"Buy & Hold" Asset Allocation article

[ladelfina]

Maybe someone else can pick this apart, but I thought it was a good basic representation, with the charts and figgers, of why/how asset allocation matters. The differences between the basic agglomerated portfolio and the more finely-tuned ones are startling.. on the order of 2-3x the growth over 30-40 years.

http://www.fundadvice.com/articles/b...-strategy.html

My only comment'd be that this isn't truly a "buy&hold" scenario since it seems to be a given that the portfolio'd consist of funds --sure, index funds.. but they are still not exactly the same as b&h.

I like the close:

Quote:

To my mind, this is the best an investor can do. And when you have done your best, it’s time to turn your attention to something else. A very good “something else” is to make sure you are living your life the way you want to.

[Olav23]

This seems to be more of an article on why diversification is good, more than why buy and holding investing is good.


I just got my copy of the Black Swan by Taleb in today, it'll be interesting to revisit all this asset allocation and risk measurements once I finish, and see if it alters my decision process at all.

[jIMOh]

a quote for people without the time to read the whole thing:

Quote:

Even though this strategy is based on academic research, it’s really fairly simple. If I had to reduce it to a single sentence, here’s what I would say: The Ultimate Buy-and-Hold Strategy uses no-load mutual funds to create a sophisticated asset allocation model with worldwide diversification and the addition of value stocks, small company stocks and real estate funds to a traditional large-cap growth stock portfolio.

further down:

Quote:

If there is a “catch” to this strategy, it’s availability. You cannot buy it in a single mutual fund. You can put it together approximately using Vanguard’s low-cost index funds; but Vanguard doesn’t offer every piece of it. You can get each of the individual pieces, but you may have to open more than a single account and you might have to pay more in expenses than I would regard as ideal. In my view, the ultimate way to implement this ultimate strategy is to hire a professional money manager who has access to the institutional funds offered by Dimensional Fund Advisors. (More on that later.)

More substance

Quote:

IT’S THE ASSETS THAT MAKE THE DIFFERENCE The most important building block of this strategy is your choice of assets. Many investors think success lies in buying and selling at exactly the right times, in finding the right gurus or managers, the right stocks or mutual funds. In short, in being in the right place at the right time. Those are elements of luck, and they can work against you just as much as they can work for you. Here’s the truth: Your choice of asset classes has far more impact on your results than any other investment decision you will make. I know this flies in the face of a lot of conventional wisdom and almost all the marketing hype on Wall Street, so I want to repeat it. Your choice of the right assets is far more important than exactly when you buy or sell those assets. And it’s much more important than finding the very “best” stocks, bonds or mutual funds.

I saw very little on rebalancing... just comments on adding more asset classes and showing how volatility decreased with returns increasing.

[yakers]

Quote:

Originally Posted by jIMOh I saw very little on rebalancing... just comments on adding more asset classes and showing how volatility decreased with returns increasing.

I would have thought rebalancing was a key issue. One would set up rebalancing either periodicly (once a year or less often?) when the AA shifts by a given %, changed over time like a target fund shifting AA or that new contibutions would go into selected asset calss to keep things in balance. But no discussion of that.And does it change from the accumulation to the withdrawal phase?

[jIMOh]

to me asset allocation and rebalancing need to be together.

if you have an allocation and do not rebalance, then you really have a new allocation which you may or may not want.

[LOL!]

Paul Merriman's web site www.fundadvice.com has quite a bit on rebalancing. They don't put everything in one article because most folks can't read more than 5 minutes at a time.

[yakers]

Quote:

Originally Posted by Olav23 This seems to be more of an article on why diversification is good, more than why buy and holding investing is good. I just got my copy of the Black Swan by Taleb in today, it'll be interesting to revisit all this asset allocation and risk measurements once I finish, and see if it alters my decision process at all.

Small hijack to this thread, when you finish the Black Swan book please post a review. I read The Economist review ( http://tinyurl.com/35zj5w ) and that is all I have time for. I thought they would trash the book but they were somewhat positive.
Part of the review:"And he suggests concentrating on the consequences of Black Swans, which can be known, rather than on the probability that they will occur, which can't (think of earthquakes)."

[2B]

This is a great article for people to see the benefits of buy and hold and the need for asset allocation. It is even more interesting since a financial advisor documents the uselessness of paying a financial advisor if you can read and figure out how to log on to Vanguard by yourself.

As for the asset classes, I think its important to point out that past performance is no guarantee of future performance. Over the next 30 years, Portfolio 1 may kick Porfolio 6's butt. I do agree that having the diversified asset classes of Portfolio 6 makes it more likely to be the best performer over the next 30 years. Unfortunately, no one knows.

You can also decide if the "value" and "growth" portions can be adequately covered by a single fund such as the Vanguard Total Market Index or does the extra effort pay off to get individual funds for each segment. I don't know and haven't seen any data.

I find these types of articles to be very interesting although I did read this particular article several weeks ago.