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..... that is not true of what you read from some of the investment community , just google rebalancing enhances long term performance .
"the conventional view of portfolio rebalancing is that it is a strategy to enhance long-term returns by periodically selling the investments that are up (and overweighted) to buy those that are down (and underweighted), in the process of realigning the portfolio to its original target allocation"
Yes, the Vanguard study depends on data from specific time periods. Selecting other time periods does indeed result in improved performance for a rebalanced portfolio. Most of us have little interest in the outcome for a long time period starting in 1926. I know I am more interested in what happens over a 10-20 year time period with today's markets. Rebalancing may not result in higher returns but we do so mainly to minimize risk.
Regarding plagiarism, yes this character cited the Vanguard study, but he still redid the graphs and put his name on them and in my opinion was trying to pretend that the data, analysis and conclusions were his. I cannot see that he added much to the Vanguard study. Frankly I don't see much value to the Vanguard study to begin with.
i can't think of much any of us can do in a paper that isn't going to contain data we get from other sources and compile in a different format .
just pick up any book and you will see all kinds of charts , drawings etc compiled from other sources . many times it is just ibbotson or morningstar data redrawn .
as far as going back to 1926 ? the events are not important , the math is and the outcomes are and you can't have the math without identifying the time frames you are interested in .
so if i was looking at how much i could safely draw and have still passed through the worst conditions i would first have to identify those worst conditions . then mathematically i have to analyze why they were so bad , then i would have to translate that in to a usable number that could be utilized today .
events mean little , the math behind the events are what is important .
so by going back to 1926 we get an assortment of all sorts of times frames and outcomes and looking at every 30 year period as an example we can identify 3 periods where things were pretty damn bad . but so what how does that help us today ?
it helps us because by analyzing the failures there is a common denominator to all of them mathematically .
that common denominator is every single time your real return averages less than 2% over the first 15 years of a 30 year time frame the money ran out .
now apply that number to your markets today .
research of the past does not mean we need to have the past play out the same , but it lets us analyze the failures in this case and once we know why they failed we can apply the reasons to today .
since no one knows what is going to happen going forward the longer the time frames and the more varied the situations the better the sampling for any data manipulations .
it certainly wouldn't do much good looking at 1987 to 2003 today when markets averaged almost 14% for 17 years . so you really need a wide sampling of things taking in a mix of horrible times , good times and great times . .
Last edited by mathjak107; 01-03-2016 at 09:25 AM..
Actually I can think of lots of topics where original thought is important. Rehashing a 6 year old study doesn't seem to be anything I would be proud of. Since he cited the Vanguard study I guess he is off the hook for plagiarism but just barely.
This study has almost nothing to do with 2% yields and long term safe withdrawal rates. The question here is does rebalancing result in improved portfolio yields? Clearly in some circumstances and over some past time periods, that does not happen and rebalancing can result in somewhat decreased yields. For other time periods, rebalancing can result in improved yields. An excellent example would have been rebalancing during the 2008-9 recession. Anyone who sold on the decrease and bought back in on the low end would have made a great deal more money than standing pat and waiting.
Personally I think we need to be very cautious about predicting future investment performance from the long distant past. Our economy, the world economy and regulatory environment have changed very substantially. We could be better off looking at the changes and trends and downplaying analysis of distant past performance. I suspect the dimwit analysts are not up to the task.
I didn't start investing until I first got a 401k when I was nearly 40. At the time, I was advised I should have about 60% in stocks (100 minus my age). This may have made sense if I had already had a substantial stash, and wanted to reduce my exposure to risk, but is probably not the best strategy for someone of any age starting from zero. But I did as advised because I didn't have a clue. However, I did not rebalance every year, watched my allocation change as stocks gained, and wondered why I should bother including bonds at all. I eventually re-allocated to 70/30 in favor of stocks because growth was more important to me given my late start. I've thought of going to 100% equity, but never had the nerve for it. I still don't re-allocate as often as suggested. I worry some because I want to retire in 3-4 years, and the current 401k administrator regularly sends emails regarding my inappropriate allocation. I haven't even thought of re-balancing among similar-returning asset classes, and will probably leave that alone until I learn more.
I think at 40 100% in equities in your 401k is ok. For the next few years - as interest rates increase - bond funds will be a loser and not fit into the history that lead to the 60/40.
More importantly if your 401k is for retirement you do not need bonds to help protect you from a down market. If the market goes down you have years for it to recover so bonds are of little value to you. When you get to within 10 years of retirement then you should start thinking of adjusting the mix. You will want either bonds or cash to cover your expenses for a couple of years if the market tanks. You do not want to be forced to sell shares when the market is down and cash and bonds can help you out them.
Actually I can think of lots of topics where original thought is important. Rehashing a 6 year old study doesn't seem to be anything I would be proud of. Since he cited the Vanguard study I guess he is off the hook for plagiarism but just barely.
This study has almost nothing to do with 2% yields and long term safe withdrawal rates. The question here is does rebalancing result in improved portfolio yields? Clearly in some circumstances and over some past time periods, that does not happen and rebalancing can result in somewhat decreased yields. For other time periods, rebalancing can result in improved yields. An excellent example would have been rebalancing during the 2008-9 recession. Anyone who sold on the decrease and bought back in on the low end would have made a great deal more money than standing pat and waiting.
Personally I think we need to be very cautious about predicting future investment performance from the long distant past. Our economy, the world economy and regulatory environment have changed very substantially. We could be better off looking at the changes and trends and downplaying analysis of distant past performance. I suspect the dimwit analysts are not up to the task.
You can't actually make that claim in such a blanketed nature because the rebalancing could have also cost you money as well depending on your timing
You can't actually make that claim in such a blanketed nature because the rebalancing could have also cost you money as well depending on your timing
You are correct. Those who do annual rebalancing could have lost a bushel of money. I go by percentages and that strategy was highly successful for that time period. It would have reduced my yields since then. But I have done minimal rebalancing since 2009 and have substantially increased my stock allocation. I strongly considered an allocation reduction at this time last year. It would not have made any substantial difference.
i wouldn't be a bit surprised if vanguard took those charts and data from other sources as well and re-drew it . very few study's do everything from scratch .
i wouldn't be a bit surprised if vanguard took those charts and data from other sources as well and re-drew it . very few study's do everything from scratch .
You might want to look at the Vanguard charts. The source of data is clearly indicated. Vanguard claims they did the calculations and shows the sources of the raw data.
Even so, one thief does not justify another.
A review article might cite the work of others and provide a summary. This was not presented as a review. Rather it is presented as if the work was original.
the rebalancing helps returns mantra we hear all the time may be far from true .
since markets are usually up far more then they are down rebalancing usually takes money out of the winners and moves it to LOWER potentially growing assets like bonds .
kitces found there is a big difference in returns at the end of the day when you rebalance between assets with the same potential for gains vs rebalancing with assets like bonds which do not have the same potential for gains .
rebalancing between assets with different gain potential is a form of risk management .
other wise over time the allocation to the greater growing asset will become bigger and bigger . it can take a 50/50 mix and eventually make it a 80/20 mix with no rebalancing .. .
so while rebalancining typically mitigates risk it generally adds little to the growth of things unless done between similar growth potential assets like equity's to reits or equity's to commodity's , small caps to large caps , etc .
going equity's to bonds just about guarantees lower returns over the long term but it does reduce risk and volatility and that can be a good thing too . ..
yep , so it will likely be very rare that in that case selling the better performing asset to buy more of the worst performing asset will enhance returns .
which is opposite to what you see for the most part if you google it .
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