Source: Capital Spectator
A few weeks ago, I spoke at an Financial Advisor conference in Denver. There was some concern about asset allocation returns — it seemed that the more diversified you were, the worse your performance numbers were.
Josh quoted a financial advisor who lamented: “Why bother diversifying at all? It’s just a drag on performance What’s the point of owning any bonds or international stocks?”
Of course, we know how this movie ends: Everyone plows into the big winner — in this case, US equities — just before they mean revert. As we showed earlier this week, no one knows which asset class will be the out-performer each year. So you own all of them, and stop fretting over what is going to be the winner.
A good financial advisor will explain this way in advance — so the first time you think about this isnt when you open your quarterly statement and notice the SPX is kicking your ass this year.
The issue here isn’t the maths — either you understand mean reversion or you don’t — but rather the emotional challenge of sticking with what we know will work.
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.