Portfolio diversification is for safe investments. For example you should not ever use for a trading website like ET.
The point of it is really to prevent you from losing all of your money in a long bear market. So for example, lets say stocks will go down for the next couple of years, but once the Fed stops raising interest rates, bonds will be a good investment until they lower rates again.
So this is your free financial advice.
However, the point of actual trading is to have an edge that makes you money all the time no matter if stocks go up or down.
Peter Sullivan:
Will? Did you really make two and a half million last year?
Will Emerson:
Yeah, sure.
Peter Sullivan:
How did you spend it all?
Will Emerson:
It goes quite quickly. You know, you learn to spend what's in your pocket.
Seth Bregman:
Two and a half million goes quickly?
Will Emerson:
All right, let's see. So the taxman takes half up front, so you're left with one and a quarter. My mortgage takes another 300 grand. I send 150 home for my parents, you know, keep them going. So what's that?
Peter Sullivan:
800.
Will Emerson:
All right, 800. Spent 150 on a car. About 75 on restaurants. Probably 50 on clothes. I put 400 away for a rainy day.
Seth Bregman:
That's smart.
Will Emerson:
Yeah, as it turns out, 'cause it looks like the storm's coming.
Peter Sullivan:
You still got 125.
Will Emerson:
Yeah, well, I did spend $76,520 on hookers, booze, and dancers. But mainly hookers.
Peter Sullivan:
76.5?
Will Emerson:
I was a little shocked initially, but then I realized that I could claim most of it back as entertainment. it's true.
As we know 2022 have not really been a good year for the stock market. It got me thinking and I have a lot of questions. Bonds which are supposed to be inversely correlated in times of market crash or recession are not that useful in high interest rate periods because bond prices falls. Not sure what is the point of the traditional 60/40 portfolio split in that case. For the case of market crash like early 2020 covid crash, even zero and inverse correlated stocks decided to go same direction.
Now from the perspective of a novice trader and not an investor, I have a few questions to ask.
1. How does the crash in the US stock market affect the currency market? For example: would crash in the US market affect a non related currency pair like the CHF/JPY? Can forex market be used for portfolio diversification instead of bonds?
2. What about the commodity markets? Specifically things agro(like cocoa, cotton, rice)? I know things like gold are supposed to serve like an hedge but sometimes they may be indifferent or even fall during times of crash or recession? Can commodities be used for portfolio diversification instead of bonds?
3. Finally, are there other other trade-able asset classes that are indifferent(not necessarily inversely correlated) to the stock market in time of recession or crash?
