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Re-Thinking Asset Allocation

Re-Thinking Asset Allocation A Twist To The Traditional Covered Call Strategy   For the past six months I’ve been giving a lot of thought to how to structure portfolios that can protect downside risk in a market that is relatively expensive for both stocks and bonds. Fixed income (bonds) has traditionally provided diversification, income, and stability for the overall investment portfolio. However, now the fixed income market is offering depressed yields and potentially bubble prices to investors who are facing expectations of rising inflation that hasn’t been seen for over four decades. For the next few years or possibly decades, investors who need income to fund retirement goals may find it difficult to obtain the yields needed without shifting their portfolio to riskier parts of the bond market or even equities.  Growth oriented investors with longer time horizons are also finding it difficult to balance between the growth and volatility of the market without the stability that a non-correlated hedge like fixed income has historically provided. At SEDNA Wealth Management, we’ve been re-thinking the traditional asset allocation model and looking to implore covered call strategies as a replacement for bonds to offer a diversified potential source of income while mitigating downside risks within the equity markets.   What Is Covered Call Writing?   A traditional covered call strategy is one of the most straightforward and widely used options-based strategies for investors who want to pursue income to enhance stock market returns. When writing (selling) a covered call, you’re selling someone...
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What Do Interest Rates Have To Do With It?

  “If you give a man a gun he can rob a bank; if you give man a bank he can rob the world.” -Tyrell Wellick   Last week, Jerome Powell, the chair of the Federal Reserve, announced at the Kansas City Fed’s annual Jackson Hole policy symposium,  a major shift in how the central bank guides the economy, signaling it will continue to make job growth a focus and will not raise interest rates to guard against coming inflation. To emphasize the importance of a strong labor market the Fed will tolerate inflation past their 2 percent target. This could lead to long periods of low interest rates for mortgages and business loans to foster strong demand and a hope of a solid job market.   The Fed’s announcement signifies a critical change in how the central bank tries to achieve their twin goals of maximum employment and stable inflation. The Fed is now recognizing that too low inflation is now the problem and it will slow down any efforts to guard against inflation running too high. This seems like a subtle shift especially given the high employment levels of the pandemic era, however this really does signify a significant change and could indicate that Mr. Powell sees more problems ahead if inflation expectations continue below their 2 percent objective.   The Fed Has No Effect On Inflation   Something that I thought was surprising after the 2008 crisis was that even though interest rates had hit all time...
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The Tide, The Current And The Waterfall

When I started SEDNA Wealth Management I wanted to choose a name that reflected my overall investment philosophy. SEDNA derives from Inuit (Eskimo) mythology and means “Goddess of the Sea”. In my opinion financial markets often behave like water. Water can be calm one one moment and become forceful and violent almost instantly. Over time water will go through cycles and will transform into storms, floods, and hurricanes or can even disappear during a drought. However water will always seek to find a balance over time. The same can be said for financial markets.  Like water, as investors we will experience financial storms or rough periods that if not properly prepared for can sometimes be tragic for our investments and overall wealth. That’s why SEDNA Wealth Management strategizes to help with our clients to navigate the financial waters and guide your overall wealth throughout your life. The Tide, The Current and The Waterfall As I share market opinions in future newsletters, I plan to speak in relation to three market factors that I believe have the most influence on market prices over time – These are Market Cycles and Fundamentals, Market Trends and Market Technicals. As SEDNA describes our views of different markets we’ll continue to use our water analogy to describe how markets are moving similarly to movements in water. The Tide, The Current and The Waterfall will be a consistent theme in describing these important investment themes. The Tide represents Market Cycles and Fundamentals as ocean tides often...
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Introduction To SEDNA’s Compass Risk Report

A common question that I often receive is where should I be investing my money right now. The answer really depends on your own time horizon and risk tolerance, but my answer to almost everyone is ideally you should be considering all investment ideas and judge whether you can benefit from one investing principle: Buy Low And Sell High. After years of advising Financial Advisors for their portfolio models, I created the SEDNA Compass Risk Report as a simple guide for make changes to portfolios over time. The report is based upon a proprietary model that is updated daily and uses price, volatility and trend to evaluate the current investment opportunity for each asset class. The idea is to create a risk management tool that actually helps investors to buy at the low risk level and sell as the price reaches a maximum level and thus poses a greater risk to go down.   How Does It Work   Our Compass Risk Report evaluates asset classes using a yearly (rolling 12 month periods) model that changes based on what the market is actually doing in terms of the price, volatility and trend of that asset class. These factors change continuously so our models are automatically updated on a daily basis. Ideally you want to sell or trim a position at the top end of the price range and buy or increase holdings at the low end. The  proprietary model calculates the direction and risk level of each followed asset class and produces a directional forecast similar to a compass....
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