Bogleheads® Live Christine Benz on correlations & sustainable distributions
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Jun 7, 2022 Christine Benz, Morningstar’s Director of Personal Finance and author, shares insights on asset correlations and sustainable withdrawal strategies. She discusses how rising global market correlations affect diversification and portfolio resilience, plus the distinction between correlation and causation. Benz emphasizes the need for realistic financial assumptions, advocating for a sustainable distribution rate of 1.9%. She also explores the changing dynamics between cryptocurrencies and traditional assets, alongside details about an upcoming investor conference.
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Asset Correlation Explained
- Asset correlation measures how different investments perform relative to each other.
- For example, U.S. stocks and junk bonds often move together (high correlation), while U.S stocks and treasuries sometimes move inversely (low correlation).
Portfolio Diversification
- Diversify your portfolio with assets that don't move in the same pattern, like stocks and treasury bonds.
- Consider the underlying reasons for an asset's performance, even if it is positively correlated with others.
International Diversification
- While correlations change, international diversification offers valuable sector and industry diversification.
- Focus on the fundamental reasons for diversification, not just historical numbers.
