By Roger Nausbaum, ETF Strategist at AdvisorShares
In a recent post, Abnormal Returns included a link to this Bloomberg articleabout the odyssey of an inverse treasury ETF which has continually gone down in value while still attracting assets. Obviously an inverse treasury ETF appeals to a strategy that wants to protect against rising rates but it turns out that rates haven’t gone up since the fund came out…yet people still buy it.
I think this ties into a bigger point related to portfolio construction in general and having or setting expectations for what the portfolio should do or will hopefully actually accomplish. The actual objective of most portfolios, even if the end user doesn’t realize it (yet) is simply to have enough money when that money is actually needed which for most people is retirement.
Long term financial plan success will be more dependent on savings rates and spending habits than investment success. If an investor beats the market every year but only saves $2000 year then they are likely to come up short. The investor who usually lags the market but stays reasonably close and has a savings rate of 20-25% is very likely to have enough when they need it. I would argue that the most important aspect of performance is avoiding doing something stupid (read emotional) at the worst possible time like someone who was 60 years old in 2009, panic sold in the first quarter and has watched the market triple since then.