When Markets get frothy...

When markets get frothy, make sure you have a balanced portfolio!


By Lawrence A. Sautter, 31st January 2017


As the financial markets generally are unpredictable, it is crucial to have a well diversified portfolio with different assets. In an environment where you have increasing interest rates, high valuations and rising inflation expectations, you could suffer a big capital loss on long-duration bonds and overvalued stocks, but during a recession the fixed income part of an asset allocation could give you the cushion you need for lower volatility and stability within your portfolio.


However, you want to have some kind of an inflation-hedge over time, so you will need some balanced exposure to equities that can grow their earnings and dividends over time. You can stick with Dividend Aristocrats and Dividend Kings with above average Dividend yields and Dividend growth, low payout ratios and low beta as a core holding within your equity exposure.




The Dividend Aristocrats for example (stocks with 25+ years of rising dividends) have outperformed the S&P500 over the last 10 years by 2.88% per year.


Because we do not have a crystal ball, we need a long-term balanced portfolio-solution with bonds, equities and perhaps some alternative investments that do not correlate at all with classical assets. Diversification with some real assets like commodities (Gold and Silver) and real estate could be a further step towards an inflation-hedge. Treasury inflation-protected securities (TIPS) may be an attractive alternative to Treasuries and fixed-income assets tied to real assets such as commodities and/or real estate. Floating-rate loans would be a good alternative to cash.


Low volatility Dividend-stocks with low-payout ratios are especially interesting and contribute to a lower portfolio volatility and offer higher real income. They have produced excellent risk-adjusted returns and historically seen smaller drawdowns during recessions.

So for uncertain times, it is safer to have a balanced portfolio versus a bond portfolio, especially when central banks follow a Zero-Rate or Negative-Rate policy the downside risk for bonds is capital loss and inflation risk looming around the corner.



Just have a look at this portfolio example:



You would have lost more than 9% on 20+ year treasury bonds (TLT) over the last 3 months and -3% over the last 12 months, while the low beta Dividend Portfolio managed to gain 3.9% and 9% over the same period. That’s an awesome  outperformance of 13% and 12.2% respectively with a better Sharp Ratio. 


Write a comment

Comments: 11
  • #1

    Lawrence Sautter (Tuesday, 31 January 2017 14:14)

    Have a look....

  • #2

    custom essay (Thursday, 23 March 2017 08:38)

    This is precisely what I require. I have never thought the selection representatives give careful consideration in online networking like that. It's fortunate that I have gorgeous profile in informal community.

  • #3

    Write My Essay For Me (Wednesday, 07 June 2017 11:51)

    I've taken this as a dissimilar top since understanding the idea and comprehend what is measured in diverse diverse conditions are two all in all diverse expectations to absorb information, the last require years of experience and live out.

  • #4

    Warriors Brown Leather Vest (Friday, 09 June 2017 13:34)

    In a domain where you have expanding loan fees, high valuations and rising expansion desires, you could endure a major capital misfortune on long-span bonds and exaggerated stocks, however amid a subsidence the settled salary part of a benefit assignment could give you the pad you requirement for lower unpredictability and soundness inside your portfolio.

  • #5

    someone write my essay for money (Thursday, 22 June 2017 13:11)

    It is pivotal to have an all approximately differentiate portfolio with various capital. Where you have expanding loan costs, high valuation and increasing swelling needs.

  • #6

    ResearchPaperTown.com (Thursday, 19 October 2017 13:24)

    So for unverifiable circumstances, it is more secure to have an adjusted portfolio versus a security portfolio, particularly when national banks take after a Zero-Rate or Negative-Rate arrangement the drawback chance for securities is capital misfortune and expansion hazard approaching around the bend.

  • #7

    Assignment Services (Thursday, 19 October 2017 13:27)

    As the money related markets, for the most part, are eccentric, it is vital to have a very much differentiated portfolio with various resources. In a situation where you have expanding loan fees, high valuations and rising swelling Because we don't have a gem ball, we require a long haul adjusted portfolio-arrangement with bonds, values and maybe some option ventures that don't relate at all to traditional resources. Enhancement with some genuine resources like products (Gold and Silver) and land could be a further advance towards a swelling fence.

  • #8

    Adidas Originals Gazelle Unisex Sneakers Red S76228 (Wednesday, 13 December 2017 07:19)

    At the point when your web or business application is a high need for you, there's not a viable replacement for having it facilitated and overseen by similar masters that made the framework for you Congrats on having such all around oversaw website! It has great looks and contains educational substance also.

  • #9

    Zapatillas Nike Air Presto Fly Uncage Hombres Negro (Saturday, 23 December 2017 04:00)

    My friend recommended this blog and he was totally right keep up the good work.

  • #10

    laufschuhegeschaft (Tuesday, 26 December 2017 04:23)

    It is a good and amazing article. Your information is very useful for me and for others. thank you so much.

  • #11

    Nike Roshe Two Dame Sko Sort / Beige 844656-002 (Thursday, 28 December 2017 03:49)

    Congrats on having such well managed site! It has good looks and contains informative content as well. We are also a web portal where students get the help with the academic writing by opting for our assignment help online and can get a well written assignment.

Share on StockTwits