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2013 has been great year for U.S. stocks, yet if you believe in diversification and you added Bonds, Real Estate, Commodities or Emerging markets to the mix, all they did was pull down the overall performance. 2013 summary, good year for stocks, not so good of a year for diversified portfolios!
As we near the end of this year and the beginning of a new year, I suspect many are asking what should my portfolio look like going into 2014. The above chart reflects spreads between the S&P 500 and the yield on the 10-year note (inverted).
When it comes to portfolio construction the above 2 pack reflects that when the spread is wide, it has paid to overweight towards stocks and underweight towards bonds. When the spread is narrow it has paid to overweight towards bonds and underweight towards stocks.
The current spread is the narrowest since 2000 & 2007. Is history a good guide here or has the Fed goofed this spread idea up for good???
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