Too Much Cash?
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My opinion is that asset allocation/MPT smooths out the returns during cyclical (bull and bear)markets, but does absolutely nothing to protect in a secular bear market. The key is not having a crystal ball, but rather reacting to what is known.
I shall humbly disagree with this paragrah. AA does a tremendous job protecting in just about any market, excluding the last 18 months. To discard a well worn strategy on a once in an investment lifetime event like last year is very short sighted.
In a secular bear market you still have rallies up and down. If your asset allocation would suggest 35% fixed & 10% cash then regular rebalancing to that tune would have provided substantial protection in any given decade that doesn't include last year. Even including last year, you were protected to an extent against the 50%+ market decline.
Anyone basing their advice for retirees, pre-retirees on market performance over the last 24 months is as narrow minded as the advisor in '99 basing their advice on the then previous 24 month period..
[quote=Gaddock]
[[/quote]
No, I wouldn’t. It is a fair example of a balanced mutual fund, not a textbook allocation model.
“AA does a tremendous job protecting in just about any market”… WHAT?
That goes along with “getting a little bit pregnant” and "I am always right sometimes"
I agree w/B24 that there are indicators that saw the decline coming(simple ones too, like SMA)
I also agree w/ Morean… if you are just keeping them from making mistakes you aren’t an advisor… You are a the equivalent of the Vanguard help desk(not bad people, but not advisors).
Incredible, for retirees that you help into the crash, you have to be narrow minded because 40% of their equity got wiped out last year, and now where is the income going to come from.
[quote=Incredible Hulk] [quote=Gaddock]
[ [/quote]
No, I wouldn't. It is a fair example of a balanced mutual fund, not a textbook allocation model.[/quote] What America Funds were you talking about?
Seeing that a majority of investors underperform their own investments (DALBAR Study of investor behavior) I would say if you can keep them from making mistakes and that is all you do you are a great advisor.“AA does a tremendous job protecting in just about any market”… WHAT?
That goes along with “getting a little bit pregnant” and “I am always right sometimes”
I agree w/B24 that there are indicators that saw the decline coming(simple ones too, like SMA)
I also agree w/ Morean… if you are just keeping them from making mistakes you aren’t an advisor.. You are a the equivalent of the Vanguard help desk(not bad people, but not advisors).
Incredible, for retirees that you help into the crash, you have to be narrow minded because 40% of their equity got wiped out last year, and now where is the income going to come from.
[quote=Incredible Hulk]I’m not sure who this comment is directed to, but it is an incorrect statement. The “textbook” middle of the road American funds portfolio is up roughly 45% in the last 10 years. Are you suggesting that the “testbook” allocation is 100% S&P 500? I can’t argue with your previously mentioned trades, but you are sorely misinformed on “textbook” allocation model returns.
Would you agree America Funds balanced fund is a fair example of a middle of the road textbook allocation model?
I would.
https://www.americanfunds.com/funds/details.htm?fundGroupNumber=11&fundClassNumber=0
After a decade of fees and that nice up front load they’ve gained a whopping…
Drum role please…
(((((((((((((((((((((((((((((((((((((((((((((( 3.69% ))))))))))))))))))))))))))))))))))))))))))))))))))))
x 12 = 45% give or take.
Wow!! I stand corrected. That allocation stuff really works!
What if you subtracted inflation?
hmmmmmmm
Given that $100 in 1999 would be $127.49 according to the CPI (I think those figures are fudged so the Feds don’t have to increase SS more than they have) or just over 27%.
So;
45% - 27 = 18 for a annual return of (not even worth a drum roll) 1.8%
Imagine a C share after inflation OUCH!!!
Yeah those models and academia have really knocked it out of the park.
[/quote]
[quote=Gaddock] If your buy and hold portfolio with a textbook allocation model with the oh so nice three layerers of fees is flat after a decade I would say that’s pretty good indication.[/quote]
Gaddock -
Your original post stated that the “textbook” allocation was flat after a decade. You chose an average balanced mutual fund that was up 45% and used it as an example of “flatness”. I don’t think 45% is correctly described as flat. Using a “textbook” allocation would involve systematic rebalancing. Pulling from equities as we approached the top and adding to them on the way down. Obviously not hitting the top or bottom, but certainly enhancing returns and smoothing out some of the volatility.
I can’t decide if you are arguing for argument’s sake or are so blinded by the last 2 years that you’ve lost your “common” sense - as in advisor’s sense. Cherry picking the worst decade and basing your investment philosophy on that is very short sighted. Do your clients only plan on living for the next ten years and you do you anticipate the next ten years to repeat the previous ten?
[quote=Incredible Hulk]
[quote=Gaddock] If your buy and hold portfolio with a textbook allocation model with the oh so nice three layerers of fees is flat after a decade I would say that’s pretty good indication.[/quote]
Gaddock -
Your original post stated that the “textbook” allocation was flat after a decade. You chose an average balanced mutual fund that was up 45% and used it as an example of “flatness”. I don’t think 45% is correctly described as flat. Using a “textbook” allocation would involve systematic rebalancing. Pulling from equities as we approached the top and adding to them on the way down. Obviously not hitting the top or bottom, but certainly enhancing returns and smoothing out some of the volatility.
I can’t decide if you are arguing for argument’s sake or are so blinded by the last 2 years that you’ve lost your “common” sense - as in advisor’s sense. Cherry picking the worst decade as basing your investment philosophy on that is very short sighted.[/quote]
So wait now you are rebalancing at the top and the bottom? What happened to text book allocation, rebalance quarterly or some other imopportune time.
No you want to compare rebalancing at the highs and lows…aren’t you making the other side’s point?
[quote=Squash1]
So wait now you are rebalancing at the top and the bottom? What happened to text book allocation, rebalance quarterly or some other imopportune time.
No you want to compare rebalancing at the highs and lows…aren’t you making the other side’s point?[/quote]
I’m sorry, I thought we were speaking about what we do in reality. In my practice, we subscribe to MPT and AA. In doing so, you have to rebalance. In reality, I have clients that rebalanced toward equities in Oct-Nov of last year and again in Feb-Apr. Did they all catch the bottom? No, in fact, I don’t think I even had one client reallocate to equities on March 6th. It doesn’t change the fact that the client that moved an additional $25k from a bond fund to an equity fund at the end of February juiced his total return.
Show me the textbook allocation you spoke of. You're the one that brought up America Funds not me. 1.8% in a textbook allocation per year over a decade in real dollars IMHO is flat.I’m not sure who this comment is directed to, but it is an incorrect statement. The “textbook” middle of the road American funds portfolio is up roughly 45% in the last 10 years. Are you suggesting that the “testbook” allocation is 100% S&P 500? I can’t argue with your previously mentioned trades, but you are sorely misinformed on “textbook” allocation model returns.
Gaddock -
You are also quick to point out the “layers of fees” on funds. But in your own example of your “market neutral” positions, you failed to include any trading fees or potential margin fees in your return. I guess you work for free and your broker/dealer is a non-profit.
Show me the textbook allocation you spoke of. You're the one that brought up America Funds not me.[/quote] Yeah he brought up American Funds the family, YOU brought up American Funds American Balanced Fund.[quote=Incredible Hulk]I’m not sure who this comment is directed to, but it is an incorrect statement. The “textbook” middle of the road American funds portfolio is up roughly 45% in the last 10 years. Are you suggesting that the “testbook” allocation is 100% S&P 500? I can’t argue with your previously mentioned trades, but you are sorely misinformed on “textbook” allocation model returns.
[quote=Incredible Hulk]I’m not sure who this comment is directed to, but it is an incorrect statement. The “textbook” middle of the road American funds portfolio is up roughly 45% in the last 10 years. Are you suggesting that the “testbook” allocation is 100% S&P 500? I can’t argue with your previously mentioned trades, but you are sorely misinformed on “textbook” allocation model returns.
Show me the textbook allocation you spoke of. You’re the one that brought up America Funds not me.[/quote]
I went to our standard, EDJ, balanced g&i american model. I used theirs, not mine as we were speaking about “textbook.” I went back to the site and it states internal use only, thus I won’t post it. The unbalanced 10 year return number matched your 45% ABALX return, so surely, you will believe that 45% is accurate, or at least believable.
Again, my point is that even an untouched “textbook” portfolio returned 45% and that is far from “flat”. Exclusive of rebalancing.
Wrap account, the margin I use doesn't cost anything. Not to mention is doubles+ your examples' annual performance in a month with a tiny fraction of the risk.Gaddock -
You are also quick to point out the “layers of fees” on funds. But in your own example of your “market neutral” positions, you failed to include any trading fees or potential margin fees in your return. I guess you work for free and your broker/dealer is a non-profit.
Show me the textbook allocation you spoke of. You're the one that brought up America Funds not me.[/quote] Yeah he brought up American Funds the family, YOU brought up American Funds American Balanced Fund.[/quote] It matched the 45% ... and your point is?[quote=Gaddock][quote=Incredible Hulk]I’m not sure who this comment is directed to, but it is an incorrect statement. The “textbook” middle of the road American funds portfolio is up roughly 45% in the last 10 years. Are you suggesting that the “testbook” allocation is 100% S&P 500? I can’t argue with your previously mentioned trades, but you are sorely misinformed on “textbook” allocation model returns.
You know what else is interesting. I’m at home with a fever feeling like something you hate to step in trying to amuse myself, no really you guys are amusing, and we’ve added four or five pages to this post.
I've never looked at this BBS one time from my office. Imagine if you used the time you spend here and read or prospect or GOD FORBID find a high return to risk position outside of a MF![quote=Incredible Hulk] [quote=B24]
My opinion is that asset allocation/MPT smooths out the returns during cyclical (bull and bear)markets, but does absolutely nothing to protect in a secular bear market. The key is not having a crystal ball, but rather reacting to what is known.[/quote]I shall humbly disagree with this paragrah. AA does a tremendous job protecting in just about any market, excluding the last 18 months. To discard a well worn strategy on a once in an investment lifetime event like last year is very short sighted.
In a secular bear market you still have rallies up and down. If your asset allocation would suggest 35% fixed & 10% cash then regular rebalancing to that tune would have provided substantial protection in any given decade that doesn't include last year. Even including last year, you were protected to an extent against the 50%+ market decline.
Anyone basing their advice for retirees, pre-retirees on market performance over the last 24 months is as narrow minded as the advisor in '99 basing their advice on the then previous 24 month period..[/quote] I think you're missing my point. Secular markets are part of the investing cycle. I am not talking about every cyclical bear and bull. I am saying that MPT/AA works within a secular bull market. Since the last secular bull was 18 years long, people were duped into thinking that that's how things always are. What about the 20's? What about the 40's? What about the 70's? What about the 00's? Four out of the last 10 decades have been wipeouts. I know Jones likes to talk about buy-and-hold like it's the holy grail, but the truth is, there are a lot of advisor-led investors that have had their portfolios wiped out (twice) in the past 10 years. But hanging your hat on AA and MPT because it works in some markets is short-sighted. You can recover from a 4-month cyclical bear market, it's tough to recover from a 10-15 year secular bear market.
Waiting for my new satellite service to be installed… it’s pure crap that they give you 4 hour time blocks then show up at the end of a time block and still it take them 45 minutes to hook it all up…
By the way Directv is a rip off, if you don’t cancel within the first 24 hours(not sure I turned my tv on) then they try to make you pay a $400 cancellation fee…
I guess we disagree on what buy and hold means. Buying and holding the S&P 500 over the last decade obviously doesn’t make sense. But what advisor worth their salt doesn’t also recommend bond exposure to some extent. Even in the context of this debacle of a decade an untouched/unrebalanced position of an average balanced fund - ABALX - the client still earned 45%. Is that what they expected to earn? Of course not. But tack on the 90s to 00s or the 50s to the 40s or the 80s to the 70s, and tell me how consistent AA hasn’t performed well.
[quote=Gaddock] You know what else is interesting. I’m at home with a fever feeling like something you hate to step in trying to amuse myself, no really you guys are amusing, and we’ve added four or five pages to this post.
I’ve never looked at this BBS one time from my office. Imagine if you used the time you spend here and read or prospect or GOD FORBID find a high return to risk position outside of a MF!
[/quote]
Is that a challenge? If you want to compare gross revenue or appendages let me know.
Also, I believe it was you who made the “assumptions” comment earlier. Less than 20% of my revenue is generated from MFs.