Allocation for a 30 year old

Perelandra

marathonic wrote: »

By splitting my fund choices as I've done above, I can rebalance and bring my investment in the funds that have dropped up to the initial allocation - hopefully, purchasing at a low price at the same time (and definately purchasing at a lower price relative to my prior purchases).

+1 to this. Rebalancing is MUCH easier when you roll your own...

I wish I'd learned about this many years ago...

redbuzzard

I hope it's not a statement of the obvious to say that a global equity index fund will rebalance itself. EDIT - turns out to be a misleading statement of the non obvious - see below - sorry!

On the 20% drop point - the big developed markets are fairly correlated, so you may well get that (and more) across equity index funds right across those markets or in a global tracker. I don't think that is a reason not to to it though - as you are presumably adding regularly, you will be buying more units in those 'down' phases, and TBH it is part of the volatility you are buying into.

In principle I like trackers, not timing, not picking stocks, and low costs. I am 59 and still holding "too high" a proportion of equities, even allowing I plan to do drawdown - my nerve isn't up to having all that in trackers now and so some is in Invesco's Income fund for example - which has consistently done a reasonable job of keeping up, with lower volatility.

Perelandra

redbuzzard wrote: »

I hope it's not a statement of the obvious to say that a global equity index fund will rebalance itself.

Are you sure? I thought the indexes were based on market cap, so if one region fell by (say) 50%, it would make up 50% less in the index- same number of units, but each one worth less, so the total is worth less.

Rebalancing would *increase* the number of units held, so that the overall share stayed the same.

redbuzzard

Perelandra wrote: »

Are you sure? I thought the indexes were based on market cap, so if one region fell by (say) 50%, it would make up 50% less in the index- same number of units, but each one worth less, so the total is worth less.

Rebalancing would *increase* the number of units held, so that the overall share stayed the same.

Yes I've got that round my neck a bit haven't I?

It automatically gives more weight to faster growing sectors over time, which isn't what the OP was driving at - must think before posting:o

Rebalancing usually refers to asset allocation than sector. Theory aside, it 'feels' right to bank equity profits and move to bonds, at least in normal times - though in a stagnant market, where equities should have consistently better returns than bonds, it would work against you...

I'm less sure about 'rebalancing' equity markets. Although ultimately global markets should have similar returns, there's also market size (in relation to balance sheet value) to consider - as emerging markets grow towards the size of developed ones, you wouldn't necessarily want to sell them down, would you?

I may need several drinks to works this out,,,

grey_gym_sock

redbuzzard wrote: »

I may need several drinks to works this out,,,

perhaps you should be drip-feeding money into country of origin of your current drink.

i'd question the idea that "emerging" markets are necessarily growing into developed markets. some seem to be. others show no sign of it. the name "emerging" does rather beg the question.

marathonic

grey_gym_sock wrote: »

i'd question the idea that "emerging" markets are necessarily growing into developed markets. some seem to be. others show no sign of it. the name "emerging" does rather beg the question.

I'd agree with this to a certain extent. I don't believe that most of the markets will become developed markets, at least not in my lifetime. However, another question is - can you do well through investing in emerging markets without them actually making the crossover to what one would consider a developed market?

Consider, for example, one of the larger components of the emerging markets trackers - China Mobile (Vodafone figures in red):

Earnings Growth Rate
1 year: 14.8% 0.5%
3 year: 11.1% 8.3%
5 year: 12.5% 3.6%

P/E: 10.4 12.8

Dividend Yield: 3.6% 3.6%

Total Debt to Equity: 0.04 0.51


Taking the above figures in isolation, it would appear that China Mobile is set to surpass Vodafone from a performance perspective. Obviously, there's a lot more to it than that - I just plucked those figures from Motley Fool without verifying them as well.

Perelandra

redbuzzard wrote: »

Yes I've got that round my neck a bit haven't I?

It automatically gives more weight to faster growing sectors over time, which isn't what the OP was driving at - must think before posting:o

Rebalancing usually refers to asset allocation than sector. Theory aside, it 'feels' right to bank equity profits and move to bonds, at least in normal times - though in a stagnant market, where equities should have consistently better returns than bonds, it would work against you...

I'm less sure about 'rebalancing' equity markets. Although ultimately global markets should have similar returns, there's also market size (in relation to balance sheet value) to consider - as emerging markets grow towards the size of developed ones, you wouldn't necessarily want to sell them down, would you?

I may need several drinks to works this out,,,

Had me scratching my head that one did!

If the equity markets are uncorrelated, or not strongly correlated, than rebalancing between them can work (not just different asset types). As you say, though, the correlation between the different regions is relatively strong (particularly, say, the US and the UK!).

I remember when I first learned than rebalancing between bonds and equities would give you a higher expected return than you'd get from equities alone. I couldn't believe that, as it didn't make sense to me... took a LOT of time looking at the numbers to convince myself of the truth of the statement!

As for the developing country bit, even if that's true (and I can see ggs is questioning it)- not in my lifetime.

EDIT: LOL marathonic! I've just read your post (which wasn't there when I started writing this) and see that you've also used the "not in my lifetime" argument...

Linton

FatherAbraham wrote: »

You're saying that you're able to predict the relative movements of geographic markets. This is highly unlikely to be true. A good investor is not one who believes that he's better than average (because that is unlikely).

Disagree with the logic. The investors who control the movements of the worlds markets are the institutional investors who are chasing short term trading gains. It is far from clear to me that a market whose prices are determined in response to those pressures will necessarily be performing in an optimal way for long term buy and hold investors who by definition dont trade and so have little impact on prices.

You dont need to guess the relative movements of geographic markets, you invest preferentially in those markets where you judge enormous long term gains are possible. Some you will get wrong, but over the long term those you get right will more than pay for the failures.

FatherAbraham wrote: »

You're over-estimating your market-picking skills. You will probably do better to take something like 90% in a BlackRock Aquila Global Equity Index (I like 40% UK, 60% RoW), and 10% in small-caps (UK only, for cheapness -- no-one can run a global small-cap fund cheaply). That's simple, and you only need to rebalance he 90/10 split periodically -- the Global fund will rebalance automatically.

By going for index funds you are going for large companies. And on the whole the really large companies are active in a restricted number of industries (eg oil and finance) and are pretty similar across the world and operate in the same global markets. If you want geographic diversification why not chose a range of geographically diverse small company funds?

FatherAbraham wrote: »

Still, given that you will only accept up to 20% loss, then 100% equities is probably too risky for you, and you should listen to the folk mentioning bonds and real-estate.

Agreed. If the OP is really serious about being prepared to take higher short term risk then 20% drops should not be seen as unusual.

Linton

redbuzzard wrote: »

Yes I've got that round my neck a bit haven't I?

It automatically gives more weight to faster growing sectors over time, which isn't what the OP was driving at - must think before posting:o

Rebalancing usually refers to asset allocation than sector. Theory aside, it 'feels' right to bank equity profits and move to bonds, at least in normal times - though in a stagnant market, where equities should have consistently better returns than bonds, it would work against you...

...

Rebalancing operates on the assumption that each different asset will have its time in the sun and so it makes sense to harvest the excess gains from the currently high performing sectors to invest in the less well performing sectors ready for when their turn comes. However if you happen to have a sector or geography that consistently performs well, then you are losing out by removing the benefit of high compounding growth. Similarly, if you happen to have a dog sector you will continually be throwing more and more money down the drain.

grey_gym_sock

Linton wrote: »

You dont need to guess the relative movements of geographic markets, you invest preferentially in those markets where you judge enormous long term gains are possible. Some you will get wrong, but over the long term those you get right will more than pay for the failures.

well, if enough of your judgements about potential enormous long-term gains are correct, then that's a viable strategy. the question is then how confident you can be about these judgements. i wouldn't be very confident at all ...

it could be far too late before you realize you've got it wrong, given that markets can outperform for decades - making it all appear to be on track - and then underperform in subsequent decades.

predicting economies that will do especially well, and stock markets that will do especially well, are not the same thing. and the former may be easier to predict than the latter.

this is not to say that one shouldn't make these kind of judgements at all, or that i wouldn't - and if you don't make any judgements, then you're going to buy into every market bubble in proportion to the market capitaliztion - but i'd try to limit judgements to a slight "slant".