wk5272011: Consistency: Your Biggest Investing Edge
05/28/2011 0 comments
Consistency: Your Biggest Investing Edge
It is well recognized that investors need to have some edges to be successful in investing. The smartest work very hard to come up with one of kind investing strategies. The crooks try very hard to gain an edge by obtaining illegal info (think 'insider trading'). Investors often neglect one of the most important edges they can possess: the consistency in the investing process.
As an old Wall Street adage said: "bulls make money, bears make money, pigs get slaughtered". The saying is certainly vague on what 'bulls' and 'bears' mean but it does reveal one important truth: you need to consistently execute a well designed plan that is based on sound and intuitive principles.
Let's take a look at some simple facts:
- Over 80% equity fund manager can not beat its market benchmark. So if you just stick to a broadbase index ETF or mutual fund such as SPDR S&P 500 (SPY) or Vanguard Total Stock Market (VTI), you'll gain an edge over the majority of so called 'pros' already.
- If you stick to a diversified ETF or mutual fund asset allocation portfolio and do regular rebalance, you would have beaten S&P 500 index or even a simple Vanguard Balance Fund Index (VBINX) handily in the past 10 years. See the link here for the performance comparison among our simple Six Core Asset SAA moderate portfolio and other benchmarks.
- If you stick to a more advanced yet still intuitive enough strategy such as TAA (Tactical Asset Allocation), you would have gained even more. See the link here for the performance comparison among our simple Six Core Asset TAA moderate portfolio and other benchmarks An annualized return 10% is too good to be true, to some extent. But it might not seem as hard and as mysterious as what you think. Let's monitor this for another 10 years and we will have more to say by that time.
Human beings are conditioned to be impulsive, innovative and emotional. That is why not the smartest people are the most successful investors. In fact, personality plays a key role in retirement investing. Does this sound familiar too for our life in general?
Month End Market Review
As we are now entering the summer season, markets became more volatile recently. For the week ending on 5/27/2011, the notable developements among major assets include:
- Commodities (DBC) continued to recover.
- Gold (GLD) again topped $1500 per troy oz.
- U.S. stocks has been resilient.
- Long term tresury bond (TLT) continued to be strong, something to watch more closely.
To summarize, not much has changed in our asset trend ranking. For more information, please refer to MyPlanIQ Asset Class Overview page.
Benchmark Portfolios
Vanguard ETFs ...
The Six Core Asset ETF uses only 6 ETFs that represent major asset classes as its candidate funds. It is by far the simplest and most diversified SIB (Simpler Is Better) plan. The following is the recent performance for its two model portfolios (up to 5/20/2011):
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Six Core Asset ETFs Tactical Asset Allocation Moderate | 16% | 145% | 9% | 71% | 15% | 103% |
| Six Core Asset ETFs Strategic Asset Allocation Moderate | 21% | 195% | 3% | 13% | 8% | 38% |
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How can we improve this newsletter -- we value your inputs --Thanks to those who have already contributed -- we appreciate it.
Disclaimer:
Any investment in securities including mutual funds, ETFs, closed end funds, stocks and any other securities could lose money over any period of time. All investments involve risk. Losses may exceed the principal invested. Past performance is not an indicator of future performance. There is no guarantee for future results in your investment and any other actions based on the information provided on the website including, but not limited to, strategies, portfolios, articles, performance data and results of any tools.
All rights are reserved and enforced. By accessing the website, you agree not to copy and redistribute the information provided herein without the explicit consent from MyPlanIQ.
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