Anytime someone picks a seemingly pointless and random date range like that they are biasing the results. Bonds had record possibly never to be repeated again returns in 1970s and stopping at 2013 ignores the tail end of this incredibly bull run we are in right now. Pretty sure if someone looked at 1990 to 2020 or 1920 to 2020 this overly complex portfolio wouldn’t compare as well.
2013 cuts off before US shot forward past international. Conversely, international might shoot ahead next time. I think international exposure is good, but also remember that everyone can tell a story with a graph
The numbers look so good because bond rates were much higher in the past than they are now. 10-year Treasuries (for example) were over 10% in the 80s, while now they’re down below 2%. In the 70′s those bonds were giving 15+ percent which will almost certainly never happen again. If you run the same test again but assume bonds max out at a much more realistic rate the performance will be much more in line with the risk (likely less than half the performance of US equalities).
Even if this was an optimal asset mix, most people are probably too lazy to manage something like that even if they could figure out how to set it up. There gets to be a point when the marginal gain for a different asset mix isn’t worth the extra hassle and cost of rebalancing.
For the specific portfolio recommended in the 80k article, how often did they rebalance and what would your trigger point be for rebalancing? If you’re selling to rebalance in a taxable account, then the capital gains tax is going to eat away at your investment gains.
Run ideas through Portfolio Visualizer and see how it makes you feel. The idea isn’t to chase past performance but more to gut-check how you’d feel in the middle of a drawdown and then contrast it to where you end up.
(Note that these comments weren’t my original thoughts, but are from a conversation about investments in which I brought up the asset allocation recommended in Benjamin Todd’s article)
This portfolio has nothing to do with chasing past performance. According to standard finance theory (including making a bunch of assumptions about rational investors, zero transaction costs etc.), the global market portfolio is the theoretically optimal portfolio to hold. The idea is that if markets are efficient then you can’t predict which asset classes will outperform, so you should just hold some of everything.
This portfolio doesn’t require any rebalancing. It’s the global market portfolio (or it was as of 2015). If you have 18% in US stocks because they represent 18% of the global market portfolio, and then US stocks go up to 20%, your holdings also go up to 20% so you don’t have to do anything. Although it might still take some work to manage if you’re adding more money to the portfolio on a monthly basis (or whatever) because you need to deploy your new investment in the correct proportions.
Realistically you can get pretty close to the global market portfolio by buying global stocks + global bonds and not worry about the smaller positions. You can do a 2-fund portfolio with 50% VT, 50% BNDW.
1973 to 2013 isn’t arbitrary. 1973 was the chosen start year because that’s the earliest date at which we have good data on global equity returns.
Anytime someone picks a seemingly pointless and random date range like that they are biasing the results. Bonds had record possibly never to be repeated again returns in 1970s and stopping at 2013 ignores the tail end of this incredibly bull run we are in right now. Pretty sure if someone looked at 1990 to 2020 or 1920 to 2020 this overly complex portfolio wouldn’t compare as well.
2013 cuts off before US shot forward past international. Conversely, international might shoot ahead next time. I think international exposure is good, but also remember that everyone can tell a story with a graph
The numbers look so good because bond rates were much higher in the past than they are now. 10-year Treasuries (for example) were over 10% in the 80s, while now they’re down below 2%. In the 70′s those bonds were giving 15+ percent which will almost certainly never happen again. If you run the same test again but assume bonds max out at a much more realistic rate the performance will be much more in line with the risk (likely less than half the performance of US equalities).
Even if this was an optimal asset mix, most people are probably too lazy to manage something like that even if they could figure out how to set it up. There gets to be a point when the marginal gain for a different asset mix isn’t worth the extra hassle and cost of rebalancing.
For the specific portfolio recommended in the 80k article, how often did they rebalance and what would your trigger point be for rebalancing? If you’re selling to rebalance in a taxable account, then the capital gains tax is going to eat away at your investment gains.
Run ideas through Portfolio Visualizer and see how it makes you feel. The idea isn’t to chase past performance but more to gut-check how you’d feel in the middle of a drawdown and then contrast it to where you end up.
(Note that these comments weren’t my original thoughts, but are from a conversation about investments in which I brought up the asset allocation recommended in Benjamin Todd’s article)
This portfolio has nothing to do with chasing past performance. According to standard finance theory (including making a bunch of assumptions about rational investors, zero transaction costs etc.), the global market portfolio is the theoretically optimal portfolio to hold. The idea is that if markets are efficient then you can’t predict which asset classes will outperform, so you should just hold some of everything.
This portfolio doesn’t require any rebalancing. It’s the global market portfolio (or it was as of 2015). If you have 18% in US stocks because they represent 18% of the global market portfolio, and then US stocks go up to 20%, your holdings also go up to 20% so you don’t have to do anything. Although it might still take some work to manage if you’re adding more money to the portfolio on a monthly basis (or whatever) because you need to deploy your new investment in the correct proportions.
Realistically you can get pretty close to the global market portfolio by buying global stocks + global bonds and not worry about the smaller positions. You can do a 2-fund portfolio with 50% VT, 50% BNDW.
1973 to 2013 isn’t arbitrary. 1973 was the chosen start year because that’s the earliest date at which we have good data on global equity returns.
Just want to quickly note that that article was written in 2015, so looking at 1973-2013 doesn’t seem that random.
I definitely agree with this, but I’m skeptical that 100% US equities is already at the point where adding some diversification is too costly.
If I understand correctly, donating stocks can be a way to partially offset this that might be useful to keep in mind for EA investors.
That said, I’m really not knowledgeable in this, and it seems plausible that the best way to diversify doesn’t include bonds