Tue. Oct 26th, 2021

Which caught my eye this week.

Tthis week, many diligent bloggers ran the topic of portfolio rebalancing.

First trick this could give ours @TA a race for his carefully earned money: Occam Investing delved into the famous “rebalancing bond,” where investors see additional returns to regularly reject their asset allocation.

The message concludes that while this rebalancing advantage is obviously welcome, you can’t benefit from the bonus in the real world:

Personally, will I be able to benefit from the long-term rebalancing bonus?

Probably not.

I’m not sure it’s possible to predict anything with a high level of accuracy in the markets, let alone be able to predict correlations, yields, i volatility. I certainly don’t have enough confidence to start complicating my portfolio by splitting it up and therefore increasing trading costs, the time required for supervision, and the risk of gambling.

You may be sacrificing a potential rebalancing bonus by investing in a global crawler because I can’t rebalance its constituent parts.

But in my opinion, the benefits of a global crawler are worth it.

Not so well endowed

Interestingly, this same week a A wealth of common sense, Ben Carlson saw the itinerant rebalancing bonus in the wild.

After showing how a simple index-tracking ETF portfolio would have outperformed the returns of a lot of sophisticated gifted funds over the past decade, Ben noted that an investor with an 80/20 share / bond income divided into Three Vanguard monitoring funds in particular could have evoked even higher returns through an annual rebalancing:

If you simply had to multiply the weights of the 80/20 portfolio (48% US stocks, 32% international stocks, 20% bonds) by [their] you will get an annual return of 8.9%.

But the real ten-year annual return on the 80/20 portfolio is 9.1%.

How can this be?

The difference here is the rebalancing bonus.

Both authors show how they work and are worth reading.

All in moderation

While any investor will get bonus returns where they can get them, the best balance is considered a risk management tool rather than an alpha source.

You may or may not see a rebalancing bonus during your years as an investor. This is due to the luck of the historical draw.

But you’re likely to have a lower-risk portfolio if you keep assignments in line with where you’ve determined they should be.

As a naughty active investor, my portfolio is for a passive 60/40 configuration, which is quantum mechanics for Newtonian physics. Investments pop up and stay out of my portfolio all the time. Any of them could affect my returns (for better or for worse) much more than the modest impact of an annual rebalancing between asset classes.

However, these days I also try not to let anything get too out of your life. This can mean cutting out winning positions, which I know full well that it can be a behavioral bias and a mathematical mistake that slows long-term returns.

So why do it?

Because you never really see any catastrophic explosion in investment that doesn’t involve excessive exposure to an action, a sector, a geography, or an asset class.

Stay vaguely diversified and the worst you can do is relatively poor.

Of course, we all look forward to doing better! But avoiding disaster is the number one rule.

As Warren Buffett’s partner Charlie Munger says: “All I want to know is where I’m going to die, so I’ll never go.”

Love it!

By Monevator

The 22 maxims of Sir John Templeton – Monevator

General Standard Credit Risk Assessment – Monevator

From the archive-actor: How gold is taxed – Monevator


Note: Some links are results of Google search; in PC / desktop view you can click to read the piece without being a paid subscriber. Try privacy / incognito mode to avoid cookies. Consider subscribing if you read them a lot.

The pandemic is fueling the world’s biggest house price boom in two decades [Search result] – FT

… but UK housing boom cools as stamp holidays fade – Guardian

HMRC closes the unit created to investigate family investment companies [Search result] – FT

… but half a million UK partners and sole traders face bigger tax bills in 2022 [Search result] – FT

Indexing has saved U.S. investors £ 357 billion since 1996: TEBI

Products and services

Five-year mortgage rates fall below 1%. Is it time to fix it? – Which one

High service expense hostages – ThisIsMoney

FSCS will review your website following saver complaints [Search result] – FT

China’s heavy hand in emerging market ETFs – ETF.com

Sign up for Free trade via my link and we can both get a free fee of between 3 and 200 pounds free: Freetrade

A look under the hood of Vanguard’s global tracking funds: The Escape Artist

Houses for sale with summer houses, in pictures – Guardian

Comment and opinion

Employees – Indeed

Get off my lawn! – Slightly early retirement

The Cost of Friendship: Incognito Money Scribe

Playing with FIRE: the millennial movement to stop working [Video] – BBC

No one wants money: breaking the market

Sleeping on expensive financial pillows: investing in caffeine

A meaningful life, without buying: Zen habits

My nightmare investor: dollars and data

An interview with Carl Richards, also known as “Sketch Guy” [Podcast] – Morning Star

Naughty corner: active jokes

Howard Marks goes all macro … [PDF newsletter] – Oaktree Capital

Interesting things not to teach financial advisors in books: Josh Brown

The Benefits of Sin Actions – Alpha Architect

How the cryptographic market really works [Podcast] – OddLots using Stitcher

Do institutions or individuals win in the battle for the alpha? – Larry Swedroe

Like people, companies need money to survive black swan events: Klement on Investing

What is the point of hedge funds? – True

Covid corner

The level of covid infection in England falls on one in 75 people: Guardian

The surprise drop in Covid cases in UK investigators baffles: Nature

One-fifth of patients hospitalized with Covid are young adults – BBC

An ICU doctor despairs of those who avoid vaccination: HuffPost

Kindle book deals

The man without money: a year of economic life by Mark Boyle: £ 0.99 on Kindle

Hired: six months in Britain with low wages of Blood Bloodworth: £ 0.99 on Kindle

Happy money by Honda: £ 0.99 on Kindle

You are a bad guy for making money by Jen Sincero: £ 0.99 on Kindle

(Don’t have a Kindle? Buy one and join the cheap book club.)

Environmental factors

The six countries most likely to survive social collapse due to climate change – Mic

Would you eat tomato sushi? [Video] – BusinessWeek your Twitter

Forest fires sink in the Mediterranean when climate change hits Europe – via Twitter

Then the birds began to die: the Atlantic

Out of our rhythm

The weirdest 19th century sport that was cooler than football: the BBC

Blame the Fools: the Atlantic

Other people’s mistakes: Morgan Housel

Putting the reps: Banker on Fire

The Truth About America’s Quietest City: Wired

False news about politics and the vaccine makes bad actors millions: Forbes

Apple is now an anti-fragile company: TidBits

Sell ​​it all [Funny] – Litucidity via Twitter

And finally…

“The average investor invests terribly.”
– Tim Hale, Smarter investment

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