RiskReturnOptimizer

Stress Testing Your Portfolio

"Running out of money" is a relative measure ... for US investors, they could have enough money to cover for inflation in US, but a weaked dollar means erosed purchasing power if they ever want to retire in Europe, China, or somewhere else.

Somehow, purchasing power normalization or currency normalization needs to be modeled; otherwise, you risk losing your "relative wealth" to immigrants from China and India if their portfolios are US $ neutral.

In parts of California (many of the weathier cities like Cupertino, Fremont, etc), you are already seeing "non White populations" becoming majorities, as they have grown their wealth measured in US$.

'Too Far, Too Fast': A Look at Asset Classes

Squeezing the last 3% out of LQD looks tempting; only concern is that while credit spread could narrow, treasury yield could move up above 3.3% resistance, "canceling" out any gains.

My followers are up 10-12% for past few weeks with long LQD, long TBT trade. This is still the best risk-return optimized way of playing investment grade corporate bonds. Best timing of this trade is wait for 10 yield treasuries to approach 3.0% support, but TBT and LQD as a pair, and participate in the spread compression without worrying about inflation expectations or failed treasury auctions.

Comparing Nine Asset Categories

I think you may get the same results by dividing AGG by duration. Long term bonds (corporates or munis) offer great excess returns vs. comparable treasuries, but if treasury yields keep going up, then actual returns may be negative. The only way to try to make money on longer duration corporates (or munis) is somehow hedgeing for increasing treasury yield, and profiting from spread compression. Not easy for individual (ETF) investors to do.

Tough Times for Dividend Investors

In the current market environment where uncertainty is still high, I have been using a dividend harvest strategy (through SDY) with an extra boast from selling covered call on SDY. When the market gets overbought (as measured by various OB/OS, Oscillators, etc), I buy some protection through ultra-short ETF (SDS).

Year to date, I'm up around 5% while S&P is down about 10%. Currently, I'm long SDY, sold May $36 Calls on the SDY, and covered by SDS position today (will re-enter when market gets overbought again). My only complaint is the wide bid-ask spread on the SDY options, but otherwise, happy to keep earning dividend & getting paid option premium while waiting for market to stabilize (VIX down and stay down).