When stock investors, bond investors, economists, Wall Street banks, the IMF, bookies and global governments all failed to predict Brexit would actually happen, chances are you didn’t either. According to The Reformed Broker’s Joshua Brown, that’s okay.
Sometimes unexpected things happen in global financial markets. But the aftermath of the Brexit vote is a great opportunity to explore the difference between portfolio construction and portfolio positioning.
“Who was positioned correctly? We’ll find out,” Brown wrote. “But the bigger question is whether or not it was terribly important to have been positioned correctly, outside of a sleeve within the hedge fund complex.”
Brown argued that a properly-constructed long-term investment portfolio, such as a retirement account, will never be properly positioned for all unexpected market events like the Brexit. In that sense, these “outliers” can and should be mostly ignored by long-term investors.
“A retirement portfolio positioned for outrageous unexpected events will likely not be able to do its job over the long term, even if it gets an outlier right here or there,” Brown explained.
On the other hand, a well-constructed portfolio is built…
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