Quote:
Originally Posted by BayMoWe335
Quote:
Originally Posted by qba335i
Trading the market works when we consider tactical shifts. I work for a major firm and we offer both strategic and tactical asset allocations. There are times when you want to reduce risk and there are times when you want to increase risk. Having 100% of assets in SPX is not prudent.
For equities: do you only invest in US or also add international and emerging? Growth vs value? What sectors? Large or small cap? Maybe factor based? There are a lot of considerations when we talk about optimal portfolio.
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For the long term, it is prudent. The optimal portfolio is one invested in a low cost S&P500 index, reinvesting dividends. It will beat 99% of actively managed funds and anyone trying to pick stocks, reblance, reduce risk, etc.
When you try to "reduce risk" you are trying to time the market. You will underperform, period. They all do.
Why do you think Warren Buffet bet any hedge fund willing to take him up on it that the S&P500 will outperform their actively managed fund? Because it will over the long term and he was right, btw.
The S&P500 gained 125.8% over ten years. The five hedge funds, picked by a firm called Protégé Partners, added an average of about 36%.
There are people who can do it, but your chances of finding that person are essentially 0. Also, when that person is found, money tends to flow to them and they eventually underperform too. |
Not exactly... let's look at actual data vs your opinion.
1) 20 years ending Sept 2018:
Mid cap, small cap, real estate and emerging outperformed large cap (S&500)
2) now let's look at a diversified portfolio => ending value of $1 invested 12/1990 through Sept 2018. Maintaining the same risk premium:
- 100% of portfolio invested in Large Cap => $16.51
- 62%LC/1%Bonds/18% Mid cap/4% small cap/15% reits => $18.99
Buffet returned -32% in 2008. He would have to close his shop if he managed a hedge fund. I know some ABS hedge funds that make the S&P 500 look like a bond fund - when you look at total returns since 2008/2009.