Larry Swedroe on Diversification

[walkinwood]

If you're wondering why you have a diversified portfolio while watching the S&P 500 soar over the past few years, Larry Swedroe gives you a history lesson & some encouragement to stay the course

https://seekingalpha.com/article/43...lways-working-sometimes-you-dont-like-results

 

[UnrealizedPotential]

Well, I have come to like investments that do well in different market environments and having a portfolio like that is easier said than done. So as a result I hold index funds, bond funds, some reits, balanced funds and some cash.

I am not promoting one way over another as everyone is different and has different needs. I am happy with what I have done and I sleep pretty well and I have enough income. I have also tried to position my investments where if things get ugly I don't lose my shirt.

It is not widely known, but plenty of investors got killed investing in the 2X etracs. One guy I read about lost 800K during the pandemic stock meltdown in March. Poor guy. If only he had known. So I try to have investments that will survive even in the worst of times and that doesn't include over leveraged investments.

 

[target2019]

Two points in the article which stand out for me are:

... one of the most common and costly mistakes even smart investors make is thinking that when it comes to judging the performance of risky assets, three years is a long time, five years is a very long time, and 10 years is an eternity. That is simply wrong.

and

The lesson I hope investors take away is that concentrating risk in a U.S. market portfolio, while eliminating the tracking variance problem, is the riskier strategy because it puts all your risks in one risk basket.

I know that the results of the last 12 years have a greater impression on me than longer periods. Now where are the returns for the next 12 years stored?

 

[big-papa]

Yep, Larry is one of the good guys! The best way I've found to avoid any sort of tracking error regret is to simply not track anything but my portfolio and to not compare it against any benchmark. The only thing that matters is whether my long term goals are being met by what I'm doing. Might there be another portfolio that would get me there faster or result in a larger dollar amount? Sure, there's always another portfolio better than the one you have, but you have no way of knowing that in advance. Conversely, there's always another portfolio that is worse than what you have.

Figure how how you want to diversify, put together your plan, stick to it and ignore everything else. If, occasionally, you must peek at what sort of short term performance others might be experiencing, remind yourself the reasons you put together the portfolio you have in the first place. Helps some people to put together an Investment Policy Statement as sort of a contract to yourself.

There are many roads to Dublin.

Cheers

 

[DrRoy]

I know that the results of the last 12 years have a greater impression on me than longer periods. Now where are the returns for the next 12 years stored?

+1

 

[kevink]

I greatly admire and respect Larry Swedroe but think that this post of his portrays market history as cyclical when that’s not always the case. There’s been a major shift since 2007 that’s been launched into warp speed by the pandemic.

This NYT article is the best of several recent pieces I’ve read in showing why small caps and value may not get their day in the sun anytime soon.

http://https://www.nytimes.com/2020/04/28/business/coronavirus-stocks.html