How to take advantage of 2.125% 'G Fund' returns when there is no risk???
- I don't know what I am doing, so if I sound smart it is because I am about ready to catastrophically fail.
- Does one take advantage of a great cash return by investing in cash...
- Or, by using it to hedge high return/high risk plays...
I go with the latter because that is how I play, homey
G Fund: 22% We have gone from 1.25% to 2.125%+ in a month.
F Fund: 0% Dummies to jog on, Doggies to dog on...
C Fund: 42% Holding pretty steady in my allocation
S Fund: 18% Gimme some Alpha baby
I Fund: 18% Probably the mistake in this allocation, but who knows...
Average Return: 6% - Gained a point from my original allocation.
Average Risk: 8% - Stayed the same!!!
Now, I hope Quicken does all the Covariance and Fat Tail analysis stuff in its risk analysis. It is more than cloudy on that topic. Especially with respect to Fat Tail stuff. I am reading Peter Bernstein's 'Against The Gods: The Remarkable Story of Risk' which is recommended by lots of folks I respect. I recommend it. It is a rather basic overview of risk. I have just cleared the Markowitz, von Neumann and Morgenstern chapters covering game theory and efficient portfolios. However, I don't think a circa 1998 book will really discuss Fat Tail investing. I shall see.
But back to the discussion...
The nicest thing I know - to separate it from the things I know I don't know and the things I don't know I don't know - is that Quicken uses the following for Cash holdings in an allocation:
Average Return: 0.1%Well, with the 'G Fund' we have:
Average Risk: 0.9%
Average Return: 2.125%
Average Risk: 0.9% - My guess is that this variance comes from very low risk Treasuries, not cash. Ours should be 0% - but we do have politicians!!!
So, why not use 'cash' as a 0 risk bond - especially when bonds are still reverting to the mean. And, we have to go out to 30 years to get the return of the G Fund...