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?
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.”
The 22 maxims of Sir John Templeton – Monevator
General Standard Credit Risk Assessment – Monevator
From the archive-actor: How gold is taxed – Monevator
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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
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.)
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
“The average investor invests terribly.”
– Tim Hale, Smarter investment
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