One of the consequences of having two jobs is a lack of time to spend reading. I subscribe to several free economic and investment newsletters. Thus, when the quarter ends, I spend some time catching up. It was yesterday afternoon when I read an essay by Ben Hunt of Epsilon Theory. He was writing on how every part of a portfolio needs a job. This was intriguing to me because I have been caught in the past with accounts trying to serve the same purpose.
My investing philosophy has evolved significantly over the years. I now have multiple accounts with distinct purposes. The latest account is with Lending Club. I had originally designated this account as a fixed income account, but I think that is changing slightly. I was surprised to see how quickly rates can change on the platform. I had assumed they would change as market rates change, but it appears they change with risk as well. Recently, there has been an increase in losses by investors. As a result, interest rates on new loans has increased. While I am pleased to see this reaction, I am forced to acknowledge the heightened risk in the investment. Because I am making a new investment each week, the possibility of changes in interest rates paid on principle has me considering this is no longer strictly a fixed income investment.
Instead, this is a counter cyclical investment. When the economy is doing poorly, interest rates on new investments will rise. When the economy is doing well, interest rates on new investments will fall. That should be the opposite of the two equity investment accounts I have, providing a level of stability to the overall portfolio.