2 funds vs 1 fund, pros and cons ?
2 funds vs 1 fund, pros and cons ?
Hi,
What are the pros and cons of owing 1 fund instead of 2 ?
Assuming I want to implement a 60/40 portfolio, should I choose 2 funds (equity and bonds) or just 1 (Vanguard Lifestrategy 60) ?
All of you who own 2 funds, if you were to start from zero, would you go the same path of opt for 1 funds instead and why ?
Thanks
What are the pros and cons of owing 1 fund instead of 2 ?
Assuming I want to implement a 60/40 portfolio, should I choose 2 funds (equity and bonds) or just 1 (Vanguard Lifestrategy 60) ?
All of you who own 2 funds, if you were to start from zero, would you go the same path of opt for 1 funds instead and why ?
Thanks
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Re: 2 funds vs 1 fund, pros and cons ?
Vanguard LifeStrategy is not suitable in taxable account as it has capital gains. See link below. Even in an IRA, I would prefer two/three funds. Easier to change asset allocation, fund composition when desired. Like one might want to add different % of international or add SCV. One might want different types of fixed income bonds, TIPs, CDs, iBonds etc..
https://investor.vanguard.com/mutual-fu ... ions/vasgx
Can implement with VT/BND or VTI/VXUS/BND etc
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://investor.vanguard.com/mutual-fu ... ions/vasgx
Can implement with VT/BND or VTI/VXUS/BND etc
https://www.bogleheads.org/wiki/Three-fund_portfolio
No individual stocks.
Re: 2 funds vs 1 fund, pros and cons ?
I hold more than 2 funds and I wouldn't do it any other way.Spgold wrote: ↑Mon May 16, 2022 12:57 am Hi,
What are the pros and cons of owing 1 fund instead of 2 ?
Assuming I want to implement a 60/40 portfolio, should I choose 2 funds (equity and bonds) or just 1 (Vanguard Lifestrategy 60) ?
All of you who own 2 funds, if you were to start from zero, would you go the same path of opt for 1 funds instead and why ?
Thanks
As somebody noted, balanced funds of any kind when held in a taxable account aren't going to be all that efficient. Still, though, some people do it because they find more value in the simplicity of holding only a single fund and never needing to rebalance. Really depends on what you value the most.
cheers.
Re: 2 funds vs 1 fund, pros and cons ?
I think I hold 8-10 or so funds.
If you want to do tax loss harvesting, then you’ll probably need to own at least two “title world” funds, and if you split US/ex-US for better tax optimization or asset location, then you’ll probably have 4 funds if you’re doing TLH. Then maybe you have a bond fund. Then if you want a small-value tilt and are tax-loss harvesting that, you’re up to 6-7 funds.
perhaps you then want different funds in tax-advantages than taxable so you don’t want worry about was sales, so now you’re up to 8-10 funds.
Flexibility and optimization are more important to me than the allure of only holding a single fund.
If you want to do tax loss harvesting, then you’ll probably need to own at least two “title world” funds, and if you split US/ex-US for better tax optimization or asset location, then you’ll probably have 4 funds if you’re doing TLH. Then maybe you have a bond fund. Then if you want a small-value tilt and are tax-loss harvesting that, you’re up to 6-7 funds.
perhaps you then want different funds in tax-advantages than taxable so you don’t want worry about was sales, so now you’re up to 8-10 funds.
Flexibility and optimization are more important to me than the allure of only holding a single fund.
Crom laughs at your Four Winds
Re: 2 funds vs 1 fund, pros and cons ?
Suppose we are talking about a "balanced" strategy (60% stocks + 40% bonds).
There's little to no difference between an ETF that invests at once in 60% stocks and 40% bonds and you buying two corresponding ETFs and balancing them at a 60%-40% ratio.
Some nuances may be different. E.g, you have more control if you you do the balancing yourself. In theory, you are also more diversified with two ETFs, but if they're both from the same issuer, then, in practice, having two ETFs does not help with diversification.
There's little to no difference between an ETF that invests at once in 60% stocks and 40% bonds and you buying two corresponding ETFs and balancing them at a 60%-40% ratio.
Some nuances may be different. E.g, you have more control if you you do the balancing yourself. In theory, you are also more diversified with two ETFs, but if they're both from the same issuer, then, in practice, having two ETFs does not help with diversification.
Re: 2 funds vs 1 fund, pros and cons ?
I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
If there is some argument why I'm looking at this wrong, I welcome the critique.
Re: 2 funds vs 1 fund, pros and cons ?
But you're timing the market this way. Why would you balance your funds better than a fund manager? Assuming you never want to deviate from your plan, they will ALWAYS keep the balance at 60% stocks, 40% bonds (or whatever other arbitrary balance you choose).quisp65 wrote: ↑Mon May 16, 2022 7:43 am I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
Of course, I don't really believe fund managers necessarily have your best interests at heart and a 60%-40% strategy is always best (it's just easy to implement, not necessarily best). But I'm playing devil's advocate here.
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Re: 2 funds vs 1 fund, pros and cons ?
I would prioritize tax efficient placement over a selection of 1 vs 2 funds. But then we have several different accounts at different providers with different fund choices available and we could not pick a single fund even if we wanted.
Re: 2 funds vs 1 fund, pros and cons ?
That's not how diversification works. It's not the "issuer" that matters when it comes to diversification, but what the fund actually holds.
Re: 2 funds vs 1 fund, pros and cons ?
It does matter if there are indirect problems that force the underlying ETF issuer to liquidate somehow.
Of course, that would be a remote risk, so the chances of you losing money because Vanguard went broke are almost zero (and even then, most likely their ETFs would be sold to someone else).
As for asset diversification, if the ETF is truly transparent, the 60% stock ETF you are holding is probably the same as investing 60% of your money into S&P stocks. So, in this sense, you are diversified, even though you are only seeing only one asset.
Re: 2 funds vs 1 fund, pros and cons ?
A pro of 1 fund is simplicity. In some cases that may be worth paying a premium (more taxes). My spouse understands almost nothing of what we discuss here and has no interest in learning. When I depart she ain’t rebalancing and paying attention to tax efficient placement.
Re: 2 funds vs 1 fund, pros and cons ?
I prefer one fund over two. But not one of those TDF or life strategy funds. We only own US total market/SP500 index fund as one fund with some CASH. Works for us.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
Re: 2 funds vs 1 fund, pros and cons ?
For me it would really depend on what my actual implementation looked like.
As others have said, holding tax inefficient funds in taxable accounts should be avoided if you can. Each individual investor will need to assess the tradeoff of higher taxes against the simplicity of implementation.
You can see in my signature what my overall AA is, but I actually hold a bunch of different funds because of fund availability in 401k/403b, and I break out a tax-efficient sub-sector for taxable.
My holdings look like this:
Taxable: VEA
Roth IRAs: VWO, VEA, EDV, LTPZ
401k: the institutional+ versions of S&P 500 and developed international markets
403b: TIAA traditional, VIMAX, TISBX
HSA: The institutional+ version of S&P 500
TreasuryDirect: EE-bonds & I-bonds
The 401k breaks up the US market into S&P 500 & extended index, and breaks up international with developed vs emerging.
The 403b has dirt cheap (0.05/0.06 ERs) small & midcap funds, but then expenses jump to 0.19 and quickly up into the 0.3-0.5+ region for other things, so I only hold small & midcap there for equities.
The HSA has similar splitting as my 401k.
If all my investments were in brokerage accounts with no fund availability restrictions, I'd simplify to:
VEA + VWO comprising the international market (to keep VEA in taxable).
VTI for the US market.
Fixed income would stay the same.
And if I wanted even more simplicity at the cost of more taxes, VT would be my only equity holding. Or hold VTI + VXUS (VXUS in taxable) so i don't lose the foreign tax credit (which, IIRC, you just eat the loss of when you hold VT in taxable).
As others have said, holding tax inefficient funds in taxable accounts should be avoided if you can. Each individual investor will need to assess the tradeoff of higher taxes against the simplicity of implementation.
You can see in my signature what my overall AA is, but I actually hold a bunch of different funds because of fund availability in 401k/403b, and I break out a tax-efficient sub-sector for taxable.
My holdings look like this:
Taxable: VEA
Roth IRAs: VWO, VEA, EDV, LTPZ
401k: the institutional+ versions of S&P 500 and developed international markets
403b: TIAA traditional, VIMAX, TISBX
HSA: The institutional+ version of S&P 500
TreasuryDirect: EE-bonds & I-bonds
The 401k breaks up the US market into S&P 500 & extended index, and breaks up international with developed vs emerging.
The 403b has dirt cheap (0.05/0.06 ERs) small & midcap funds, but then expenses jump to 0.19 and quickly up into the 0.3-0.5+ region for other things, so I only hold small & midcap there for equities.
The HSA has similar splitting as my 401k.
If all my investments were in brokerage accounts with no fund availability restrictions, I'd simplify to:
VEA + VWO comprising the international market (to keep VEA in taxable).
VTI for the US market.
Fixed income would stay the same.
And if I wanted even more simplicity at the cost of more taxes, VT would be my only equity holding. Or hold VTI + VXUS (VXUS in taxable) so i don't lose the foreign tax credit (which, IIRC, you just eat the loss of when you hold VT in taxable).
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Re: 2 funds vs 1 fund, pros and cons ?
Depending on the portfolio allocation concavity, then the poster is indeed correct in the sense that more risk is taken when we have to and not take risk when we do not. If this is the intent, then it is not market timing because we are optimizing towards a target amount of wealth at a given age. Age, I assert, is not the only input for an allocation; in some regards, portfolio value is as well.Booglie wrote: ↑Mon May 16, 2022 8:48 amBut you're timing the market this way. Why would you balance your funds better than a fund manager? Assuming you never want to deviate from your plan, they will ALWAYS keep the balance at 60% stocks, 40% bonds (or whatever other arbitrary balance you choose).quisp65 wrote: ↑Mon May 16, 2022 7:43 am I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
We are not trying to beat a fund manager here, we are just skewing the long-term return profile; if it be more or less than a constant allocation, that is not the reason for it.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: 2 funds vs 1 fund, pros and cons ?
Vanguard does not hold the stocks underlying the funds, they are held by the funds themselves. So Vanguard going broke would not affect your holdings. Anyway, this is such an extreme case (can you point to a single case where investors lost money because of the fund family going out of business?) that discussion is pointless.Booglie wrote: ↑Mon May 16, 2022 9:13 amIt does matter if there are indirect problems that force the underlying ETF issuer to liquidate somehow.
Of course, that would be a remote risk, so the chances of you losing money because Vanguard went broke are almost zero (and even then, most likely their ETFs would be sold to someone else).
As for asset diversification, if the ETF is truly transparent, the 60% stock ETF you are holding is probably the same as investing 60% of your money into S&P stocks. So, in this sense, you are diversified, even though you are only seeing only one asset.
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Re: 2 funds vs 1 fund, pros and cons ?
So you like to time the market?quisp65 wrote: ↑Mon May 16, 2022 7:43 am I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
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Re: 2 funds vs 1 fund, pros and cons ?
Not quite as simple as that. If the portfolio value has considerably grown, the need of taking risk decreases. If it drops, the need of taking risk increases. This is concavity in the asset allocation and is not market timing. Some elect to keep a more constant risk profile; some elect for a floor of safe assets (which cuts risk when things do poorly and increases when things do well). Which is right or wrong has more to do with goals than broad stroke claims of market timing.coffeeblack wrote: ↑Mon May 16, 2022 12:14 pmSo you like to time the market?quisp65 wrote: ↑Mon May 16, 2022 7:43 am I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: 2 funds vs 1 fund, pros and cons ?
Well first, if the market is low you are not suppose to sell low. So when you rebalance you would either buy stock in that situation or sell bonds. The one fund would do that for you.secondopinion wrote: ↑Mon May 16, 2022 12:27 pmNot quite as simple as that. If the portfolio value has considerably grown, the need of taking risk decreases. If it drops, the need of taking risk increases. This is concavity in the asset allocation and is not market timing. Some elect to keep a more constant risk profile; some elect for a floor of safe assets (which cuts risk when things do poorly and increases when things do well). Which is right or wrong has more to do with goals than broad stroke claims of market timing.coffeeblack wrote: ↑Mon May 16, 2022 12:14 pmSo you like to time the market?quisp65 wrote: ↑Mon May 16, 2022 7:43 am I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
2nd, and the most dangerous in an investors language are the words "I feel". "I felt". "I believe". Personal beliefs based on personal feelings and psychological biases have been shown to be the biggest weakness in most investors.
Every day trader I know feels they can beat the market. Either they were sold on the idea or they did it a few times so now their are sold. Gamblers are the same. The reality is they don't.
There are some basic rules for rebalancing and it is psychologically difficult to sell stock when the markets are high and you are making money. Then there is the fear of losing even more money when the markets are down so people sell. Not everyone, but a significant number of investors fall into this trap. If your portfolio goes up to where you have 15 million and you spend 1.5% of that per year you most likely will not have to rebalance if you don't feel like it.
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Re: 2 funds vs 1 fund, pros and cons ?
1. The market is down and we are not supposed to sell? This suggests some serious opinion here. A constant allocation rebalances merely to maintain a certain amount of risk and really has nothing to do with a opinion that we should not sell on lows. In fact, those who firmly believe this line of thinking of not selling on lows should increase their risk portion of their allocation in this case. I merely increase my risk allocation during such events precisely to increase the probability of meeting my goals when a bear happens, and decrease the total risk when a bull is sustained (again to increase probability of success); this is an entirely different reason from the thought of not selling during lows.coffeeblack wrote: ↑Mon May 16, 2022 11:32 pmWell first, if the market is low you are not suppose to sell low. So when you rebalance you would either buy stock in that situation or sell bonds. The one fund would do that for you.secondopinion wrote: ↑Mon May 16, 2022 12:27 pmNot quite as simple as that. If the portfolio value has considerably grown, the need of taking risk decreases. If it drops, the need of taking risk increases. This is concavity in the asset allocation and is not market timing. Some elect to keep a more constant risk profile; some elect for a floor of safe assets (which cuts risk when things do poorly and increases when things do well). Which is right or wrong has more to do with goals than broad stroke claims of market timing.coffeeblack wrote: ↑Mon May 16, 2022 12:14 pmSo you like to time the market?quisp65 wrote: ↑Mon May 16, 2022 7:43 am I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
2nd, and the most dangerous in an investors language are the words "I feel". "I felt". "I believe". Personal beliefs based on personal feelings and psychological biases have been shown to be the biggest weakness in most investors.
Every day trader I know feels they can beat the market. Either they were sold on the idea or they did it a few times so now their are sold. Gamblers are the same. The reality is they don't.
There are some basic rules for rebalancing and it is psychologically difficult to sell stock when the markets are high and you are making money. Then there is the fear of losing even more money when the markets are down so people sell. Not everyone, but a significant number of investors fall into this trap. If your portfolio goes up to where you have 15 million and you spend 1.5% of that per year you most likely will not have to rebalance if you don't feel like it.
2. Right. Emotions are a problem with investing; that is why I challenge asset allocations changes without a core analytically driven reason determined prior. In some cases, I will challenge even a constant allocation.
Irrational behavior is the main problem. It has nothing to do with whether we sell on lows or highs; if our goals require a certain action be taken, then it is rational. Sadly, too many do not have the proper understanding of what is optimal for their goals; or they do not have the discipline to adhere to the actions required. Since most do not, a constant amount of risk has to be elected to avoid bias given no understanding exists of how to implement a proper asset allocation strategy. This requires rebalancing to maintain; it has nothing to do with the “buy low sell high” mantra because avoiding bias is what we are actually doing. For those with a clearer picture of their goals and have the discipline to hold to the actions required to best meet them, they do not need to feel compelled to hold a constant allocation. Most market timers, however, are often ignoring their goals; hence, their actions are not desirable and are deemed irrational as a result.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: 2 funds vs 1 fund, pros and cons ?
First, when the stocks are low and you are rebalancing you sell bonds and buy stock or put more money into stocks to balance your AA. That is just simple fact.secondopinion wrote: ↑Tue May 17, 2022 1:55 am1. The market is down and we are not supposed to sell? This suggests some serious opinion here. A constant allocation rebalances merely to maintain a certain amount of risk and really has nothing to do with a opinion that we should not sell on lows. In fact, those who firmly believe this line of thinking of not selling on lows should increase their risk portion of their allocation in this case. I merely increase my risk allocation during such events precisely to increase the probability of meeting my goals when a bear happens, and decrease the total risk when a bull is sustained (again to increase probability of success); this is an entirely different reason from the thought of not selling during lows.coffeeblack wrote: ↑Mon May 16, 2022 11:32 pmWell first, if the market is low you are not suppose to sell low. So when you rebalance you would either buy stock in that situation or sell bonds. The one fund would do that for you.secondopinion wrote: ↑Mon May 16, 2022 12:27 pmNot quite as simple as that. If the portfolio value has considerably grown, the need of taking risk decreases. If it drops, the need of taking risk increases. This is concavity in the asset allocation and is not market timing. Some elect to keep a more constant risk profile; some elect for a floor of safe assets (which cuts risk when things do poorly and increases when things do well). Which is right or wrong has more to do with goals than broad stroke claims of market timing.coffeeblack wrote: ↑Mon May 16, 2022 12:14 pmSo you like to time the market?quisp65 wrote: ↑Mon May 16, 2022 7:43 am I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
2nd, and the most dangerous in an investors language are the words "I feel". "I felt". "I believe". Personal beliefs based on personal feelings and psychological biases have been shown to be the biggest weakness in most investors.
Every day trader I know feels they can beat the market. Either they were sold on the idea or they did it a few times so now their are sold. Gamblers are the same. The reality is they don't.
There are some basic rules for rebalancing and it is psychologically difficult to sell stock when the markets are high and you are making money. Then there is the fear of losing even more money when the markets are down so people sell. Not everyone, but a significant number of investors fall into this trap. If your portfolio goes up to where you have 15 million and you spend 1.5% of that per year you most likely will not have to rebalance if you don't feel like it.
2. Right. Emotions are a problem with investing; that is why I challenge asset allocations changes without a core analytically driven reason determined prior. In some cases, I will challenge even a constant allocation.
Irrational behavior is the main problem. It has nothing to do with whether we sell on lows or highs; if our goals require a certain action be taken, then it is rational. Sadly, too many do not have the proper understanding of what is optimal for their goals; or they do not have the discipline to adhere to the actions required. Since most do not, a constant amount of risk has to be elected to avoid bias given no understanding exists of how to implement a proper asset allocation strategy. This requires rebalancing to maintain; it has nothing to do with the “buy low sell high” mantra because avoiding bias is what we are actually doing. For those with a clearer picture of their goals and have the discipline to hold to the actions required to best meet them, they do not need to feel compelled to hold a constant allocation. Most market timers, however, are often ignoring their goals; hence, their actions are not desirable and are deemed irrational as a result.
So you read an article somewhere or talked to a financial advisor etc. somewhere and it sounded good so you "felt" it was the thing to do.
What I find interesting about your entire concept is that it is how YOU do it and YOU have figured it out. Never mind all those brilliant minds on wall street with advanced math degrees and supercomputers that still can't beat the market on a regular consistent basis or beat a very basic rebalancing strategy that most people use on a daily basis. But, YOU have figured it out. Hey, you do you. And remember you asked for criticism. So you go it. If you don't agree with it that's YOU. But I'm not saying to not do it. Do whatever you want.
Good luck with everything.
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Re: 2 funds vs 1 fund, pros and cons ?
It is not about beating the market; it is about skewing the random variable known as returns. It is a trade-off of when alpha is realized; it is not an alpha-making system.coffeeblack wrote: ↑Tue May 17, 2022 4:21 pmFirst, when the stocks are low and you are rebalancing you sell bonds and buy stock or put more money into stocks to balance your AA. That is just simple fact.secondopinion wrote: ↑Tue May 17, 2022 1:55 am1. The market is down and we are not supposed to sell? This suggests some serious opinion here. A constant allocation rebalances merely to maintain a certain amount of risk and really has nothing to do with a opinion that we should not sell on lows. In fact, those who firmly believe this line of thinking of not selling on lows should increase their risk portion of their allocation in this case. I merely increase my risk allocation during such events precisely to increase the probability of meeting my goals when a bear happens, and decrease the total risk when a bull is sustained (again to increase probability of success); this is an entirely different reason from the thought of not selling during lows.coffeeblack wrote: ↑Mon May 16, 2022 11:32 pmWell first, if the market is low you are not suppose to sell low. So when you rebalance you would either buy stock in that situation or sell bonds. The one fund would do that for you.secondopinion wrote: ↑Mon May 16, 2022 12:27 pmNot quite as simple as that. If the portfolio value has considerably grown, the need of taking risk decreases. If it drops, the need of taking risk increases. This is concavity in the asset allocation and is not market timing. Some elect to keep a more constant risk profile; some elect for a floor of safe assets (which cuts risk when things do poorly and increases when things do well). Which is right or wrong has more to do with goals than broad stroke claims of market timing.
2nd, and the most dangerous in an investors language are the words "I feel". "I felt". "I believe". Personal beliefs based on personal feelings and psychological biases have been shown to be the biggest weakness in most investors.
Every day trader I know feels they can beat the market. Either they were sold on the idea or they did it a few times so now their are sold. Gamblers are the same. The reality is they don't.
There are some basic rules for rebalancing and it is psychologically difficult to sell stock when the markets are high and you are making money. Then there is the fear of losing even more money when the markets are down so people sell. Not everyone, but a significant number of investors fall into this trap. If your portfolio goes up to where you have 15 million and you spend 1.5% of that per year you most likely will not have to rebalance if you don't feel like it.
2. Right. Emotions are a problem with investing; that is why I challenge asset allocations changes without a core analytically driven reason determined prior. In some cases, I will challenge even a constant allocation.
Irrational behavior is the main problem. It has nothing to do with whether we sell on lows or highs; if our goals require a certain action be taken, then it is rational. Sadly, too many do not have the proper understanding of what is optimal for their goals; or they do not have the discipline to adhere to the actions required. Since most do not, a constant amount of risk has to be elected to avoid bias given no understanding exists of how to implement a proper asset allocation strategy. This requires rebalancing to maintain; it has nothing to do with the “buy low sell high” mantra because avoiding bias is what we are actually doing. For those with a clearer picture of their goals and have the discipline to hold to the actions required to best meet them, they do not need to feel compelled to hold a constant allocation. Most market timers, however, are often ignoring their goals; hence, their actions are not desirable and are deemed irrational as a result.
So you read an article somewhere or talked to a financial advisor etc. somewhere and it sounded good so you "felt" it was the thing to do.
What I find interesting about your entire concept is that it is how YOU do it and YOU have figured it out. Never mind all those brilliant minds on wall street with advanced math degrees and supercomputers that still can't beat the market on a regular consistent basis or beat a very basic rebalancing strategy that most people use on a daily basis. But, YOU have figured it out. Hey, you do you. And remember you asked for criticism. So you go it. If you don't agree with it that's YOU. But I'm not saying to not do it. Do whatever you want.
Good luck with everything.
Those who are constant risk attempt to maintain a similar distribution through out their investment timeframe.
Those who are concave with their allocations are skewing the returns negatively; higher median returns but underperformance to tail events in comparison to the averaged constant risk portfolio.
Those who are convex with their allocations are skewing the returns positively; lower median returns but outperformance to tail events in comparison to the averaged constant risk portfolio.
None are wrong unless they do not match the objectives.
Advanced math degree and high performance computing? I am trained in that. Funny you should bring that up.
P.S. I think you are mistaking me for quisp65, who asked for the critique. I am someone else who considers the impact of non-constant allocations in relation to objectives.
EDIT: I saw more of the comment. I over balance my portfolio; I know the difference between a simple rebalance and what I do. Second, I read no such articles and talked to no such individual to come to my conclusions; I do this solely from my own study. These ideas came before I knew of Warren Buffet, Jack Bogle, or anyone else in the investment realm. Ignorant of the "news" and "advice", but savvy of the techniques; that is my approach. I do think you got the wrong person the more I think about it, given you mention selling bonds and stocks like quisp65 explained.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: 2 funds vs 1 fund, pros and cons ?
Yes I may have gotten the wrong person on the critique. However, you did comment on my comment. Anyway, as you say these are your ideas that you developed. I wish you the best.secondopinion wrote: ↑Tue May 17, 2022 4:59 pmIt is not about beating the market; it is about skewing the random variable known as returns. It is a trade-off of when alpha is realized; it is not an alpha-making system.coffeeblack wrote: ↑Tue May 17, 2022 4:21 pmFirst, when the stocks are low and you are rebalancing you sell bonds and buy stock or put more money into stocks to balance your AA. That is just simple fact.secondopinion wrote: ↑Tue May 17, 2022 1:55 am1. The market is down and we are not supposed to sell? This suggests some serious opinion here. A constant allocation rebalances merely to maintain a certain amount of risk and really has nothing to do with a opinion that we should not sell on lows. In fact, those who firmly believe this line of thinking of not selling on lows should increase their risk portion of their allocation in this case. I merely increase my risk allocation during such events precisely to increase the probability of meeting my goals when a bear happens, and decrease the total risk when a bull is sustained (again to increase probability of success); this is an entirely different reason from the thought of not selling during lows.coffeeblack wrote: ↑Mon May 16, 2022 11:32 pmWell first, if the market is low you are not suppose to sell low. So when you rebalance you would either buy stock in that situation or sell bonds. The one fund would do that for you.secondopinion wrote: ↑Mon May 16, 2022 12:27 pm
Not quite as simple as that. If the portfolio value has considerably grown, the need of taking risk decreases. If it drops, the need of taking risk increases. This is concavity in the asset allocation and is not market timing. Some elect to keep a more constant risk profile; some elect for a floor of safe assets (which cuts risk when things do poorly and increases when things do well). Which is right or wrong has more to do with goals than broad stroke claims of market timing.
2nd, and the most dangerous in an investors language are the words "I feel". "I felt". "I believe". Personal beliefs based on personal feelings and psychological biases have been shown to be the biggest weakness in most investors.
Every day trader I know feels they can beat the market. Either they were sold on the idea or they did it a few times so now their are sold. Gamblers are the same. The reality is they don't.
There are some basic rules for rebalancing and it is psychologically difficult to sell stock when the markets are high and you are making money. Then there is the fear of losing even more money when the markets are down so people sell. Not everyone, but a significant number of investors fall into this trap. If your portfolio goes up to where you have 15 million and you spend 1.5% of that per year you most likely will not have to rebalance if you don't feel like it.
2. Right. Emotions are a problem with investing; that is why I challenge asset allocations changes without a core analytically driven reason determined prior. In some cases, I will challenge even a constant allocation.
Irrational behavior is the main problem. It has nothing to do with whether we sell on lows or highs; if our goals require a certain action be taken, then it is rational. Sadly, too many do not have the proper understanding of what is optimal for their goals; or they do not have the discipline to adhere to the actions required. Since most do not, a constant amount of risk has to be elected to avoid bias given no understanding exists of how to implement a proper asset allocation strategy. This requires rebalancing to maintain; it has nothing to do with the “buy low sell high” mantra because avoiding bias is what we are actually doing. For those with a clearer picture of their goals and have the discipline to hold to the actions required to best meet them, they do not need to feel compelled to hold a constant allocation. Most market timers, however, are often ignoring their goals; hence, their actions are not desirable and are deemed irrational as a result.
So you read an article somewhere or talked to a financial advisor etc. somewhere and it sounded good so you "felt" it was the thing to do.
What I find interesting about your entire concept is that it is how YOU do it and YOU have figured it out. Never mind all those brilliant minds on wall street with advanced math degrees and supercomputers that still can't beat the market on a regular consistent basis or beat a very basic rebalancing strategy that most people use on a daily basis. But, YOU have figured it out. Hey, you do you. And remember you asked for criticism. So you go it. If you don't agree with it that's YOU. But I'm not saying to not do it. Do whatever you want.
Good luck with everything.
Those who are constant risk attempt to maintain a similar distribution through out their investment timeframe.
Those who are concave with their allocations are skewing the returns negatively; higher median returns but underperformance to tail events in comparison to the averaged constant risk portfolio.
Those who are convex with their allocations are skewing the returns positively; lower median returns but outperformance to tail events in comparison to the averaged constant risk portfolio.
None are wrong unless they do not match the objectives.
Advanced math degree and high performance computing? I am trained in that. Funny you should bring that up.
P.S. I think you are mistaking me for quisp65, who asked for the critique. I am someone else who considers the impact of non-constant allocations in relation to objectives.
EDIT: I saw more of the comment. I over balance my portfolio; I know the difference between a simple rebalance and what I do. Second, I read no such articles and talked to no such individual to come to my conclusions; I do this solely from my own study. These ideas came before I knew of Warren Buffet, Jack Bogle, or anyone else in the investment realm. Ignorant of the "news" and "advice", but savvy of the techniques; that is my approach. I do think you got the wrong person the more I think about it, given you mention selling bonds and stocks like quisp65 explained.
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- Joined: Wed Dec 02, 2020 12:18 pm
Re: 2 funds vs 1 fund, pros and cons ?
Thank you; I will likely do well enough. I am sorry that I intercepted the post; it needed to be answered by quisp65. I am still interested in what quisp65 has to say.coffeeblack wrote: ↑Tue May 17, 2022 5:23 pmYes I may have gotten the wrong person on the critique. However, you did comment on my comment. Anyway, as you say these are your ideas that you developed. I wish you the best.secondopinion wrote: ↑Tue May 17, 2022 4:59 pmIt is not about beating the market; it is about skewing the random variable known as returns. It is a trade-off of when alpha is realized; it is not an alpha-making system.coffeeblack wrote: ↑Tue May 17, 2022 4:21 pmFirst, when the stocks are low and you are rebalancing you sell bonds and buy stock or put more money into stocks to balance your AA. That is just simple fact.secondopinion wrote: ↑Tue May 17, 2022 1:55 am1. The market is down and we are not supposed to sell? This suggests some serious opinion here. A constant allocation rebalances merely to maintain a certain amount of risk and really has nothing to do with a opinion that we should not sell on lows. In fact, those who firmly believe this line of thinking of not selling on lows should increase their risk portion of their allocation in this case. I merely increase my risk allocation during such events precisely to increase the probability of meeting my goals when a bear happens, and decrease the total risk when a bull is sustained (again to increase probability of success); this is an entirely different reason from the thought of not selling during lows.coffeeblack wrote: ↑Mon May 16, 2022 11:32 pm
Well first, if the market is low you are not suppose to sell low. So when you rebalance you would either buy stock in that situation or sell bonds. The one fund would do that for you.
2nd, and the most dangerous in an investors language are the words "I feel". "I felt". "I believe". Personal beliefs based on personal feelings and psychological biases have been shown to be the biggest weakness in most investors.
Every day trader I know feels they can beat the market. Either they were sold on the idea or they did it a few times so now their are sold. Gamblers are the same. The reality is they don't.
There are some basic rules for rebalancing and it is psychologically difficult to sell stock when the markets are high and you are making money. Then there is the fear of losing even more money when the markets are down so people sell. Not everyone, but a significant number of investors fall into this trap. If your portfolio goes up to where you have 15 million and you spend 1.5% of that per year you most likely will not have to rebalance if you don't feel like it.
2. Right. Emotions are a problem with investing; that is why I challenge asset allocations changes without a core analytically driven reason determined prior. In some cases, I will challenge even a constant allocation.
Irrational behavior is the main problem. It has nothing to do with whether we sell on lows or highs; if our goals require a certain action be taken, then it is rational. Sadly, too many do not have the proper understanding of what is optimal for their goals; or they do not have the discipline to adhere to the actions required. Since most do not, a constant amount of risk has to be elected to avoid bias given no understanding exists of how to implement a proper asset allocation strategy. This requires rebalancing to maintain; it has nothing to do with the “buy low sell high” mantra because avoiding bias is what we are actually doing. For those with a clearer picture of their goals and have the discipline to hold to the actions required to best meet them, they do not need to feel compelled to hold a constant allocation. Most market timers, however, are often ignoring their goals; hence, their actions are not desirable and are deemed irrational as a result.
So you read an article somewhere or talked to a financial advisor etc. somewhere and it sounded good so you "felt" it was the thing to do.
What I find interesting about your entire concept is that it is how YOU do it and YOU have figured it out. Never mind all those brilliant minds on wall street with advanced math degrees and supercomputers that still can't beat the market on a regular consistent basis or beat a very basic rebalancing strategy that most people use on a daily basis. But, YOU have figured it out. Hey, you do you. And remember you asked for criticism. So you go it. If you don't agree with it that's YOU. But I'm not saying to not do it. Do whatever you want.
Good luck with everything.
Those who are constant risk attempt to maintain a similar distribution through out their investment timeframe.
Those who are concave with their allocations are skewing the returns negatively; higher median returns but underperformance to tail events in comparison to the averaged constant risk portfolio.
Those who are convex with their allocations are skewing the returns positively; lower median returns but outperformance to tail events in comparison to the averaged constant risk portfolio.
None are wrong unless they do not match the objectives.
Advanced math degree and high performance computing? I am trained in that. Funny you should bring that up.
P.S. I think you are mistaking me for quisp65, who asked for the critique. I am someone else who considers the impact of non-constant allocations in relation to objectives.
EDIT: I saw more of the comment. I over balance my portfolio; I know the difference between a simple rebalance and what I do. Second, I read no such articles and talked to no such individual to come to my conclusions; I do this solely from my own study. These ideas came before I knew of Warren Buffet, Jack Bogle, or anyone else in the investment realm. Ignorant of the "news" and "advice", but savvy of the techniques; that is my approach. I do think you got the wrong person the more I think about it, given you mention selling bonds and stocks like quisp65 explained.
quisp65, I am interested to know your rationale here and how this relates to your objectives. Just saying how you like the idea does not explain a concrete reason for it. I can only support your plan if I have sound rationale as it applies to you directly; otherwise, I have to reject it. At this point, the validity of your plan lies in the alignment to objectives; I cannot just provide an assessment without a correct context, and my default action has to be rejection without it.quisp65 wrote: ↑Mon May 16, 2022 7:43 am I've always felt one fund is an inefficient use of your equity. I like to sell my equity ONLY at market highs and then I let my fixed income become less if we have a long bear market. I think I get more value & efficiency out of my equity this way.
If there is some argument why I'm looking at this wrong, I welcome the critique.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.