Bonds or Stocks: a rare occurance

When designing a portfolio of investments, one usually chooses amongst different asset classes so as to diversify – with the intent of an overall increased rate of return and reduced risk. This is a form of asset allocation.

The investment choices usually range from cash and money markets, bonds and bond funds, stocks, and stock funds, commodities and gold. In almost any given time frame, history has shown us, that we very rarely see these asset classes move in tandem – all going up or all decreasing together – at the same time. That is the whole point of asset allocation, that whist one asset class does well in a given environment, another will likely falter, hence diversification.

So what asset classes are doing well in the current environment?

More specifically, normally bonds and stocks move inversely, commodities and bonds move inversely, and commodities and equities (at least in the U.S.A. and less so in Canada) tend to move inversely and yet, all these asset classes are rallying at the same time. This makes for one very strange market table setting and at some point, with 200 years of history as a guide; something is going to have to give.



Saverio Manzo