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Portfolio Moves in a 'Higher for Longer' Environment
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"It's just not that easy to make money in the markets; it requires discipline." These words resonate with self-directed investors who often find themselves underperforming the indices.
The new Steady Wealth Podcast website, available at www.steadywealthpodcast.com, delves into the heart of this issue (and others)
Welcome to the latest episode of The Steady Wealth Podcast with your host, Serge Berger. In this episode, Serge dives into the potential portfolio consequences of interest rates remaining notably higher. With just a few weeks left in 2023, Serge explores the impact of the current 4.5% to 5% yield range in the US Treasury market on both portfolios and trading strategies.
He challenges the common narrative that higher interest rates will lead to widespread destruction, emphasizing that it's not just about the absolute level of rates but also the rate of change. Drawing on historical data, Serge highlights that the 4 to 5 percent range has been more of a norm than an exception, suggesting a shift from ultra-low rates to a more normalized range.
Serge shares valuable insights into the trading perspective, discussing how higher rates imply a higher discount rate for risk assets, potentially resulting in lower returns for equities. He emphasizes mean reversion strategies in a higher interest rate environment, suggesting that oscillators like MACD or stochastic indicators may be more effective.
The episode covers various asset classes, from bonds to real estate, high dividend stocks, and commodities. Serge explores how each may be influenced by elevated interest rates, offering a nuanced view of their potential performance. Additionally, he underscores the attractiveness of cash and short-term instruments, challenging the notion that "cash is trash" and highlighting their potential benefits in a rising rate environment.
As the podcast concludes, Serge encourages listeners to shift away from chart-chasing and consider mean reversion strategies for 2024, anticipating continued challenges and opportunities in the market. Whether you're an investor or trader, this episode provides valuable insights for navigating the complex landscape shaped by interest rate dynamics. Tune in and stay ahead of the curve in the ever-evolving financial markets.
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