YouTube Comment Questions

[YouTube comment questions!] CLEC Investment and Financial Education Channel. Post date: March 29, 2020

1. The government is now directly rescuing corporate bonds. Will those too-big-to-fail companies create a bigger bubble in the future?

Answer: All easy money policies may create bubbles, but not necessarily. A bubble is excessive money issuance, a major increase in leverage, and a surge in asset prices. But every bubble bursts through a break in funding chains, which is deleveraging. So easy money may only replenish asset value erased by the bubble, and may not yet create a bubble. Only human greed creates bubbles.

2. In an era of QE and low interest rates, will housing prices also rise with the tide? How effective is it to move part of the capital into real estate? Rental, resale, or REITs?

Answer: The key to rising real estate prices is full employment. With employment, there are loans; with low interest rates, there is buying demand; only then will property prices rise. Right now, loan rates have not really fallen, unemployment has increased sharply, and real estate may not rise. It may even decline slowly.

3. Because of globalization, will the correlation among countries' stock markets become higher and make asset allocation lose its function, so buying only VOO / QQQ is enough?

Answer: When a bubble happens, all assets fall. This makes people mistakenly think all asset correlations have increased, but that is a misconception. When the market improves, only high-quality companies and countries rise quickly. In the 2008 subprime crisis, assets around the world fell, but after the crisis, only the U.S. market performed best.

4. You are right. The only advantage of asset allocation is peace of mind, and the return is not high. But the stock market is irrational, and peace of mind is exactly what allows investors to survive in the market long term and enjoy future returns, although the return is not high enough.

Answer: Correct. If someone cannot bear a 50% loss or more, they should use asset allocation. Cash or bond positions are necessary to prevent selling low during a 50% bear-market decline because of weak psychology. If someone has enough cash for living expenses and also has good investment psychology, they can hold index funds 100%.

5. With zero interest rates and QE, I can understand that time deposits are not very useful. What about gold?

Answer: Any asset can rise or fall in the short term, but you do not know when any asset will rise or fall. So if you did not know gold would rise when it was at $1,400, you should not hold it, because you do not know when gold will rise or fall in the short term. Gold's long-term return is at most the same as inflation. So gold is not suitable for asset allocation either short term or long term. Any asset whose short-term changes you can never predict and whose long-term return is lower than the index should not be considered.