Fixed Income Vs Equity

Sometimes I feel that a portfolio manager has the easiest job in the world. I know......most people would disagree with me here...after all the portfolio manager has to keep abreast of the market conditions, stay informed, make intelligent decisions etc etc.

Let's say I give you a million dollars today and tell you that you can invest it anywhere you like. What would you do ? Now don't get into complexities about my "Expected return", "Risk tolerance" and all that b/s. It's a simple question and I expect a simple answer. I'm sure your brain is already calculating the returns that you can generate by investing in fixed income or equity or a combination.

The problem with equity is that you might lose all the money and the problem with fixed income is that you'll face a what if? situation. What if I had gone with equity ? Let me put in another dilemma. Let's say the the returns from fixed income are exactly what you need. It is the perfect investment and it perfectly completes your portfolio....how strong does the lure from equity have to be to make you change your mind.

This is where my point comes in. The portfolio manager doesn't have to think so much, he has an investment mandate, an investment policy statement to guide him. So wouldn't it be so much better if we also had a similar mandate with us.

Well, apparently that is not the case. Every day we encounter situations where we need to make a choice. Some are big decisions, others are relatively insignificant, but they all boil down to the same thing: Should I go for the safety of fixed income or should I speculate with equity. Each has its own merits and weaknesses. So in essence sometimes it's just better to not have a choice, it just makes your life simpler.

"I know I'm right.......I just don't trust myself"