bluejeansman
Confused about dryer sheets
- Joined
- Nov 16, 2008
- Messages
- 9
I hear you. Simplicity is good, but we are not talking about some ultra-complicated market-timing day trading strategies. Slice and dice is just an extra 15 minutes a year. Whats so complicated about that ?
To explain : lets say I was in the US (Lets leave the UK equation out of the picture). In taxable account, lets say I want 60% equities, 40% bonds. To keep things really simple, what Vanguard funds would you recommend ? Just S&P 500 index (VFINX) and Total Bond Market Index (VBMFX) ? If I start like this, the immediate response many people would provide is : "No, you probably need Total Stock Market index (VTSMX) and split the bonds into short-term bonds and tips". Why VTSMX ? Because it has some small caps also. The moment you start thinking along these lines, you are heading towards diversification territory.
Why diversification ? Just to hedge your bets. Over the very long term, say 50 years, maybe nothing matters, and (VFINX+VBMFX) may likely be same as (Japan Equities + UK Bonds) who knows ? But most of us invest for say 25 year periods, not 100 years. And it helps to diversify, i.e get a little helping of all equity asset classes.
If this is not a powerful argument for slice/dice, I dont know what is. For example, VFINX has gone nowhere in last 10 years. But a US equity portfolio split equally between Large X Small X Growth X Value has done quite well even in bad periods. Of course nobody can predict the future, but it is just about maximing the odds of good return with less risk. Having a little helping of every equity asset class helps.
The links I sent in my earlier post all explain this in a much better way, especially FundAdvice.com - Where's the "Total" in the Total Stock Market Fund?
So far I have not heard a solid reason against slice/dice except that it is "too complicated". Yet as far as I can tell, the only complication is the little bit of extra work you have to do come annual-rebalance time. But a spreadsheet can sort that out for you. Of course there may be trading costs or tax reasons to consider.
So far all the evidence seems to indicate to me that slice/dice has a decent chance of providing better returns with less risk than a total stock market portfolio. Given this, why would you not go for it ? Please give me a logical reason other than "personal preference".
To explain : lets say I was in the US (Lets leave the UK equation out of the picture). In taxable account, lets say I want 60% equities, 40% bonds. To keep things really simple, what Vanguard funds would you recommend ? Just S&P 500 index (VFINX) and Total Bond Market Index (VBMFX) ? If I start like this, the immediate response many people would provide is : "No, you probably need Total Stock Market index (VTSMX) and split the bonds into short-term bonds and tips". Why VTSMX ? Because it has some small caps also. The moment you start thinking along these lines, you are heading towards diversification territory.
Why diversification ? Just to hedge your bets. Over the very long term, say 50 years, maybe nothing matters, and (VFINX+VBMFX) may likely be same as (Japan Equities + UK Bonds) who knows ? But most of us invest for say 25 year periods, not 100 years. And it helps to diversify, i.e get a little helping of all equity asset classes.
If this is not a powerful argument for slice/dice, I dont know what is. For example, VFINX has gone nowhere in last 10 years. But a US equity portfolio split equally between Large X Small X Growth X Value has done quite well even in bad periods. Of course nobody can predict the future, but it is just about maximing the odds of good return with less risk. Having a little helping of every equity asset class helps.
The links I sent in my earlier post all explain this in a much better way, especially FundAdvice.com - Where's the "Total" in the Total Stock Market Fund?
So far I have not heard a solid reason against slice/dice except that it is "too complicated". Yet as far as I can tell, the only complication is the little bit of extra work you have to do come annual-rebalance time. But a spreadsheet can sort that out for you. Of course there may be trading costs or tax reasons to consider.
So far all the evidence seems to indicate to me that slice/dice has a decent chance of providing better returns with less risk than a total stock market portfolio. Given this, why would you not go for it ? Please give me a logical reason other than "personal preference".