Tags: Balanced | portfolio | beat | inflation

With Stocks, Bonds at Lofty Levels, Future Returns May Lag

By    |   Sunday, 19 October 2014 09:55 PM

While many investors are caught up with the recent volatility in financial markets and the 10 percent correction of the S&P 500 index this month, they may be missing the long view, says Wall Street Journal columnist Brett Arends

"An enormous body of academic research has proved time and again that your long-term investment returns will overwhelmingly depend upon just two things: asset allocation—how you spread your money between investments like stocks and bonds—and the value of those investments when you buy them," he writes.

"Alas, right now these two things may offer investors cold comfort. By almost any historical measure, most global stock and bond markets today are all either fully priced or overpriced, depending on the analysis."

As a result, money manager GMO says investors had better prepare themselves for sub-par returns in the next seven years. Indeed, a typical balanced portfolio of stocks and bonds may not even top inflation during that period, GMO analysts say.

Meanwhile, major money managers such as Pimco have built up massive positions of high-risk fixed-income securities, such as junk bonds, and experts say that puts the financial system at risk, The New York Times reports.

That's because these securities are largely concentrated at a few firms. And if some problem makes all these players try to exit the market simultaneously, credit markets could freeze.

"Credit-focused mutual funds have seen massive inflows and have become the largest holders of corporate and foreign bonds," José Viñals, head of the IMF’s financial-markets division, said at a news conference last week, according to The Times.

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While many investors are caught up with the recent volatility in financial markets and the 10 percent correction of the S&P 500 index this month, they may be missing the long view,says Wall Street Journal columnist Brett Arends.
Balanced, portfolio, beat, inflation
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2014-55-19
Sunday, 19 October 2014 09:55 PM
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