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It pays to be different

From an evolutionary perspective, we are conditioned to never buck the trend and ‘fit in’ in order to survive. While this may be somewhat true for life in general, it’s not always the case when vying for investment survival. In fact, for investing it can pay to be contrarian and buy what everyone else is selling (of course in a well-diversified manner).

Staring into the face of increased market volatility, a considerable number of investors en masse have sought out the safety of fixed income investments (blue Line) this year.

Bond Mutual Funds (cumulative flows since 1990, $billion

While in aggregate, many investors have left equities for dead (blue line):

Equity Mutual Funds (cumulative flows since 1990, $billion

As you can see from this Wall Street Journal Info graphic, investors tend to shed equities after they are already fallen:

Taking Stock: Wary investors limit their holdings despite market gains

Forecasting returns is extremely hard – if not impossible – to do over any length of time. Unknowing of the future, it is imperative to hold a balanced portfolio that is designed to withstand volatile market movements that are bound to happen from time to time. By doing this, the investor is able to prudently rebalance the portfolio and enjoy any eventual rise in risk assets. By not holding a balanced portfolio, the investor runs the risk of permanently impairing capital by trying to time the market and selling completely out of risk assets at the bottom of a market cycle. While some market pundits believe equities are dead, with equity ownership currently failing to reach its previous highs and sentiment so negative towards risk assets, we believe the future for equities could be quite bright.

If you enjoyed these charts or would like a bit more in-depth explanation of them, please visit Dr.Ed’s Blog. Additionally, you can find more information on the info graphic from Barry Ritzhold’s The Big Picture Blog. Please note that MASECO Private Wealth does not endorse these articles.


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