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.
Most financial advisors will diversify your investments by splitting your money into a few buckets such as domestic stocks, foreign stocks, and then place some in domestic Treasury or investment grade corporate bonds. If all you have is a mix of stocks and bonds you are only diversified into two asset classes while you could be doing so much better.
Diversification done right will not only have you invested in several different asset classes but also in multiple strategies inside each asset class. Ask a global macro trader why they trade this way and they will tell you that being able to go into multiple asset classes is the only way to consistently generate positive returns regardless of what the stock market is doing.
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.
As previously mentioned we can diversify not only by investing in several asset classes but also by investing in strategies with different time horizons. There are successful long term and short term trading funds and if you invest in both you are even more diversified as their returns depend on different factors.
By diversifying both wide and deep you will be able to capture alpha or returns in a more consistent manner. Will you make money every day, week, month, or even year? There are no guarantees but properly diversified you will almost always outperform stock market indexes, especially on a risk adjusted basis.
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. - 23223
Most financial advisors will diversify your investments by splitting your money into a few buckets such as domestic stocks, foreign stocks, and then place some in domestic Treasury or investment grade corporate bonds. If all you have is a mix of stocks and bonds you are only diversified into two asset classes while you could be doing so much better.
Diversification done right will not only have you invested in several different asset classes but also in multiple strategies inside each asset class. Ask a global macro trader why they trade this way and they will tell you that being able to go into multiple asset classes is the only way to consistently generate positive returns regardless of what the stock market is doing.
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.
As previously mentioned we can diversify not only by investing in several asset classes but also by investing in strategies with different time horizons. There are successful long term and short term trading funds and if you invest in both you are even more diversified as their returns depend on different factors.
By diversifying both wide and deep you will be able to capture alpha or returns in a more consistent manner. Will you make money every day, week, month, or even year? There are no guarantees but properly diversified you will almost always outperform stock market indexes, especially on a risk adjusted basis.
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. - 23223
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 @ 4:24 AM
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