Global Macro Investing and the Benefits of Multiple Asset Classes
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.
The typical planner will have you put some of your money in domestic stocks, some in foreign stocks, and then place some money in bonds. If that is all you are doing you are not getting nearly the benefit you could be getting and in reality you are barely diversified at all.
When you are properly diversified you will be invested in all liquid asset classes and sometimes even a few that are relatively illiquid investments. In addition to being in several asset classes you will also be in several different types of strategies with multiple time horizons. Global macro traders have known for years that if you dont cast your net wide you will have a hard time performing in all market types. If you just have a bunch of global stocks then all your investments are extremely correlated which means when a few drop the rest drop. One of our goals as investors is to avoid that.
Global macro investors diversify into several different asset classes. Some of the more common ones are domestic stocks, foreign stocks, Treasury bonds, investment grade corporate bonds, junk bonds, foreign government bonds, foreign corporate bonds, commodities, real estate, and currencies. Some people will go as far as to trade in art and other collectibles as they are uncorrelated to regular investments and therefore add benefit if you have expertise in that area.
As traders and investors we should all be looking for the best risk to reward scenarios out there instead of just being involved. If you are doing that then it helps to look at multiple markets so that you can always be putting money at risk in an intelligent manner.
Of course as alluded to earlier we can diversify in more than one way. Cast your net wide and put money is several asset classes but you can also diversify by looking at different trading horizons. For instance if you can manage multiple strategies in the same asset class then do that, if you cant hire an outside manager that can. For instance you can put money with an uncorrelated commodity trading advisor and then put money with a long term trend following commodity trading advisor. By doing this you are catching short term and long term movements in commodities. You can do the same types of things with other asset classes.
If you diversify wide and deep your investment returns will be far more consistent and in most years will be better off then the standard stock and bond mix that so many so called professionals push you into. There is no guarantee that you will make money every day, month, or even year but by following these concepts you can really improve your risk adjusted returns.
If you are a relatively active investor you can achieve positive returns in multiple asset classes yourself by building market beating models in different markets. Yes, you can and indeed should use bottoms up research but in the spirit of being efficient with your time you should automate as much as possible so that you are able to be a more efficient global macro trader and miss fewer of the potential opportunities that occur in different markets. - 23210
The typical planner will have you put some of your money in domestic stocks, some in foreign stocks, and then place some money in bonds. If that is all you are doing you are not getting nearly the benefit you could be getting and in reality you are barely diversified at all.
When you are properly diversified you will be invested in all liquid asset classes and sometimes even a few that are relatively illiquid investments. In addition to being in several asset classes you will also be in several different types of strategies with multiple time horizons. Global macro traders have known for years that if you dont cast your net wide you will have a hard time performing in all market types. If you just have a bunch of global stocks then all your investments are extremely correlated which means when a few drop the rest drop. One of our goals as investors is to avoid that.
Global macro investors diversify into several different asset classes. Some of the more common ones are domestic stocks, foreign stocks, Treasury bonds, investment grade corporate bonds, junk bonds, foreign government bonds, foreign corporate bonds, commodities, real estate, and currencies. Some people will go as far as to trade in art and other collectibles as they are uncorrelated to regular investments and therefore add benefit if you have expertise in that area.
As traders and investors we should all be looking for the best risk to reward scenarios out there instead of just being involved. If you are doing that then it helps to look at multiple markets so that you can always be putting money at risk in an intelligent manner.
Of course as alluded to earlier we can diversify in more than one way. Cast your net wide and put money is several asset classes but you can also diversify by looking at different trading horizons. For instance if you can manage multiple strategies in the same asset class then do that, if you cant hire an outside manager that can. For instance you can put money with an uncorrelated commodity trading advisor and then put money with a long term trend following commodity trading advisor. By doing this you are catching short term and long term movements in commodities. You can do the same types of things with other asset classes.
If you diversify wide and deep your investment returns will be far more consistent and in most years will be better off then the standard stock and bond mix that so many so called professionals push you into. There is no guarantee that you will make money every day, month, or even year but by following these concepts you can really improve your risk adjusted returns.
If you are a relatively active investor you can achieve positive returns in multiple asset classes yourself by building market beating models in different markets. Yes, you can and indeed should use bottoms up research but in the spirit of being efficient with your time you should automate as much as possible so that you are able to be a more efficient global macro trader and miss fewer of the potential opportunities that occur in different markets. - 23210
About the Author:
The Macro Trader helps investors find great Global Macro Investing opportunities. Mean Reversion 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 @ 4:25 AM
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