
Ask HN: What's the best investment strategy for a highly volatile market? - whitepoplar
For someone who would like to have a stable passive income stream from their investment portfolio, how should one invest their money? Vanguard index funds sound great, but how does that type of portfolio fare when faced with:<p>1) Extreme market volatility (nobody seems to think we could face the worst economic depression in centuries, but every &quot;worst event&quot; was, by definition, worse than every preceding event.)<p>2) Inflated equity prices in light of the US Federal Reserve&#x27;s quantitative easing policy. Near-0% interest rates pushed a lot of money into equities in order to return <i>anything</i>.<p>3) Bonds yields at historic lows.<p>4) Possibility of political unrest&#x2F;war.<p>For 1 and 4, I&#x27;m not saying that&#x27;s what <i>will</i> happen, only that there&#x27;s a non-zero chance of it happening. Just as one sleeps better knowing they have medical or fire insurance, protecting oneself from economic risk should do the same.<p>So I suppose my question is more along the lines of: how can one protect a portfolio from downside risk while still earning a decent passive income stream?
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minsight
I read an amazing book about portfolio allocation a few years back and
reallocated my holdings. The thing that impressed me was a historical analysis
which showed that, as long as you split your fixed income and equities, you
would do quite well. The interesting thing was that you could split them sub-
optimially and the whole thing would do well. Getting the proportion exactly
right would get you a slightly better return, but much less than I expected.

When the market is charging ahead, it might seem that holding bonds/fixed
income might be a waste, but it's really just a form of insurance. Another
interesting thing I learned was that holding inversely correlated things led
to higher returns and less volatility. So an all-equity portfolio would
generally have a slightly smaller return than one with even 5 or 10% fixed
income.

Anyways, the book was by a guy named William Bernstein, and his (very dated
looking) site is at
[http://www.efficientfrontier.com/](http://www.efficientfrontier.com/). His
book is called the Intelligent Asset Allocator. The first 2 chapters are on
the author's site. The book can be ordered from Amazon at:
[https://www.amazon.com/product-
reviews/0071362363/ref=cm_cr_...](https://www.amazon.com/product-
reviews/0071362363/ref=cm_cr_dp_syn_footer?k=The%20Intelligent%20Asset%20Allocator%3A%20How%20to%20Build%20Your%20Portfolio%20to%20Maximize%20Returns%20and%20Minimize%20Risk&showViewpoints=1)

