Enlightenment of Merrill Lynch investment clock on household asset allocation
The investment clock constructs a classic pattern of large-scale asset rotation under the economic cycle mapping, which well explains the law of large-scale asset rotation in the United States in history. By examining the data of American market from 1973 to 2004, we can find that the investment clock has completely demonstrated that the bond market, stock market and commodities lead the growth of large-scale assets in a complete economic cycle when the economy gradually turns from recession to recovery and overheating.
However, after the financial crisis in 2008, in the new economic cycle, the rotation of bond market, stock market and commodity market was completely disrupted: after bottoming out in early 2009, there was a wave of dual-bull pattern of stock and debt in the US financial market; At the same time, commodities ended the long cycle in the past and began to enter a slow downward channel. Even in the recent period, the American economy has moved from recovery to strength, and there is still no sign of recovery in the commodity market.
The traditional investment clock theory is based on economy-led finance, but the unprecedented loose monetary policy of global central banks has disrupted the economic and financial transmission mechanism. In the case that the kinetic energy of economic recovery has not been restored, the loose monetary policy cannot be transmitted to the credit side of the real economy, which leads to a large amount of liquidity directly transferred to the financial market to push up the prices of various financial assets, and the investment clock loses its logical foundation and is bound to fail. Since the ultra-loose monetary policy has disrupted Merrill Lynch's investment clock, can large-scale assets continue to rotate according to the investment clock when the Fed's monetary policy turns to tightening in the future?
In the short term, financial policies will inevitably cause fluctuations and interference in the operation of the economic cycle, but in the larger economic operation cycle, short-term government regulation can not completely smooth out the cyclical fluctuations of the economic operation. This means that the logical basis of Merrill Lynch's investment clock still exists and it is impossible to completely fail. Merrill Lynch investment clock still has a good guiding significance for medium and long-term asset allocation.
Specific to the level of family financial management, Merrill Lynch investment clock also has the following important implications for family asset allocation:
The preferred allocation fund for family financial management. As a financial management tool for specialized and combined investment, funds have incomparable advantages over other investment products. Commodity and real estate investment is obviously inferior to financial management tools in transaction cost and liquidity. However, in financial management tools (such as stocks, bonds, cash, etc. ), stock investment and bond investment need corresponding professional knowledge and a lot of energy and time, which is exactly what many residents and families cannot have. An obvious example is: for stock investment, if you choose the wrong stock, you may face losses for a long time and even risk delisting. From the practice of family finance at home and abroad for many years, the fund with expected fixed income has become the first choice tool for general family finance.
Dynamic asset allocation is very necessary for asset preservation and appreciation. "Investment clock" is a practical theory used to guide asset allocation, that is, through the "time-telling function" of investment clock, we can identify the inflection point in the economic operation cycle and obtain long-term returns by adjusting asset allocation. The investment clock implies the concept of dynamic asset allocation, and systemic risk can be reduced through long-term dynamic investment. The advantage of asset allocation is that it can disperse unsystematic risks, and the expression of the image is "Don't put all your eggs in one basket". Because, in the same period, the yield and change direction of different investment products are different. When the value of some assets declines, others will appreciate. Adopting the method of asset allocation can reduce the risk of "a basket is damaged and all the eggs are broken".
The effectiveness of asset allocation is the most important factor to determine the return on investment. Asset allocation is the key factor to determine the profit and loss of medium and long-term investment. Research shows that in the attribution analysis of investment profits, more than 90% is determined by asset allocation. From the market environment, a simple understanding of dynamic asset allocation means adjusting the proportion of assets with different risk levels in the portfolio according to the changes of market trends, and allocating a higher proportion when a financial asset is in an upward trend; When a certain type of financial assets is in a downward trend, reduce the allocation ratio of such assets. This is the value of dynamic asset allocation based on "investment clock".