Archive for the ‘Asset Classes & Allocation’ Category
Portfolio Rebalancing Returns
Posted by: Michael Zhuang on: August 5, 2011
In one of my previous posts, I showed how diversification across asset classes is superior to momentum and contrarian strategies. Today, I am going to show how disciplined rebalancing adds to returns. I will first demonstrate this using a stylized example and then through historical returns. An example of two asset classes
Asset Allocation Return Report: 40/60 Portfolio Model
Posted by: Michael Zhuang on: July 22, 2011
This report shows the construct and performance of a 40/60 model portfolio. Asset Classes and Fund Selection There are six asset classes in this portfolio model. The asset allocation is implemented using DFA funds, as shown in the table 1. I explained why DFA funds are better than Vanguard funds here. Table 1: Asset Class Funds Asset [...]
Why Asset Class Diversification is Superior
Posted by: Michael Zhuang on: July 6, 2011
Recently, I came across a 20 Year Periodic Return Table prepared by Black Rock. I want to share this with you since this table illustrates the investment principles I have been emphasizing: 1) asset class diversification; 2) disciplined rebalancing; and 3) small value tilt. Today’s focus is on 1); the other two points will be [...]
Asset Allocation Return Report: 60/40 Portfolio Model
Posted by: Michael Zhuang on: May 3, 2011
This report shows the construct and performance of a 60/40 model portfolio. Asset Classes and Fund Selection There are six asset classes in this portfolio model. The asset allocation is implemented using DFA funds, as shown in the table 1. I explained why DFA funds are superior here.
Asset Allocation Performance Report: 70/30 Portfolio Model
Posted by: Michael Zhuang on: April 1, 2011
(Performance stats last updated on 8/16/2011) I have maintained 4 model portfolios since the beginning of 2007 to show that successful investing can be extremely simple: one only needs to do 1)prudent allocation, 2)disciplined rebalancing. One does not need Harry Dent’s prescience nor Jim Cramer’s encyclopedic knowledge to be successful in investing. This report shows [...]
Small Cap Value: Risk and Returns
Posted by: Michael Zhuang on: March 29, 2011
If you invested $1 in the small cap value index at the beginning of 1927, you would have had $52,892 by the end of 2010. This is according to the recently published Dimensional Fund Advisors’ annual Matrix Book. Included in the book are historical risk and returns of various indices based on capitalization and book-to-market [...]
Harvard Endowment Bullish on US Equities
Posted by: Michael Zhuang on: March 26, 2011
Recently I asked my assistant John to pull up Harvard Endowment’s 13F filing for Q4 of 2010 and compare it to that for Q4 of 2009 (shown in table below). Apparently, Harvard Endowment’s year-end position in 2010 had changed significantly from that of 2009. The way I see it, there are three significant changes: 1. [...]
How to protect your portfolio against inflation?
Posted by: Michael Zhuang on: March 11, 2010
Inflation is the silent killer of wealth. It does not have the “bark” of a full-blown financial crisis, but it certainly has the “bite.” Just imagine if the inflation rate is 4% over the next 10 years; within a decade you would lose nearly 40% of your wealth if you didn’t do anything about it. [...]
How not to ruin a 60/40 portfolio
Posted by: Michael Zhuang on: January 6, 2010
This past Christmas, I had the distinct pleasure of calling several of my clients in retirement and telling them their portfolios are back to their pre-crisis level and their financial freedom is safe and sound. Their portfolios are variations of the so-called 60/40 portfolio – about 60% in equity-like investments and 40% in bond-like ones. [...]
Beyond the S&P 500
Posted by: Michael Zhuang on: November 4, 2009
If you are like most investors, your equity portfolio will have a few auspiciously named stock funds and a few company stocks you feel comfortable with. You think you are well-diversified, but you really are only investing in the universe of the S&P 500 – the largest 500 stocks of the US equity market.
Why did correlations go to one?
Posted by: Michael Zhuang on: September 24, 2009
My friend Carl Richards made an interesting observation in his last post: Just when we need something to zig, they all zagged together! Some people draw the conclusion that diversification no longer works. I strongly disagree.
David Swensen ups allocation to emerging-market
Posted by: Michael Zhuang on: March 25, 2009
In his book Unconventional Success: A Fundamental Approach to Personal Investment, Swensen recommends the following allocations, for individual investors who want a “well-diversified, equity-oriented portfolio”: 30% Domestic stock funds 20% Real estate investment trusts 15% U.S. Treasury bonds 15% U.S. Treasury inflation-protected securities 15% Foreign developed-market stock funds 5% Emerging-market stock funds In an interview [...]
What to learn from Ivy League endowments’ investment success
Posted by: Michael Zhuang on: March 18, 2009
University endowments are important institutions. They play a critical role in maintaining the academic excellence of the universities that rely heavily on their income. Recently, these endowments have drawn much attention because of their superior investment returns compared to other institution investors, such as investment banks and insurance companies. There is much diversity among university [...]
Yale Endowment asset classes
Posted by: Michael Zhuang on: February 6, 2009
Once upon a time, the Yale University Endowment invested like the rest of us, in just two asset classes: US equity and fixed income. After taking over the reins in 1987, David Swensen, the chief investment officer of Yale Endowment, moved aggressively into non-traditional and often illiquid asset classes like foreign equity, absolute return, real [...]
A David Swensen lecture on asset allocation, security selection and market timing
Posted by: Michael Zhuang on: February 3, 2009
David Swensen, Yale’s Chief Investment Officer and manager of the University’s endowment, discusses the tactics and tools that Yale and other endowments use to create long-term, positive investment returns. He emphasizes the importance of asset allocation and diversification and the limited effects of market timing and security selection.
David Swensen’s asset allocation for retail investors
Posted by: Michael Zhuang on: October 27, 2008
In his book “Unconventional Success: A Fundamental Approach to Personal Investing,” David Swensen prescribes for retail investors an asset allocation markedly different from his management of Yale Endowment. (Also see How Harvard and Yale Endowments invest for bad times.) Domestic Equity (30 percent) – Stocks in U.S.-based companies listed on U.S. exchanges. Emerging Market Equity [...]
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