FIREmenow
Full time employment: Posting here.
- Joined
- May 9, 2013
- Messages
- 756
It was quite refreshing - I wasn't looking for an FA, and he wasn't looking for new business. We just talked (imagine that?)
Anyway, he said he has been toying with a strategy that has to do with market volatility and asset allocation. He didn't share every last detail (I wouldn't have remembered it anyway), but it generally went like this (all his thoughts):
If one starts with a 50/50 AA and the market goes down some threshold (big) percentage in a year, say 15 or 20%, then the plan is to change the AA to 60/40. If it goes down big a second year in a row, then 70/30. He said he would never go past 70/30. He said the market has never had more than two "big" down years in a row (depends on what your definition of 'big' is, I am sure - I haven't looked). He said he had run the scenario over the last 42 years and showed that it always recovered, and worked out for the better.
Likewise, if one was at a non-preferred AA in one, or two consecutive really good years, move the AA back in the direction of the "norm".
I hadn't heard of this kind of strategy, but maybe it is common practice. In any case, I thought it interesting to think about.
Anyway, he said he has been toying with a strategy that has to do with market volatility and asset allocation. He didn't share every last detail (I wouldn't have remembered it anyway), but it generally went like this (all his thoughts):
If one starts with a 50/50 AA and the market goes down some threshold (big) percentage in a year, say 15 or 20%, then the plan is to change the AA to 60/40. If it goes down big a second year in a row, then 70/30. He said he would never go past 70/30. He said the market has never had more than two "big" down years in a row (depends on what your definition of 'big' is, I am sure - I haven't looked). He said he had run the scenario over the last 42 years and showed that it always recovered, and worked out for the better.
Likewise, if one was at a non-preferred AA in one, or two consecutive really good years, move the AA back in the direction of the "norm".
I hadn't heard of this kind of strategy, but maybe it is common practice. In any case, I thought it interesting to think about.