Diversifying Assets for Stable Investment Returns

Diversifying assets is crucial for stable returns, reducing volatility, and managing risks effectively in investment portfolios.

### The Importance of Asset Diversification and the All-Weather Portfolio
* 💼 "Don't put all your eggs in one basket" is a crucial principle in investing, emphasizing the need to **diversify assets** to manage risks effectively.
* 📉 Stocks and bonds are common assets that move in opposite directions, with stocks generally performing poorly when the economy falters, while **bond prices tend to rise**.
* 💵 During crises, the value of the dollar often increases, as seen in events like the 2008 financial crisis, making it **essential to hold cash during turbulent times**.
* 🪙 Gold is recommended as a **long-term hedge against inflation**, with its price typically **rising over time**.
* 🌍 Asset allocation should be spread across various categories, as **predicting the performance of individual assets is challenging**.
* 📊 The All-Weather Portfolio, advocated by investment expert Ray Dalio, involves **diversifying assets to reduce volatility and manage risks effectively**.
* 📉 Rebalancing the portfolio, typically done annually, is crucial to **maintaining the desired asset allocation** and **reaping the benefits of diversification**.

When the economy grows, prices can only go up. Many people talk about the dollar as a safe asset, but when a crisis comes, the dollar becomes very expensive. I recommend including gold in your portfolio. Have you watched the finance spoon interest rate episode hosted by Shin Yeon-gi? If you watch that interest rate table, it will help you understand today's content better. Today, I want to talk about one of the most important principles when it comes to investing: Don't put all your eggs in one basket. You must have heard this principle a lot. It's a very important principle. It's about diversifying your assets. When we talk about asset allocation, many people say to diversify stocks. Of course, this is important, but in terms of managing risks stably, it's good to diversify assets. Generally speaking, let's say there are assets that move in opposite directions: Asset A and Asset B.

We are growing in the long term, but the directions in which Asset A and Asset B move are opposite. When Asset A is good, Asset B is not good, and when Asset B is good, Asset A is good; they move in opposite directions. When holding only one, it was very good when it was good, but when it is not good, losses can be significant. It is very difficult to endure that. However, holding both together is beneficial as it reduces such fluctuations. As you can see in the graph here, with the green line, you can make profits steadily and stably with less volatility. It would be good to find assets that move in accordance with the Asset Master and hold them together. Let's take a look. Stocks and bonds are representatives of assets that move in opposite directions. Usually, when the economy is not doing well, stock prices go down. When the economy is not doing well, companies tend to reduce new business expansions or investments.

So, if you take out less in loans, the demand for money decreases, causing interest rates to go down. In reality, when stock prices fall, bond prices often rise. When bond prices rise, it means interest rates are going down. Normally, they tend to move in the opposite direction. You might think that just dividing your investments between stocks and bonds would be enough, but it doesn't always work that way. In 2022, for example, when stocks were down and bonds weren't doing well, interest rates rose significantly. So, this alone is not sufficient. In 2022, looking at the KOSPI index and government bond yields, the KOSPI dropped significantly, and at that time, government bond yields also rose. Rising government bond yields

Bond prices falling mean a lot. So, at that time, stocks were not good, and bonds were not good either. It was said that these two move in opposite directions. This was also the case in 2020, during the early days of the pandemic. In fact, in early 2020, the USD to KRW exchange rate went up. When a crisis occurs, one must hold cash. From a foreign perspective, if they think about buying Korean stocks and bonds, they will bring dollars, convert them to KRW, and invest in Korean stocks and bonds. Now that a crisis has come, they will need dollars. Thinking this way, they will sell stocks and bonds, buy dollars, and take them out. Then, the value of the dollar goes up. What is the value of the dollar? It can be seen through the USD to KRW exchange rate. An increase in the exchange rate indicates that. So, when a crisis comes, selling Korean stocks...

Because you sell and buy dollars before going out, the KOSPI index and the dollar often move in opposite directions. During the 2008 financial crisis, the exchange rate increased significantly. At that time, it even reached 1500 won per dollar. You might wonder why the dollar became more popular in the U.S. financial crisis. This was because Lehman Brothers went bankrupt, and many U.S. financial companies were struggling. To prevent bankruptcy, they needed to gather cash. Therefore, they had to sell existing assets to have dollars. So, it can be seen that the value of the dollar increased. You might think it's good to have a lot of dollars recently, but if you look at the graph here, from 2001 to 2007, the value of the dollar kept decreasing compared to the Korean won exchange rate.

In 2007, the dollar fell to 900 won. So, those who thought it would be good to buy a lot of dollars to make a profit might not have had a good time at that time. Instead, it seems like a good idea to gradually buy some dollars during such times and sell some when a crisis like the 2008 financial crisis hits to make a profit. When U.S. economic indicators improve, gold prices tend to fall. Usually, the U.S. dollar and gold move in the opposite direction. I recommend including gold in your portfolio. In the long run, it is because it can be a hedge against inflation. Inflation means prices are rising, and when the economy grows, prices can only go up. If you compare the price of jjajangmyeon (black bean noodles) 30 years ago to now, you will understand that prices rise.

I think it's good to keep this because it can be the best way to follow that. Talking about dollars as a safe asset, when a crisis comes, the dollar becomes very expensive. In a crisis, it tends to rise significantly, but when the crisis is over, it often drops again. However, in the long run, gold and silver have been steadily increasing, so you can prepare for rising prices. Well, it's not just about having gold. Do you remember the 1990s? In the 1990s, the price of gold kept falling. At the end of 1997 and 1998, when the IMF financial crisis came, there was the IMF bailout. That was the lowest point. Stocks and bonds were all bad. In 2022, the dollar was good, and raw materials were also good. Here in the graph, you can see the prices of copper and oil in 2022.

You can see a significant increase, right? Since the mid-2010s, people have not been interested in raw materials. It was very stable, so not many investments were made in this area. If it had been included here, while everything else was going down, this could have gone up in red. Then, psychologically, it would have been less burdensome. So, it's good to leave assets in various places. Predicting the economic situation is really difficult. It's hard to be sure about what will rise. If you invest only in something you are confident will rise, and it doesn't turn out well, it can be really tough to endure. By storing assets in different places, even if you don't know where things will go up, you can manage risks by knowing which side is good and which side is not. By allocating assets to various places like we are doing now, risk management is achieved.

I think you might be really curious if you can make a profit by doing this. There is a person named Ray Dalio among investment experts who distributes such assets in various places and talks about it. He said that no matter the season, you can make a stable profit, so he named it the All-Weather Portfolio. Just like Ray Dalio mentioned, when we include various assets as we are talking about now, there is a book that analyzed the past 30 years of data. The book was written by Tony Robbins from Moneyline, and according to that analysis, it showed an average of about 9.7% per year. So, even if you invest in an index, such as the S&P 500, looking at it for 30 years, it is higher. Of course, the S&P 500 also includes various stocks, but rather than that, the All-Weather Portfolio now.

When the market is falling or in such situations, the volatility clearly decreases. If the All Weather Portfolio has experienced losses about four times in 30 years, in a year like 2022 when both stocks and bonds are not performing well, although there is some loss, the volatility has certainly decreased, and the possibility of experiencing the largest maximum loss has also significantly decreased. So, for instance, in the case of the S&P 500, the maximum loss was seen in 2008 with a -37% decrease. At that time, the All Weather Portfolio only had a -3.9% loss. Therefore, if it were to reach -40%, it would be really difficult to endure. The All Weather Portfolio seems to be able to greatly reduce the worst losses by diversifying assets in various places. It may seem like 88% or 99% is not much, but in reality, buying things like Bitcoin or certain stocks and making profits of 100% or 200% is like this.

They may not be able to follow, but those people can incur significant losses. By reducing those losses, and reducing volatility, you can achieve stable returns through asset allocation. This effect of asset allocation is significant. Asset allocation is not a one-time thing. Rebalancing is needed about once a year. Rebalancing literally means rebalancing. It is necessary to diversify assets. Here, let's say there is a person who simply invests 50-50 in stocks and bonds. After a year, let's say the stocks have increased to 150. The stock price has risen a lot, and the bonds have slightly increased to 52. Then, people may think, Oh, the stock return is very good. I want to sell some bonds and invest in stocks. However, this should not be done. Instead of selling what you had in stocks,

Bring two volumes and do it every ten days, so it will be balanced 50-50. This is called rebalancing, which helps to maintain balance. Typically, when a specific asset undergoes significant changes, it is necessary to rebalance at that time. Still, it is also necessary to check regularly at least once a year. So, you can choose a specific date, like your birthday or any other date. Set a day for rebalancing your asset allocation, and it will be beneficial.

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조선일보 머니

The Importance of Diversifying Your Investment Portfolio

Diversifying your assets is a crucial principle in investing to manage risks effectively.

It's important to find assets that move in opposite directions, such as stocks and bonds, to reduce fluctuations and ensure steady profits.

However, simply dividing investments between stocks and bonds may not always be sufficient, as seen in the example of the 2022 market where stock and bond movements did not align with the typical pattern.

The Relationship Between Bond Prices, the Dollar, and Crisis

Bond prices falling indicate a crisis, leading to a rise in the value of the dollar.

During a crisis, there is a trend of selling Korean stocks and bonds to buy dollars, causing the USD to KRW exchange rate to increase.

The value of the dollar also tends to rise during U.

financial crises, as seen in 2008 when financial companies needed to gather cash, leading to a significant increase in the exchange rate.

The Volatility of Dollar and Raw Material Prices

The dollar is a safe asset that tends to rise significantly during a crisis but drops when the crisis is over, while gold and silver have steadily increased in the long run.

In 2022, the prices of copper and oil have significantly increased after a period of stability, showing the volatility of raw material investments.

Diversifying assets across different types of investments is a good risk management strategy, especially in unpredictable economic situations.

The All-Weather Portfolio: A Stable Investment Strategy

Ray Dalio's All-Weather Portfolio offers stable profits regardless of the season, with a minimal loss record over 30 years.

The portfolio's diversification effectively reduces the risk of large losses, making it a reliable option during market downturns.

In comparison to the S&P 500, the All-Weather Portfolio demonstrates significantly lower volatility and potential for reduced maximum losses.

The Importance of Asset Allocation and Rebalancing

Asset allocation helps reduce losses and volatility, leading to stable returns.

Rebalancing, typically done once a year, is crucial for diversifying assets and maintaining a balanced portfolio.

It involves adjusting the asset distribution to its original proportions, which is essential for long-term financial success.