Comments on: The Impact of a Couple of Bad Years!

By: Investment Strategies That Work - Day 2 - Market Timing

Investment Strategies That Work - Day 2 - Market Timing — Tue, 21 Apr 2009 12:52:31 +0000

[...] I said, market timing works only when you take a systematic, methodical approach using objective data to guide your tactics. Let’s look at one market timing strategy that does just that. Take [...]

By: Mr Credit Card

Mr Credit Card — Tue, 30 Jan 2007 22:53:26 +0000

This brings up an interesting topic – which is capital preservation is very important because any impairment in capital dealys your financial goals considerably. The indices underperformed massively after 2000 because they were overvalued.

Which brings the point to an interesting debate : Is index investing the end all and be all way because of its low cost? What are you exactly paying a fund manager for? Simply outperformance of index , or making sure he or she does not overpay for stocks? Bear in mind that many value fund managers have positive returns from 2000 to 2006.

I’m rambling on – but just some food for thought.

By: Miguel

Miguel — Mon, 29 Jan 2007 01:00:42 +0000

@ Jonathon – I’m not sure where to point you for reading material. But, it’s pretty simple (and I’m probably using the wrong term anyhow). First of all, I subscribe to a theory that asset allocation is the primary driver of returns. And that said, I also believe in broad market diversification within asset classes – i.e. I don’t want any single portfolio manager to have a sizable impact.

The key with asset allocation strategies is that in order to maintain the target asset allocation, the portfolio has to be rebalanced on a frequent basis. Say purely as an example, you want 80% stocks and 20% bonds. If equities are doing well relative to bonds, then you might end up with 90% equities, 10% bonds. Therefore, in order to rebalance, some equites are sold in order to buy some bonds and bring the allocation mix back into balance. In this way, you are constantly selling high and buying low, at least on a relative basis. Of course, my portfolio mix is somewhat more sophisticated than simply stocks vs bonds, but I’m only illustrating the method.

The dynamic part is that with some funds (the one I use), this rebalancing happens on a regular basis without my having to do anything. Rather then use the word dynamic (which implies real time), I should have said automatic.

So, now I think you can see, it’s a pretty old concept.

By: » Weekly Blog Round-Up on Consumerism Commentary: A Personal Finance Blog

» Weekly Blog Round-Up on Consumerism Commentary: A Personal Finance Blog — Sun, 28 Jan 2007 19:58:00 +0000

[...] AllFinancialMatters illustrated the effect of a couple of bad years in the market. [...]

By: » Weekly Roundup on Blueprint for Financial Prosperity

» Weekly Roundup on Blueprint for Financial Prosperity — Sun, 28 Jan 2007 13:54:53 +0000

[...] JLP takes a look at the impact of a few bad years on your investment returns. [...]

By: Erik’s aktie blog » Blog Archive » Et par dårlige år kan gøre ondt

Sat, 27 Jan 2007 20:33:02 +0000

[...] http://allfinancialmatters.com/2007/01/26/the-impact-of-a-couple-of-bad-years/ [...]

By: Jonathan

Jonathan — Sat, 27 Jan 2007 19:53:31 +0000

I haven’t heard much about dynamic balancing asset allocation. Can someone point me to a good tutorial?

By: JLP

JLP — Sat, 27 Jan 2007 05:05:45 +0000

jr,

There’s nothing wrong with DCA. I think it is a great asset allocation strategy. Those “gurus” who put it down, don’t know what they are talking about. And you’re right: MOST of us can’t invest any other way.

By: jr

jr — Sat, 27 Jan 2007 05:03:24 +0000

Of course, if you DCA instead of lump sum invest in an up year (and the market is up 66% of the time) then you’ll lose money.

Sadly, most of us have to DCA since we don’t have a lump sum.

By: Miguel

Miguel — Fri, 26 Jan 2007 23:29:22 +0000

This is why I am a fan of both dollar-cost averaging and dynamic balancing asset allocation strategies. With dollar cost averaging, I think the returns get smoothed out better. And with dynamic balancing between asset classes, it forces you to sell high and buy low – at least on a relative basis between asset classes. Hope that made sense (I know what I’m trying to say but not so sure I said it very well).