an attainable goal or a perpetual trap. He discusses the allure of attempting to control time—and, therefore, the future—and shares his personal journey of experimenting with diverse time management techniques that failed to deliver the emotional satisfaction he sought. Ultimately, there's a mismatch between being a finite human and existing in a world of infinite possibilities, and these concepts intertwine with finding a sense of purpose and meaning. I hope you get great value from this interview.
Onward and upward!
Todd Tresidder
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