Investing advice, how to invest as all-weather portfolio falls: BofA – Business Insider
All-weather portfolios with equal 25% allocations to stocks, bonds, gold, and cash are having a historic run.
Over the last three months, these so-called permanent portfolios are up 18%, trouncing the 7% average, according to a July 23 note from Bank of America’s Chief Investment Strategist Michael Hartnett.
This is largely because of the Federal Reserve’s supportive policies in the wake of the coronavirus crisis, which have been beneficial across asset classes.
“Everyone’s a winner: [the] Fed has made bulls in every asset class a winner…gold, bonds, credit, stocks, real estate [are] all up big since March lows,” Hartnett said in the note.
More specifically, Hartnett said, the Fed’s stimulus has created two forces pushing markets higher: repression, with low interest rates and easy financial conditions, and debasement, or the lowering of the dollar’s value amid rising debt and government spending.
But, according to Hartnett, the party will soon be over.
Although repression has benefitted the market, Hartnett warns that debasement will lead to inflation. He also said that financial conditions are unlikely to get any better in July and August as policy stimulus peaks. Further, he warns of a “summer dip” of the S&P 500 to 3,050, which would amount to a decline of about 5%.
To prepare for this, he recommends a strategy of “global offence” and “American defence,” with US equity prices soaring relative to those in Europe by more than two standard deviations outside of the norm.