audreyh1
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
For the record, when doing spreadsheets to try to understand how asset allocation and rebalancing may provide benefit, it doesn't help to just look at the long-term returns. In a generally rising market, rebalancing will not outperform holding the riskier asset classes. Maximizing returns alone is NOT the goal of asset allocation and rebalancing.
What you want to study is the risk-adjusted return, which looks at the volatility (i.e. risk) as well as the performance. What asset allocation rebalancing is trying to do is to significantly reduce the volatility of a portfolio while capturing most of the performance.
It might just be easier to read the works done on Modern Portfolio Theory and The Efficient Frontier. These show the curves of performance versus risk (volatility in terms of standard deviations) for various asset class combinations rebalanced over various periods of time. You can then find the historical sweet spot on the curve that gives that optimizes performance versus volatility for a given set of asset classes. Modern portfolio theory - Wikipedia, the free encyclopedia
I got most of my understanding through Frank Armstrong's web posting. He now has a book that you can read part of it through google books The Informed Investor: a Hype-Free Guide to Constructing a Sound Financial Portfolio
Even Bogle's comments above indicated he ignored the volatility part of the equation.
Audrey
What you want to study is the risk-adjusted return, which looks at the volatility (i.e. risk) as well as the performance. What asset allocation rebalancing is trying to do is to significantly reduce the volatility of a portfolio while capturing most of the performance.
It might just be easier to read the works done on Modern Portfolio Theory and The Efficient Frontier. These show the curves of performance versus risk (volatility in terms of standard deviations) for various asset class combinations rebalanced over various periods of time. You can then find the historical sweet spot on the curve that gives that optimizes performance versus volatility for a given set of asset classes. Modern portfolio theory - Wikipedia, the free encyclopedia
I got most of my understanding through Frank Armstrong's web posting. He now has a book that you can read part of it through google books The Informed Investor: a Hype-Free Guide to Constructing a Sound Financial Portfolio
Even Bogle's comments above indicated he ignored the volatility part of the equation.
Audrey