Love Conquers All: Our Real Market Expectations For The Next Year


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The Jelly Bean Chart

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Strategic Versus Tactical Asset Allocation

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  Source : FRED Data, JQR Capital The Market Portfolio A few weeks ago we introduced a cash asset to augment our efficient frontier set of bond plus stock portfolios.The cash asset allowed us to combine cash with the one portfolio along the efficient frontier that had the highest return versus risk (AKA the Sharpe Ratio). This one portfolio can be thought of as the tangency portfolio or - more commonly - the market portfolio (MP). The mix of bonds versus stocks in the MP will change over time with changes in interest rates and changes in expected returns for our bond and stock indices. The chart below is a quick snapshot of how the risk free rate of cash interest (Rf) interacts with the efficient frontier to create the market portfolio (MP) at only one point in time. This snapshot was taken a few weeks ago. Source : FRED Data, JQR Capital Introducing Naive Forecasting  The chart shown above was generated using average return and risk data over the 1973 to 2022 time period. The...
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Adding A Cash Position

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Adding A Cash Position Last week we introduced the concept of an efficient frontier. This set of portfolios creates a curve in the return vs. risk space that sometimes resembles a rocket taking off from the ground and bending toward orbit. It seemingly asymptotes to a nearly linear reward for risk trade-off at the upper ranges of typical asset class annualized risk measurements. This week, we added one layer of complexity by adding a cash position to our traditional two asset (bonds and stocks) portfolio. A cash position can help us reduce our risk or increase our expected returns for most expected risk levels.   Source : JQR Capital The Market Portfolio The easiest way to visualize adding cash to our set of bond and stock portfolios is to plot the expected interest yield on a cash asset along the y-axis of our return vs. risk space. We then imagine a vertical line “falling” from that pivot point down onto our now familiar efficient frontier of bond and stock portfolios. The landin...
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