ETFs Part 2 – The Diversification of ETFs Negatively Correlated
Part 2, The Diversification of ETFs negatively correlated in terms of their performance is also a wise investment.
Whatever the outcome of an event, having a diversified selection of ETFs that perform opposite each other is an investment strategy that may hinder spectacular returns. But it will also protect your portfolio from depressing crushing losses or even complete capital losses,
The ultimate rule for investing is to avoid blowing up your portfolio and losing the entire capital invested
From my experience, when I take sizable risks leading to spectacular profits, the thrill of the reward is intoxicating, blinding risks, giving me a false sense of confidence and tempting me to keep taking unhedged risks, leading to outsized losses.
If you have a big win, it is better to think of yourself as a lucky idiot.
The wise way to grow wealth is slow and steady, and never be overconfident in your forecasts and investing. Remain humble.
A well-designed portfolio should have you covered, whatever the outcome.
Diversification of ETFs negatively correlated is about hedging your bets.
So whatever happens, whether it is a shit hit-the-fan event (SHTF), or unexpected central bank easing triggering risk on fear of missing out rally (FOMO), having a diversification of ETFs negatively correlated in your portfolio has you covered.
ETFs part 1 defines the largest sector ETFs by fund size, which is better since if the fund is frequently traded, then it is more liquid, which enables you to buy and sell the fund without paying large spreads, the difference between the bid and offer price.
Imagine a scenario where cash is trash
Ballooning public deficits leads to an imbalance in the supply-demand for sovereign bonds, and the Fed creates even more currency and restarts QE (treasury bond buying to suppress yields), making the deficit serviceable. Cost-push inflation would keep rising due to currency debasement, which is great for borrowers but bad for savers.
The 20+ Year Treasury Bond ETF (TLT) holding would underperform.
What are the Diversification of ETFs negatively correlated to treasury bond ETFs?
Look for inflation hedges, Precious metals ETFs, and Commodity ETFs.
If central banks go full throttle on QE liquidity, zero in on risk on ETFs
Technology ETFs and Energy ETFs.
Dollar reserve currency under threat from BRICs comes within the cash-is-trash scenario.
Look for Diversification of ETFs negatively correlated to treasury bond ETFs.
Precious metals ETFs and Emerging ETFs,with a focus on Indian stocks, could be a good play.
Cash is king scenario investors are ultra-fearful liquidity is tight due to central banks remaining restrictive.
Have liquidity to take advantage of bargains
Hold Cash deposits. Even better, SPDR Bloomberg 1-3 Month T-Bill ETF. Precious metals ETFs are fine, but in illiquid markets, precious metals prices can fall due to investors having to leverage investors having to sell and raise cash to meet margin calls.
So, the diversification of ETFs negatively correlated will have you covered even if the apocalypse plays out.
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