October 17, 2014
What is a negative correlated asset and why should you collect them in your investment portfolio?
What is a negative correlated asset and why should you collect them in your investment portfolio?
A negative correlated asset is an asset that normally moves in a different direction or pattern to a similar asset. Bonds and RIETs are negative correlated assets when comparing them to stocks. When stocks are down, bonds and Riets will normally be up some, this helps balance your portfolio out and prevents such drastic swings, you may need to take money out of your investments and you may have a year that stocks have been doing poorly, the bonds in the account will help balance it out and let you draw from an account that is maybe at a higher then normal balance, this lets you get back to your normal allocation by selling the winners and buying the losers or just using that money as needed.
Well said, Garrett. Let’s review.
You want negative correlated assets in your portfolio to counter balance each other so the lows are not so low on any given period of time. This is why we should own stocks from all over the world, high quality short to intermediate-term bonds, and those REITS Garrett was talking about.