Many of our investors prefer hybrid funds with higher potential risks and returns. Hybrid funds are funds that mix stocks and bonds. They can be divided into partial equity hybrid funds, balanced hybrid funds, partial debt hybrid funds and flexible allocation hybrid funds according to the different investment ratios of stocks and bonds. But what are the benefits of investing in hybrid funds?
We can focus on balanced funds and flexible allocation hybrid funds, Because only these two types of funds truly reflect the advantages of hybrid funds, that is, risk hedging.
So far, the most classic investment theory, which is recognized by economists and financial planners, is the modern portfolio theory founded by American economist Halima Kovitz. Markowitz found that, despite liquidity, investors are most concerned about two issues when making an investment decision: 1, how high is the return; 2. How big the risk is. And we know that the higher the expected return is, the higher the expected potential risk is. Is there any way to improve the risk return ratio or the cost performance ratio of the investment? That is to say, how can we reduce the risk when the expected return is the same? Markowitz found that investment risks can be divided into two types through a large number of data deduction: if you buy A stock. BCD shares have risen, but A shares have not risen, which is called stock selection risk. On the contrary, no matter whether you buy an A share or all ABCD shares, you cannot escape the risk of stock crash, which is called systematic risk and "market risk" in the stock market.
How to resolve these two risks? Markowitz gave the answer, that is, to build an optimal investment portfolio. If you want to avoid the risk of stock selection, you should not only buy one stock, but buy a basket of stocks. To avoid systemic risk, we need to buy different types of assets, so as to form a more complex and diversified portfolio. We often say, "Don't put eggs in one basket." This is the theory.
There are many assets we can invest in, such as houses, gold, oil, foreign exchange, p2p, bitcoin, art, etc. But the two main types of financial assets are stocks and bonds. Stocks belong to equity investment and bonds belong to fixed income investment. These two types of investment just form risk hedging. When the stock market goes up, the money in the market tends to run into the stock market, and few people like to pay attention to bonds. But when the stock market goes down, investors are afraid, and they are more willing to put money into a safer bond market, so the bond market is easy to go up. So according to the portfolio theory, when a fund buys some stocks and some bonds at the same time, its overall risk return ratio is higher than that of buying stocks or bonds alone. If stocks fall, bonds will rise; if bonds fall, stocks will rise, and their risks will be offset accordingly.
We know that the risks of stocks and bonds are not positively correlated, but negatively correlated. In fact, there are many such negatively correlated portfolios in our life, such as stocks and houses, bank deposits and bonds, dollars and gold, dollars and oil, dollars and yen, dollars and bitcoin, etc. These cp portfolios have strong negative correlations in theory. However, not all portfolios are negatively correlated at the same time, and it is common for stocks and bonds to rise and fall together. So there is no absolute thing in the investment world. In the short term, modern portfolio theory will also fail, but in the long term, it can really help us to seek higher returns with relatively lower risks. This is the advantage of balanced hybrid funds.
The flexible allocation hybrid fund has a greater advantage, that is, the position changes very freely. However, the advantages of flexible allocation funds are also its fatal shortcomings. The variety and proportion of investment of flexible allocation funds are different. It is difficult to analyze investment. How do investors know how high the current investment risk and return of this fund are? As an investor, I have no idea. If the fund manager misjudges the market when the stock market turns from bear to bull and thinks that the stock market will continue to bear, and invests most of the money in bonds, then the position will be full and empty. If the stock market turns from bull to bear, the fund manager misjudges the market and invests most of his money in stocks, then he will be locked in. This is the secret of hybrid funds. Therefore, it is better to invest in hybrid funds than to buy a part of the stock base and bond base respectively according to a certain proportion according to their own investment preferences, so as to achieve risk hedging.
