Tuesday, August 4, 2015

How to get higher profits for the same risk

Stock portfolio yields you profit just for holding it. You have dividend payments and when it’s a bull market — which is historically most of the time — your stocks rise in price. If we’re talking about US stocks measured by a broad market index, that all gives you long-term around 6% real (inflation-adjusted) returns.

But what If you want more? You will probably end up chasing for market timing opportunities or growth stocks.

Don’t miss another option! Make a stable, low-volatility portfolio with old and resilient low-beta stocks. Then add a little of a long-term treasury to smooth the ride through bear markets. Then take a reasonable leverage, like 50%-75% of the portfolio. You’re ready to go!

Surprisingly, low-beta stocks don’t get punished in returns for being low-beta, even the opposite. They have an exposure to the value factor, which gives them a boost in long-term returns. Their resilience to recessions and stabilizing treasuries in your portfolio make portfolio drawdowns much more controllable, so you can afford some leverage without taking a bigger risk than just holding a broad market index. Just don’t forget to re-balance.

Have your increased returns for the same risk.

And remember that an average market timer lags the index.

No comments:

Post a Comment