by Steve on March 1, 2010
For the last few months, I’ve been tracking the best place for investors to stash their short-term cash and reporting the results on the blog I write for Examiner.com. That column has started to track savings and CD rates available at Seattle branches to comply with Examine.com rules. So I’m going to use this column to track the best national cash stash locations.
I use the services of MoneyAisle.com to obtain rates. Here are current rates on a CD ladder compared to those available a month ago.
3/1/10 2/1/10
12 months 1.80% 1.92%
24 months 2.11 2.21
36 months 2.51 2.68
48 months 2.75 2.94
60 months 3.25 3.25
As you can see, rates are actually a little lower today than a month ago, but the change is immaterial. The big take-away from this data is that rates are still historically low and remain pretty flat. The good news is that inflation has been low so the real rate of return is okay. But the yellow flag is that inflation is picking up so if you want to stash your cash in CDs, keep the duration very short. No more than a year.
by Steve on January 17, 2010
Modern portfolio theory (MPT) teaches that a well-diversified portfolio is the most effective and most efficient. “Well-diversified” means we must choose asset classes that are not closely correlated with each so that when one asset class is going down, another may be going up. The simplest two asset class portfolio holds stocks and bonds.
However, in the last few years, the correlation between asset classes is decreasing, for reasons no one can really explain. For example, over the last 10 years, U.S. stocks and U.S. bonds had no correlation (a numerical rating of -0.00). However, over the last three years, these two asset classes have a numerical correlation of .30, which is considered “moderate.”
Even more alarming, over the last ten years, U.S. stocks and the stocks from developed countries outside the U.S. had a correlation of .90 (”high correlation”) and in the last three years, the correlation has increased to .93. Stocks from emerging markets had a .85 degree of correlation in the last 10 years and .87 in the last three.
When I examine correlations across all asset classes for the last three years, the same pattern emerges. In fact, every asset class I tested had at least a moderate degree of correlation with all the other asset classes.
What this means for investors is that if all your using to diversify your portfolio are the traditional asset classes, it may not be as well-diversified as you thought (or hoped) in the short run. Over the long run, only U.S. bonds showed a low degree of correlation with other asset classes. Non U.S. bonds also showed a low degree of correlation with U.S. stocks.
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